[United States Statutes at Large, Volume 124, 111th Congress, 2nd Session]
[From the U.S. Government Publishing Office, www.gpo.gov]


Public Law 111-325
111th Congress

An Act


 
To amend the Internal Revenue Code of 1986 to modify certain rules
applicable to regulated investment companies, and for other
purposes. <>

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, <>
SECTION 1. SHORT TITLE, ETC.

(a) Short Title.--This Act may be cited as the ``Regulated
Investment Company Modernization Act of 2010''.
(b) Reference.--Except as otherwise expressly provided, whenever in
this Act an amendment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference shall be
considered to be made to a section or other provision of the Internal
Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this Act is as
follows:

Sec. 1. Short title, etc.

TITLE I--CAPITAL LOSS CARRYOVERS OF REGULATED INVESTMENT COMPANIES

Sec. 101. Capital loss carryovers of regulated investment companies.

TITLE II--MODIFICATION OF GROSS INCOME AND ASSET TESTS OF REGULATED
INVESTMENT COMPANIES

Sec. 201. Savings provisions for failures of regulated investment
companies to satisfy gross income and asset tests.

TITLE III--MODIFICATION OF RULES RELATED TO DIVIDENDS AND OTHER
DISTRIBUTIONS

Sec. 301. Modification of dividend designation requirements and
allocation rules for regulated investment companies.
Sec. 302. Earnings and profits of regulated investment companies.
Sec. 303. Pass-thru of exempt-interest dividends and foreign tax credits
in fund of funds structure.
Sec. 304. Modification of rules for spillover dividends of regulated
investment companies.
Sec. 305. Return of capital distributions of regulated investment
companies.
Sec. 306. Distributions in redemption of stock of a regulated investment
company.
Sec. 307. Repeal of preferential dividend rule for publicly offered
regulated investment companies.
Sec. 308. Elective deferral of certain late-year losses of regulated
investment companies.
Sec. 309. Exception to holding period requirement for certain regularly
declared exempt-interest dividends.

TITLE IV--MODIFICATIONS RELATED TO EXCISE TAX APPLICABLE TO REGULATED
INVESTMENT COMPANIES

Sec. 401. Excise tax exemption for certain regulated investment
companies owned by tax exempt entities.

[[Page 3538]]

Sec. 402. Deferral of certain gains and losses of regulated investment
companies for excise tax purposes.
Sec. 403. Distributed amount for excise tax purposes determined on basis
of taxes paid by regulated investment company.
Sec. 404. Increase in required distribution of capital gain net income.

TITLE V--OTHER PROVISIONS

Sec. 501. Repeal of assessable penalty with respect to liability for tax
of regulated investment companies.
Sec. 502. Modification of sales load basis deferral rule for regulated
investment companies.

TITLE I--CAPITAL LOSS CARRYOVERS OF REGULATED INVESTMENT COMPANIES

SEC. 101. CAPITAL LOSS CARRYOVERS OF REGULATED INVESTMENT
COMPANIES.

(a) In General.--Subsection (a) of section 1212 <>  is amended by redesignating paragraph (3) as paragraph (4) and
by inserting after paragraph (2) the following new paragraph:
``(3) Regulated investment companies.--
``(A) In general.--If a regulated investment company
has a net capital loss for any taxable year--
``(i) paragraph (1) shall not apply to such
loss,
``(ii) the excess of the net short-term
capital loss over the net long-term capital gain
for such year shall be a short-term capital loss
arising on the first day of the next taxable year,
and
``(iii) the excess of the net long-term
capital loss over the net short-term capital gain
for such year shall be a long-term capital loss
arising on the first day of the next taxable year.
``(B) Coordination with general rule.--If
a <>  net capital loss to which
paragraph (1) applies is carried over to a taxable year
of a regulated investment company--
``(i) Losses to which this paragraph
applies.--Clauses (ii) and (iii) of subparagraph
(A) shall be applied without regard to any amount
treated as a short-term capital loss under
paragraph (1).
``(ii) Losses to which general rule applies.--
Paragraph (1) shall be applied by substituting
`net capital loss for the loss year or any taxable
year thereafter (other than a net capital loss to
which paragraph (3)(A) applies)' for `net capital
loss for the loss year or any taxable year
thereafter'.''.

(b) Conforming Amendments.--
(1) Subparagraph (C) of section 1212(a)(1) is amended to
read as follows:
``(C) a capital loss carryover to each of the 10
taxable years succeeding the loss year, but only to the
extent such loss is attributable to a foreign
expropriation loss,''.
(2) Paragraph (10) of section 1222 is amended by striking
``section 1212'' and inserting ``section 1212(a)(1)''.

(c) <>  Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to net capital

[[Page 3539]]

losses for taxable years beginning after the date of the
enactment of this Act.
(2) Coordination rules.--Subparagraph
(B) <>  of section 1212(a)(3) of the
Internal Revenue Code of 1986, as added by this section, shall
apply to taxable years beginning after the date of the enactment
of this Act.

TITLE II--MODIFICATION OF GROSS INCOME AND ASSET TESTS OF REGULATED
INVESTMENT COMPANIES

SEC. 201. SAVINGS PROVISIONS FOR FAILURES OF REGULATED INVESTMENT
COMPANIES TO SATISFY GROSS INCOME AND
ASSET TESTS.

