The U.S. Treasury Department and IRS today released for publication in the Federal Register final regulations (T.D. 9851) concerning the income test used to determine whether a corporation may qualify as a regulated investment company (RIC) for federal income tax purposes.
The final regulations [PDF 236 KB] provide guidance to corporations that intend to qualify as RICs, and adopt regulations proposed in 1960 as well as finalize—with certain clarifications or changes—a notice of proposed rulemaking that was proposed in 2016. The final regulations are generally effective on the date of publication in the Federal Register, scheduled for March 19, 2019.
The preamble to the final regulations explains the following clarifications or changes have been adopted.
…the Non-qualifying Income Proposal creates an unintended effect on the RIC income test of section 851(b)(2). For example, certain types of income, such as interest and dividends, would be considered qualifying income if earned directly by a RIC. These types of income, however, would not be qualifying income when received by a controlled foreign corporation or PFIC and included in a RIC’s income under section 951(a)(1) or 1293(a), unless there is a corresponding distribution.
In the 2016 notice of proposed rulemaking, the Treasury Department and IRS also requested comments as to whether Rev. Rul. 2006-1 and Rev. Rul. 2006-31 should be withdrawn. Commenters recommended that these rulings should not be withdrawn “…because RICs rely on those rulings to invest with confidence in certain derivatives on stocks and securities.” After consideration of the comments, the Treasury Department and IRS decided not to withdraw these revenue rulings “at this time.”
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.KPMG International Cooperative (“KPMG International”) is a Swiss entity.
Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.