Other Requirements

In addition, the RIC must meet the (1) income test, (2) asset test, (3) distribution requirements, and (4) earnings and profits explained below.

The income test. At least 90% of its gross income must be derived from the following items:

• Dividends;

• Interest (including tax-exempt interest income);

• Payments with respect to securities loans (as defined in section 512(a)(5));

• A single issuer (excluding government securities or securities of other RICs);

4. De minimis failures. A RIC that fails to meet the requirements of section 851(b)(3) for a quarter may be considered to have satisfied the requirements of this test if:

• One or more qualified publicly traded partnerships as defined in section 851(h).

See sections 851(b)(3) and 851(c) for further details. 3. A RIC that fails to meet the requirements of section 851(b)(3) for a quarter may be considered to have satisfied the requirements of this test if:

• After the RIC identifies the failure, the RIC provides a statement with a description of each asset that causes the RIC to fail to satisfy the requirements at the close of the quarter;

• The failure is due to reasonable cause and not due to willful neglect; and

• The RIC disposes of the assets set forth on the statement (or the requirements of section 851(b)(3) are otherwise met) within 6 months after the last day of the quarter in which the RIC identified the failure.

• Gains from the sale or other disposition of stock or securities (as defined in ICA section 2(a)(36)) or foreign currencies;

• Other income (including gains from options, futures, or forward contracts) derived from the RIC’s business of investing in such stock, securities, or currencies; and

• Net income derived from an interest in a qualified publicly traded partnership (as defined in section 851(h)).

Income from a partnership (other than a qualified publicly traded partnership) or trust qualifies under the 90% test to the extent the RIC’s distributive share of such income is from items described above as realized by the partnership or trust.

Income that a RIC receives in the normal course of business as a reimbursement from its investment advisor is qualifying income for purposes of the 90% test if the reimbursement is includible in the RIC’s gross income.

Distribution requirements. The RIC’s deduction for dividends paid for the tax year (as defined in section 561, but without regard to capital gain dividends) must equal or exceed the sum of:

• Such failure is due to ownership of assets, the total value of which does not exceed the lesser of:

a. 1% of the total value of the RIC’s assets at the end of the quarter for which the measurement is done, or

b. $10 million; and

• The RIC disposes of the assets following the identification of the failure (or the requirements of section 851(b)(3) are otherwise met) within 6 months after the last day of the quarter in which the RIC identified the failure.

Note: For special rules regarding failure to meet the requirements of the income and asset tests, see sections 851(d)(2) and 851(i).

A RIC that fails to meet the requirements of section 851(b)(2) may still be considered to have satisfied the requirements of this test if:

• Following the RIC’s identification of the failure, a description of each item of its gross income described in section 851(b)(2) is set forth in a statement for the tax year; and

• 90% of the excess of the RIC’s interest income excludable from gross income under section 103(a) over its deductions disallowed under sections 265 and 171(a) (2).

• 90% of its investment company taxable income determined without regard to section 852(b)(2)(D); and

• Failure to meet the requirements of this test is due to reasonable cause and not due to willful neglect.

The asset test.

2 Instructions for Form 1120-RIC (2025)

A RIC that does not satisfy the distribution requirements will be subject to taxation as a C corporation.

Earnings and profits. The RIC must either have been a RIC for all tax years ending after November 7, 1983, or, at the end of the current tax year, have had no accumulated earnings and profits from any non-RIC tax year.

For this purpose, current year distributions are treated as made from the earliest earnings and profits accumulated in any non-RIC tax year. See section 852(c) (3). Also, see section 852(e) for procedures that may allow the RIC to avoid disqualification in certain circumstances if the RIC did not meet this requirement.