(a) Asset Test.--Subsection (d) of section 851 <>  is amended--
(1) by striking ``A corporation which meets'' and inserting
the following:
``(1) In general.--A corporation which meets'', and
(2) by adding at the end the following new paragraph:
``(2) Special rules regarding failure to satisfy
requirements.--If paragraph (1) does not preserve a
corporation's status as a regulated investment company for any
particular quarter--
``(A) In general.--A corporation that fails to meet
the requirements of subsection (b)(3) (other than a
failure described in subparagraph (B)(i)) for such
quarter shall nevertheless be considered to have
satisfied the requirements of such subsection for such
quarter if--
``(i) following the corporation's
identification of the failure to satisfy the
requirements of such subsection for such quarter,
a description of each asset that causes the
corporation to fail to satisfy the requirements of
such subsection at the close of such quarter is
set forth in a schedule for such quarter filed in
the manner provided by the Secretary,
``(ii) the failure to meet the requirements of
such subsection for such quarter is due to
reasonable cause and not due to willful neglect,
and
``(iii)(I) <>  the
corporation disposes of the assets set forth on
the schedule specified in clause (i) within 6
months after the last day of the quarter in which
the corporation's identification of the failure to
satisfy the requirements of such subsection
occurred or such other time period prescribed by
the Secretary and in the manner prescribed by the
Secretary, or
``(II) the requirements of such subsection are
otherwise met within the time period specified in
subclause (I).
``(B) Rule for certain de minimis failures.--A
corporation that fails to meet the requirements of
subsection (b)(3) for such quarter shall nevertheless be
considered to have satisfied the requirements of such
subsection for such quarter if--

[[Page 3540]]

``(i) such failure is due to the ownership of
assets the total value of which does not exceed
the lesser of--
``(I) 1 percent of the total value
of the corporation's assets at the end
of the quarter for which such
measurement is done, or
``(II) $10,000,000, and
``(ii)(I) <>  the
corporation, following the identification of such
failure, disposes of assets in order to meet the
requirements of such subsection within 6 months
after the last day of the quarter in which the
corporation's identification of the failure to
satisfy the requirements of such subsection
occurred or such other time period prescribed by
the Secretary and in the manner prescribed by the
Secretary, or
``(II) the requirements of such subsection are
otherwise met within the time period specified in
subclause (I).
``(C) Tax.--
``(i) Tax imposed.--If subparagraph (A)
applies to a corporation for any quarter, there is
hereby imposed on such corporation a tax in an
amount equal to the greater of--
``(I) $50,000, or
``(II) the amount determined
(pursuant to regulations promulgated by
the Secretary) by multiplying the net
income generated by the assets described
in the schedule specified in
subparagraph (A)(i) for the period
specified in clause (ii) by the highest
rate of tax specified in section 11.
``(ii) Period.--For purposes of clause
(i)(II), the period described in this clause is
the period beginning on the first date that the
failure to satisfy the requirements of subsection
(b)(3) occurs as a result of the ownership of such
assets and ending on the earlier of the date on
which the corporation disposes of such assets or
the end of the first quarter when there is no
longer a failure to satisfy such subsection.
``(iii) Administrative provisions.--For
purposes of subtitle F, a tax imposed by this
subparagraph shall be treated as an excise tax
with respect to which the deficiency procedures of
such subtitle apply.''.

(b) Gross Income Test.--Section 851 <>  is
amended by adding at the end the following new subsection:

``(i) Failure To Satisfy Gross Income Test.--
``(1) Disclosure requirement.--A corporation that fails to
meet the requirement of paragraph (2) of subsection (b) for any
taxable year shall nevertheless be considered to have satisfied
the requirement of such paragraph for such taxable year if--
``(A) following the corporation's identification of
the failure to meet such requirement for such taxable
year, a description of each item of its gross income
described in such paragraph is set forth in a schedule
for such taxable year filed in the manner provided by
the Secretary, and

[[Page 3541]]

``(B) the failure to meet such requirement is due to
reasonable cause and not due to willful neglect.
``(2) Imposition of tax on failures.--If paragraph (1)
applies to a regulated investment company for any taxable year,
there is hereby imposed on such company a tax in an amount equal
to the excess of--
``(A) the gross income of such company which is not
derived from sources referred to in subsection (b)(2),
over
``(B) \1/9\ of the gross income of such company
which is derived from such sources.''.

(c) Deduction of Taxes Paid From Investment Company Taxable
Income.--Paragraph (2) of section 852(b) <>  is
amended by adding at the end the following new subparagraph:
``(G) There shall be deducted an amount equal to the
tax imposed by subsections (d)(2) and (i) of section 851
for the taxable year.''.

(d) <>  Effective Date.--The amendments made
by this section shall apply to taxable years with respect to which the
due date (determined with regard to any extensions) of the return of tax
for such taxable year is after the date of the enactment of this Act.

TITLE III--MODIFICATION OF RULES RELATED TO DIVIDENDS AND OTHER
DISTRIBUTIONS

SEC. 301. MODIFICATION OF DIVIDEND DESIGNATION REQUIREMENTS AND
ALLOCATION RULES FOR REGULATED INVESTMENT
COMPANIES.

(a) Capital Gain Dividends.--
(1) In general.--Subparagraph (C) of section 852(b)(3) is
amended to read as follows:
``(C) Definition of capital gain dividend.--For
purposes of this part--
``(i) In general.--Except as provided in
clause (ii), a capital gain dividend is any
dividend, or part thereof, which is reported by
the company as a capital gain dividend in written
statements furnished to its shareholders.
``(ii) Excess reported amounts.--If the
aggregate reported amount with respect to the
company for any taxable year exceeds the net
capital gain of the company for such taxable year,
a capital gain dividend is the excess of--
``(I) the reported capital gain
dividend amount, over
``(II) the excess reported amount
which is allocable to such reported
capital gain dividend amount.
``(iii) Allocation of excess reported
amount.--
``(I) In general.--Except as
provided in subclause (II), the excess
reported amount (if any) which is
allocable to the reported capital gain
dividend amount is that portion of the
excess reported amount which bears the
same ratio to the excess

[[Page 3542]]

reported amount as the reported capital
gain dividend amount bears to the
aggregate reported amount.
``(II) Special rule for noncalendar
year taxpayers.--In the
case <>  of any
taxable year which does not begin and
end in the same calendar year, if the
post-December reported amount equals or
exceeds the excess reported amount for
such taxable year, subclause (I) shall
be applied by substituting `post-
December reported amount' for `aggregate
reported amount' and no excess reported
amount shall be allocated to any
dividend paid on or before December 31
of such taxable year.
``(iv) Definitions.--For purposes of this
subparagraph--
``(I) Reported capital gain dividend
amount.--The term `reported capital gain
dividend amount' means the amount
reported to its shareholders under
clause (i) as a capital gain dividend.
``(II) Excess reported amount.--The
term `excess reported amount' means the
excess of the aggregate reported amount
over the net capital gain of the company
for the taxable year.
``(III) Aggregate reported amount.--
The term `aggregate reported amount'
means the aggregate amount of dividends
reported by the company under clause (i)
as capital gain dividends for the
taxable year (including capital gain
dividends paid after the close of the
taxable year described in section 855).
``(IV) Post-december reported
amount.--The term `post-December
reported amount' means the aggregate
reported amount determined by taking
into account only dividends paid after
December 31 of the taxable year.
``(v) Adjustment for determinations.--If there
is an increase in the excess described in
subparagraph (A) for the taxable year which
results from a determination (as defined in
section 860(e)), the company may, subject to the
limitations of this subparagraph, increase the
amount of capital gain dividends reported under
clause (i).
``(vi) Special rule for losses late in the
calendar year.--For special rule for certain
losses after October 31, see paragraph (8).''.
(2) Conforming amendment.--Subparagraph (B) of section
860(f)(2) is <>  amended by inserting ``or
reported (as the case may be)'' after ``designated''.

(b) Exempt-Interest Dividends.--Subparagraph (A) of section
852(b)(5) is amended to read as follows:
``(A) Definition of exempt-interest dividend.--
``(i) In general.--Except as provided in
clause (ii), an exempt-interest dividend is any
dividend or part thereof (other than a capital
gain dividend) paid by a regulated investment
company and reported by the company as an exempt-
interest dividend in written statements furnished
to its shareholders.

[[Page 3543]]

``(ii) Excess reported amounts.--If the
aggregate reported amount with respect to the
company for any taxable year exceeds the exempt
interest of the company for such taxable year, an
exempt-interest dividend is the excess of--
``(I) the reported exempt-interest
dividend amount, over
``(II) the excess reported amount
which is allocable to such reported
exempt-interest dividend amount.
``(iii) Allocation of excess reported
amount.--
``(I) In general.--Except as
provided in subclause (II), the excess
reported amount (if any) which is
allocable to the reported exempt-
interest dividend amount is that portion
of the excess reported amount which
bears the same ratio to the excess
reported amount as the reported exempt-
interest dividend amount bears to the
aggregate reported amount.
``(II) Special rule for noncalendar
year taxpayers.--In the
case <>  of any
taxable year which does not begin and
end in the same calendar year, if the
post-December reported amount equals or
exceeds the excess reported amount for
such taxable year, subclause (I) shall
be applied by substituting `post-
December reported amount' for `aggregate
reported amount' and no excess reported
amount shall be allocated to any
dividend paid on or before December 31
of such taxable year.
``(iv) Definitions.--For purposes of this
subparagraph--
``(I) Reported exempt-interest
dividend amount.--The term `reported
exempt-interest dividend amount' means
the amount reported to its shareholders
under clause (i) as an exempt-interest
dividend.
``(II) Excess reported amount.--The
term `excess reported amount' means the
excess of the aggregate reported amount
over the exempt interest of the company
for the taxable year.
``(III) Aggregate reported amount.--
The term `aggregate reported amount'
means the aggregate amount of dividends
reported by the company under clause (i)
as exempt-interest dividends for the
taxable year (including exempt-interest
dividends paid after the close of the
taxable year described in section 855).
``(IV) Post-december reported
amount.--The term `post-December
reported amount' means the aggregate
reported amount determined by taking
into account only dividends paid after
December 31 of the taxable year.
``(V) Exempt interest.--The term
`exempt interest' means, with respect to
any regulated investment company, the
excess of the amount of interest
excludable from gross income under

[[Page 3544]]

section 103(a) over the amounts
disallowed as deductions under sections
265 and 171(a)(2).''.

(c) Foreign Tax Credits.--
(1) In general.--Subsection (c) of section 853 <>  is amended--
(A) by striking ``so designated by the company in a
written notice mailed to its shareholders not later than
60 days after the close of the taxable year'' and
inserting ``so reported by the company in a written
statement furnished to such shareholder'', and
(B) by striking ``Notice'' in the heading and
inserting ``Statements''.
(2) Conforming amendments.--Subsection (d) of section 853 is
amended--
(A) by striking ``and the notice to shareholders
required by subsection (c)'' in the text thereof, and
(B) by striking ``and Notifying Shareholders'' in
the heading thereof.

(d) Credits for Tax Credit Bonds.--
(1) In general.--Subsection (c) of section 853A is amended--
(A) by striking ``so designated by the regulated
investment company in a written notice mailed to its
shareholders not later than 60 days after the close of
its taxable year'' and inserting ``so reported by the
regulated investment company in a written statement
furnished to such shareholder'', and
(B) by striking ``Notice'' in the heading and
inserting ``Statements''.
(2) Conforming amendments.--Subsection (d) of section 853A
is amended--
(A) by striking ``and the notice to shareholders
required by subsection (c)'' in the text thereof, and
(B) by striking ``and Notifying Shareholders'' in
the heading thereof.

(e) Dividend Received Deduction, etc.--
(1) In general.--Paragraph (1) of section 854(b) is
amended--
(A) by striking ``designated under this subparagraph
by the regulated investment company'' in subparagraph
(A) and inserting ``reported by the regulated investment
company as eligible for such deduction in written
statements furnished to its shareholders'',
(B) by striking ``designated by the regulated
investment company'' in subparagraph (B)(i) and
inserting ``reported by the regulated investment company
as qualified dividend income in written statements
furnished to its shareholders'',
(C) by striking ``designated'' in subparagraph
(C)(i) and inserting ``reported'', and
(D) by striking ``designated'' in subparagraph
(C)(ii) and inserting ``reported''.
(2) Conforming amendments.--Subsection (b) of section 854 is
amended by striking paragraph (2) and by redesignating
paragraphs (3), (4), and (5), as paragraphs (2), (3), and (4),
respectively.

(f) Dividends Paid to Certain Foreign Persons.--

[[Page 3545]]

(1) Interest-related dividends.--Subparagraph (C) of section
871(k)(1) is <>  amended by striking all that
precedes ``any taxable year of the company beginning'' and
inserting the following:
``(C) Interest-related dividend.--For purposes of
this paragraph--
``(i) In general.--Except as provided in
clause (ii), an interest related dividend is any
dividend, or part thereof, which is reported by
the company as an interest related dividend in
written statements furnished to its shareholders.
``(ii) Excess reported amounts.--If the
aggregate reported amount with respect to the
company for any taxable year exceeds the qualified
net interest income of the company for such
taxable year, an interest related dividend is the
excess of--
``(I) the reported interest related
dividend amount, over
``(II) the excess reported amount
which is allocable to such reported
interest related dividend amount.
``(iii) Allocation of excess reported
amount.--
``(I) In general.--Except as
provided in subclause (II), the excess
reported amount (if any) which is
allocable to the reported interest
related dividend amount is that portion
of the excess reported amount which
bears the same ratio to the excess
reported amount as the reported interest
related dividend amount bears to the
aggregate reported amount.
``(II) Special rule for noncalendar
year taxpayers.--In the
case <>  of any
taxable year which does not begin and
end in the same calendar year, if the
post-December reported amount equals or
exceeds the excess reported amount for
such taxable year, subclause (I) shall
be applied by substituting `post-
December reported amount' for `aggregate
reported amount' and no excess reported
amount shall be allocated to any
dividend paid on or before December 31
of such taxable year.
``(iv) Definitions.--For purposes of this
subparagraph--
``(I) Reported interest related
dividend amount.--The term `reported
interest related dividend amount' means
the amount reported to its shareholders
under clause (i) as an interest related
dividend.
``(II) Excess reported amount.--The
term `excess reported amount' means the
excess of the aggregate reported amount
over the qualified net interest income
of the company for the taxable year.
``(III) Aggregate reported amount.--
The term `aggregate reported amount'
means the aggregate amount of dividends
reported by the company under clause (i)
as interest related dividends for

[[Page 3546]]

the taxable year (including interest
related dividends paid after the close
of the taxable year described in section
855).
``(IV) Post-december reported
amount.--The term `post-December
reported amount' means the aggregate
reported amount determined by taking
into account only dividends paid after
December 31 of the taxable year.
``(v) Termination.--The term `interest related
dividend' shall not include any dividend with
respect to''.
(2) Short-term capital gain dividends.--Subparagraph (C) of
section 871(k)(2) <>  is amended by striking
all that precedes ``any taxable year of the company beginning''
and inserting the following:
``(C) <>  Short-term capital
gain dividend.--For purposes of this paragraph--
``(i) In general.--Except as provided in
clause (ii), the term `short-term capital gain
dividend' means any dividend, or part thereof,
which is reported by the company as a short-term
capital gain dividend in written statements
furnished to its shareholders.
``(ii) Excess reported amounts.--If the
aggregate reported amount with respect to the
company for any taxable year exceeds the qualified
short-term gain of the company for such taxable
year, the term `short-term capital gain dividend'
means the excess of--
``(I) the reported short-term
capital gain dividend amount, over
``(II) the excess reported amount
which is allocable to such reported
short-term capital gain dividend amount.
``(iii) Allocation of excess reported
amount.--
``(I) In general.--Except as
provided in subclause (II), the excess
reported amount (if any) which is
allocable to the reported short-term
capital gain dividend amount is that
portion of the excess reported amount
which bears the same ratio to the excess
reported amount as the reported short-
term capital gain dividend amount bears
to the aggregate reported amount.
``(II) Special rule for noncalendar
year taxpayers.--In the
case <>  of any
taxable year which does not begin and
end in the same calendar year, if the
post-December reported amount equals or
exceeds the excess reported amount for
such taxable year, subclause (I) shall
be applied by substituting `post-
December reported amount' for `aggregate
reported amount' and no excess reported
amount shall be allocated to any
dividend paid on or before December 31
of such taxable year.
``(iv) Definitions.--For purposes of this
subparagraph--
``(I) Reported short-term capital
gain dividend amount.--The term
`reported short-term capital gain
dividend amount' means the amount
reported to its shareholders under
clause (i) as a short-term capital gain
dividend.

[[Page 3547]]

``(II) Excess reported amount.--The
term `excess reported amount' means the
excess of the aggregate reported amount
over the qualified short-term gain of
the company for the taxable year.
``(III) Aggregate reported amount.--
The term `aggregate reported amount'
means the aggregate amount of dividends
reported by the company under clause (i)
as short-term capital gain dividends for
the taxable year (including short-term
capital gain dividends paid after the
close of the taxable year described in
section 855).
``(IV) Post-december reported
amount.--The term `post-December
reported amount' means the aggregate
reported amount determined by taking
into account only dividends paid after
December 31 of the taxable year.
``(v) Termination.--The term `short-term
capital gain dividend' shall not include any
dividend with respect to''.

(g) Conforming Amendments.--Section 855 <>  is
amended--
(1) by striking subsection (c) and redesignating subsection
(d) as subsection (c), and
(2) by striking ``, (c) and (d)'' in subsection (a) and
inserting ``and (c)''.

(h) <>  Effective Date.--The amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.

(i) Application of JGTRRA Sunset.--Section 303 of the Jobs and
Growth Tax Relief Reconciliation Act of 2003 <>
shall apply to the amendments made by subparagraphs (B) and (D) of
subsection (e)(1) to the same extent and in the same manner as section
303 of such Act applies to the amendments made by section 302 of such
Act.
SEC. 302. EARNINGS AND PROFITS OF REGULATED INVESTMENT COMPANIES.

(a) In General.--Paragraph (1) of section 852(c) is amended to read
as follows:
``(1) Treatment of nondeductible items.--
``(A) Net capital loss.--If a regulated investment
company has a net capital loss for any taxable year--
``(i) such net capital loss shall not be taken
into account for purposes of determining the
company's earnings and profits, and
``(ii) any capital loss arising on the first
day of the next taxable year by reason of clause
(ii) or (iii) of section 1212(a)(3)(A) shall be
treated as so arising for purposes of determining
earnings and profits.
``(B) Other nondeductible items.--
``(i) In general.--The earnings and profits of
a regulated investment company for any taxable
year (but not its accumulated earnings and
profits) shall not be reduced by any amount which
is not allowable as a deduction (other than by
reason of section 265 or 171(a)(2)) in computing
its taxable income for such taxable year.

[[Page 3548]]

``(ii) Coordination with treatment of net
capital losses.--Clause (i) shall not apply to a
net capital loss to which subparagraph (A)
applies.''.

(b) Conforming Amendments.--
(1) Subsection (c) of section 852 <>  is
amended by adding at the end the following new paragraph:
``(4) Regulated investment company.--For purposes of this
subsection, the term `regulated investment company' includes a
domestic corporation which is a regulated investment company
determined without regard to the requirements of subsection
(a).''.
(2) Paragraphs (1)(A) and (2)(A) of section 871(k) are each
amended by inserting ``which meets the requirements of section
852(a) for the taxable year with respect to which the dividend
is paid'' before the period at the end.

(c) <>  Effective Date.--The amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
SEC. 303. PASS-THRU OF EXEMPT-INTEREST DIVIDENDS AND FOREIGN TAX
CREDITS IN FUND OF FUNDS STRUCTURE.

(a) In General.--Section 852 is amended by adding at the end the
following new subsection:
``(g) Special Rules for Fund of Funds.--
``(1) In general.--In the case of a qualified fund of
funds--
``(A) such fund shall be qualified to pay exempt-
interest dividends to its shareholders without regard to
whether such fund satisfies the requirements of the
first sentence of subsection (b)(5), and
``(B) such fund may elect the application of section
853 (relating to foreign tax credit allowed to
shareholders) without regard to the requirement of
subsection (a)(1) thereof.
``(2) Qualified fund of funds.--For purposes of this
subsection, the term `qualified fund of funds' means a regulated
investment company if (at the close of each quarter of the
taxable year) at least 50 percent of the value of its total
assets is represented by interests in other regulated investment
companies.''.

(b) <>  Effective Date.--The amendment made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
SEC. 304. MODIFICATION OF RULES FOR SPILLOVER DIVIDENDS OF
REGULATED INVESTMENT COMPANIES.

(a) Deadline for Declaration of Dividend.--Paragraph (1) of section
855(a) is amended to read as follows:
``(1) declares a dividend before the later of--
``(A) the 15th day of the 9th month following the
close of the taxable year, or
``(B) in the case of an extension of time for filing
the company's return for the taxable year, the due date
for filing such return taking into account such
extension, and''.

(b) Deadline for Distribution of Dividend.--Paragraph (2) of section
855(a) is amended by striking ``the first regular dividend payment'' and
inserting ``the first dividend payment of the same type of dividend''.

[[Page 3549]]

(c) Short-term Capital Gain.--Subsection (a) <>
of section 855 is amended by adding at the end the following: ``For
purposes of paragraph (2), a dividend attributable to any short-term
capital gain with respect to which a notice is required under the
Investment Company Act of 1940 shall be treated as the same type of
dividend as a capital gain dividend.''.

(d) <>  Effective Date.--The amendments made
by this section shall apply to distributions in taxable years beginning
after the date of the enactment of this Act.
SEC. 305. RETURN OF CAPITAL DISTRIBUTIONS OF REGULATED INVESTMENT
COMPANIES.

(a) In General.--Subsection (b) of section 316 is amended by adding
at the end the following new paragraph:
``(4) Certain distributions by regulated investment
companies in excess of earnings and profits.--In the case of a
regulated investment company that has a taxable year other than
a calendar year, if the distributions by the company with
respect to any class of stock of such company for the taxable
year exceed the company's current and accumulated earnings and
profits which may be used for the payment of dividends on such
class of stock, the company's current earnings and profits
shall, for purposes of subsection (a), be allocated first to
distributions with respect to such class of stock made during
the portion of the taxable year which precedes January 1.''.

(b) <>  Effective Date.--The amendment made
by this section shall apply to distributions made in taxable years
beginning after the date of the enactment of this Act.
SEC. 306. DISTRIBUTIONS IN REDEMPTION OF STOCK OF A REGULATED
INVESTMENT COMPANY.

(a) Redemptions Treated as Exchanges.--
(1) In general.--Subsection (b) of section 302 is amended by
redesignating paragraph (5) as paragraph (6) and by inserting
after paragraph (4) the following new paragraph:
``(5) Redemptions by certain regulated investment
companies.--Except to the extent provided in regulations
prescribed by the Secretary, subsection (a) shall apply to any
distribution in redemption of stock of a publicly offered
regulated investment company (within the meaning of section
67(c)(2)(B)) if--
``(A) such redemption is upon the demand of the
stockholder, and
``(B) such company issues only stock which is
redeemable upon the demand of the stockholder.''.
(2) Conforming amendment.--Subsection (a) of section 302 is
amended by striking ``or (4)'' and inserting ``(4), or (5)''.

(b) <>  Losses on Redemptions Not Disallowed
for Fund-of-funds Regulated Investment Companies.--Paragraph (3) of
section 267(f) is amended by adding at the end the following new
subparagraph:
``(D) Redemptions by fund-of-funds regulated
investment companies.--Except to the extent provided in
regulations prescribed by the Secretary, subsection
(a)(1) shall not apply to any distribution in redemption
of stock of a regulated investment company if--

[[Page 3550]]

``(i) such company issues only stock which is
redeemable upon the demand of the stockholder, and
``(ii) such redemption is upon the demand of
another regulated investment company.''.

(c) <>  Effective Date.--The amendments made
by this section shall apply to distributions after the date of the
enactment of this Act.
SEC. 307. REPEAL OF PREFERENTIAL DIVIDEND RULE FOR PUBLICLY
OFFERED REGULATED INVESTMENT COMPANIES.

(a) In General.--Subsection (c) of section 562 is amended by
striking ``The amount'' and inserting ``Except in the case of a publicly
offered regulated investment company (as defined in section
67(c)(2)(B)), the amount''.
(b) Conforming Amendment.--Section 562(c) is amended by inserting
``(other than a publicly offered regulated investment company (as so
defined))'' after ``regulated investment company'' in the second
sentence thereof.
(c) <>  Effective Date.--The amendments made
by this section shall apply to distributions in taxable years beginning
after the date of the enactment of this Act.
SEC. 308. ELECTIVE DEFERRAL OF CERTAIN LATE-YEAR LOSSES OF
REGULATED INVESTMENT COMPANIES.

(a) In General.--Paragraph (8) of section 852(b) is amended to read
as follows:
``(8) Elective deferral of certain late-year losses.--
``(A) In general.--Except as otherwise provided by
the Secretary, a regulated investment company may elect
for any taxable year to treat any portion of any
qualified late-year loss for such taxable year as
arising on the first day of the following taxable year
for purposes of this title.
``(B) Qualified late-year loss.--For purposes of
this paragraph, the term `qualified late-year loss'
means--
``(i) any post-October capital loss, and
``(ii) any late-year ordinary loss.
``(C) Post-october capital loss.--For purposes of
this paragraph, the term `post-October capital loss'
means the greatest of--
``(i) the net capital loss attributable to the
portion of the taxable year after October 31,
``(ii) the net long-term capital loss
attributable to such portion of the taxable year,
or
``(iii) the net short-term capital loss
attributable to such portion of the taxable year.
``(D) Late-year ordinary loss.--For purposes of this
paragraph, the term `late-year ordinary loss' means the
excess (if any) of--
``(i) the sum of--
``(I) the specified losses (as
defined in section 4982(e)(5)(B)(ii))
attributable to the portion of the
taxable year after October 31, plus
``(II) the ordinary losses not
described in subclause (I) attributable
to the portion of the taxable year after
December 31, over
``(ii) the sum of--

[[Page 3551]]

``(I) the specified gains (as
defined in section 4982(e)(5)(B)(i))
attributable to the portion of the
taxable year after October 31, plus
``(II) the ordinary income not
described in subclause (I) attributable
to the portion of the taxable year after
December 31.
``(E) Special rule for companies determining
required capital gain distributions on taxable year
basis.--In the case of a company to which an election
under section 4982(e)(4) applies--
``(i) if such company's taxable year ends with
the month of November, the amount of qualified
late-year losses (if any) shall be computed
without regard to any income, gain, or loss
described in subparagraphs (C), (D)(i)(I), and
(D)(ii)(I), and
``(ii) if such company's taxable year ends
with the month of December, subparagraph (A) shall
not apply.''.

(b) Conforming Amendments.--
(1) Subsection (b) of section 852 <>  is
amended by striking paragraph (10).
(2) Paragraph (2) of section 852(c) is amended by striking
the first sentence and inserting the following: ``For purposes
of applying this chapter to distributions made by a regulated
investment company with respect to any calendar year, the
earnings and profits of such company shall be determined without
regard to any net capital loss attributable to the portion of
the taxable year after October 31 and without regard to any
late-year ordinary loss (as defined in subsection (b)(8)(D)).''
(3) Subparagraph (D) of section 871(k)(2) is amended by
striking the last two sentences and inserting the following:
``For purposes of this subparagraph, the net short-term capital
gain of the regulated investment company shall be computed by
treating any short-term capital gain dividend includible in
gross income with respect to stock of another regulated
investment company as a short-term capital gain.''.

(c) <>  Effective Date.--The amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
SEC. 309. EXCEPTION TO HOLDING PERIOD REQUIREMENT FOR CERTAIN
REGULARLY DECLARED EXEMPT-INTEREST
DIVIDENDS.

(a) In General.--Subparagraph (E) of section 852(b)(4) is amended by
striking all that precedes ``In the case of a regulated investment
company'' and inserting the following:
``(E) Exception to holding period requirement for
certain regularly declared exempt-interest dividends.--
``(i) Daily dividend companies.--Except as
otherwise provided by regulations, subparagraph
(B) shall not apply with respect to a regular
dividend paid by a regulated investment company
which declares exempt-interest dividends on a
daily basis in an amount equal to at least 90
percent of its net tax-exempt interest and
distributes such dividends on a monthly or more
frequent basis.

[[Page 3552]]

``(ii) Authority to shorten required holding
period with respect to other companies.--''.

(b) Conforming Amendment.--Clause (ii) of section 852(b)(4)(E), as
amended by subsection (a), <>  is amended by
inserting ``(other than a company described in clause (i))'' after
``regulated investment company''.

(c) <>  Effective Date.--The amendments made
by this section shall apply to losses incurred on shares of stock for
which the taxpayer's holding period begins after the date of the
enactment of this Act.

TITLE IV--MODIFICATIONS RELATED TO EXCISE TAX APPLICABLE TO REGULATED
INVESTMENT COMPANIES

SEC. 401. EXCISE TAX EXEMPTION FOR CERTAIN REGULATED INVESTMENT
COMPANIES OWNED BY TAX EXEMPT ENTITIES.

(a) In General.--Subsection (f) of section 4982 is amended--
(1) by striking ``either'' in the matter preceding paragraph
(1),
(2) by striking ``or'' at the end of paragraph (1),
(3) by striking the period at the end of paragraph (2), and
(4) by inserting after paragraph (2) the following new
paragraphs:
``(3) any other tax-exempt entity whose ownership of
beneficial interests in the company would not preclude the
application of section 817(h)(4), or
``(4) another regulated investment company described in this
subsection.''.

(b) <>  Effective Date.--The amendment made
by this section shall apply to calendar years beginning after the date
of the enactment of this Act.
SEC. 402. DEFERRAL OF CERTAIN GAINS AND LOSSES OF REGULATED
INVESTMENT COMPANIES FOR EXCISE TAX
PURPOSES.

(a) In General.--Subsection (e) of section 4982 is amended by
striking paragraphs (5) and (6) and inserting the following new
paragraphs:
``(5) Treatment of specified gains and losses after october
31 of calendar year.--
``(A) In general.--Any specified gain or specified
loss which (but for this paragraph) would be properly
taken into account for the portion of the calendar year
after October 31 shall be treated as arising on January
1 of the following calendar year.
``(B) Specified gains and losses.--For purposes of
this paragraph--
``(i) Specified gain.--The term `specified
gain' means ordinary gain from the sale, exchange,
or other disposition of property (including the
termination of a position with respect to such
property). Such term shall include any foreign
currency gain attributable to a section 988
transaction (within the meaning of

[[Page 3553]]

section 988) and any amount includible in gross
income under section 1296(a)(1).
``(ii) Specified loss.--The term `specified
loss' means ordinary loss from the sale, exchange,
or other disposition of property (including the
termination of a position with respect to such
property). Such term shall include any foreign
currency loss attributable to a section 988
transaction (within the meaning of section 988)
and any amount allowable as a deduction under
section 1296(a)(2).
``(C) Special rule for companies electing to use the
taxable year.--In the case of any company making an
election under paragraph (4), subparagraph (A) shall be
applied by substituting the last day of the company's
taxable year for October 31.
``(6) Treatment of mark to market gain.--
``(A) In general.--For purposes of determining a
regulated investment company's ordinary income,
notwithstanding paragraph (1)(C), each specified mark to
market provision shall be applied as if such company's
taxable year ended on October 31. In the case of a
company making an election under paragraph (4), the
preceding sentence shall be applied by substituting the
last day of the company's taxable year for October 31.
``(B) Specified mark to market provision.--For
purposes of this paragraph, the term `specified mark to
market provision' means sections 1256 and 1296 and any
other provision of this title (or regulations
thereunder) which treats property as disposed of on the
last day of the taxable year.
``(7) Elective deferral of certain ordinary losses.--Except
as provided in regulations prescribed by the Secretary, in the
case of a regulated investment company which has a taxable year
other than the calendar year--
``(A) such company may elect to determine its
ordinary income for the calendar year without regard to
any net ordinary loss (determined without regard to
specified gains and losses taken into account under
paragraph (5)) which is attributable to the portion of
such calendar year which is after the beginning of the
taxable year which begins in such calendar year, and
``(B) any amount of net ordinary loss not taken into
account for a calendar year by reason of subparagraph
(A) shall be treated as arising on the 1st day of the
following calendar year.''.

(b) <>  Effective Date.--The amendments
made by this section shall apply to calendar years beginning after the
date of the enactment of this Act.
SEC. 403. DISTRIBUTED AMOUNT FOR EXCISE TAX PURPOSES DETERMINED ON
BASIS OF TAXES PAID BY REGULATED
INVESTMENT COMPANY.

(a) In General.--Subsection (c) of section 4982 <>  is amended by adding at the end the following new paragraph:
``(4) Special rule for estimated tax payments.--

[[Page 3554]]

``(A) In general.--In the case of a regulated
investment company which elects the application of this
paragraph for any calendar year--
``(i) the distributed amount with respect to
such company for such calendar year shall be
increased by the amount on which qualified
estimated tax payments are made by such company
during such calendar year, and
``(ii) the distributed amount with respect to
such company for the following calendar year shall
be reduced by the amount of such increase.
``(B) Qualified estimated tax payments.--For
purposes of this paragraph, the term `qualified
estimated tax payments' means, with respect to any
calendar year, payments of estimated tax of a tax
described in paragraph (1)(B) for any taxable year which
begins (but does not end) in such calendar year.''.

(b) <>  Effective Date.--The amendment made
by this section shall apply to calendar years beginning after the date
of the enactment of this Act.
SEC. 404. INCREASE IN REQUIRED DISTRIBUTION OF CAPITAL GAIN NET
INCOME.

(a) In General.--Subparagraph (B) of section 4982(b)(1) <>  is amended by striking ``98 percent'' and inserting ``98.2
percent''.

(b) <>  Effective Date.--The amendments
made by this section shall apply to calendar years beginning after the
date of the enactment of this Act.

TITLE V--OTHER PROVISIONS

SEC. 501. REPEAL OF ASSESSABLE PENALTY WITH RESPECT TO LIABILITY
FOR TAX OF REGULATED INVESTMENT COMPANIES.

(a) In General.--Part I of subchapter B of chapter 68 is amended by
striking section 6697 (and by striking the item relating to such section
in the table of sections of such part).
(b) Conforming Amendment.--Section 860 is amended by striking
subsection (j).
(c) <>  Effective Date.--The amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
SEC. 502. MODIFICATION OF SALES LOAD BASIS DEFERRAL RULE FOR
REGULATED INVESTMENT COMPANIES.

(a) In General.--Subparagraph (C) of section 852(f)(1) is amended by
striking ``subsequently acquires'' and inserting ``acquires, during the
period beginning on the date of the disposition referred to in
subparagraph (B) and ending on January 31 of the calendar year following
the calendar year that includes the date of such disposition,''.

[[Page 3555]]

(b) <>  Effective Date.--The amendment made
by this section shall apply to charges incurred in taxable years
beginning after the date of the enactment of this Act.

Approved December 22, 2010.

LEGISLATIVE HISTORY--H.R. 4337:
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CONGRESSIONAL RECORD, Vol. 156 (2010):
Sept. 28, considered and passed House.
Dec. 8, considered and passed Senate, amended.
Dec. 15, House concurred in Senate amendment.