Schedule J—Tax Computation — 2025 Inst 1120-RIC (PDF)

Line 1a—Tax on Investment Company Taxable Income RICs figure their tax by multiplying investment company taxable income by 21%. Enter this amount on line 1a.

Instructions for Form 1120-RIC (2025) 15

For a RIC that is a personal holding company (PHC). A RIC that is not in compliance with Regulations section 1.852-6 is a PHC and is taxed at a flat rate of 21% on its investment company taxable income.

Line 1b—Capital Gains Tax Enter the capital gains tax from line 4, Part II.

Line 1c—Tax Imposed Under Section 851(d)(2) Enter the tax imposed under section 851(d)(2) relating to failures to meet certain requirements of the asset test of section 851(b)(3). See the instructions on page 2 for details on the requirements of the asset test. Also, see section 851(d)(2).

Attach a statement showing the computation of the tax and an explanation of why the RIC failed to meet the requirements of the asset test, and a description of why such failure is due to reasonable cause and not to willful neglect.

Line 1d—Tax Imposed Under Section 851(i) Enter the tax imposed under section 851(i) relating to failures to meet certain requirements of the gross income test.

See the instructions on page 2 for details on the requirements of the gross income test. Also, see section 851(i).

Attach a statement showing the computation of the tax and an explanation of why the RIC failed to meet the requirements of the gross income test, and a description of why such failure is due to reasonable cause and not to willful neglect.

Line 1e—Section 1291 Tax from Form 8621 If the RIC was a shareholder in a passive foreign investment company (PFIC), and received an excess distribution or disposed of its investment in the PFIC during the year, enter the increase in taxes due under section 1291(c)(2) from Form 8621 on line 1e.

Do not include on line 1e any interest due under section 1291(c)(3). Instead, include the amount owed on Schedule J, line 6z, Other.

For more information on reporting the deferred tax and interest, see the Instructions for Form 8621.

Line 1f—Additional Tax Under Section 197(f) A RIC that elects to recognize gain and pay tax on the sale of a section 197 intangible under the related person exception to the anti-churning rules should include any additional tax due in the total for line 1f.

Line 1g—Amount From Form 4255, Part I, Line 3, Column (q) Enter on line 1g the tax that can be reduced by nonrefundable credits from Form 4255, Certain Credit Recapture, Excessive Payments, and Penalties, if applicable. See the Instructions for Form 4255.

Line 1z— Other Chapter 1 Tax Enter on line 1z the other chapter 1 tax that can be offset or reduced by nonrefundable credits such as the foreign tax credit or general business credit.

Line 3a—Foreign Tax Credit To find out when a RIC can claim the credit for payment of income tax to a foreign country or U.S. territory, see Form 1118, Foreign Tax Credit—Corporations. The RIC may not claim this credit if an election under section 853 was made for the tax year. See Election under section 853(a) under Schedule K, item 10.

Line 3b—Credit from Form 8834 Enter any qualified electric vehicle passive activity credits from prior years allowed for the current tax year from Form 8834, Qualified Electric Vehicle Credit, line 7, and attach Form 8834 to this return.

Line 3c—General Business Credit Use Form 3800 to claim any general business credits. Enter on line 3c the allowable credit from Form 3800, Part II, line 38. See the Instructions for Form 3800.

Line 3d—Other Credits

Minimum tax credit. Enter any allowable credit from Form 8827, Credit for Prior Year Minimum Tax—Corporations. Complete and attach Form 8827.

Bond credits from Form 8912. Enter the allowable credits from Form 8912, Credit to Holders of Tax Credit Bonds, line 12. However, if the RIC elects to pass through credits from tax credit bonds to its shareholders, it cannot take the credit. See Item 11 under question 5, later, for more information.

Line 6a—Personal Holding Company Tax A RIC is taxed as a personal holding company under section 542 if:

At least 60% of its adjusted ordinary gross income for the tax year is personal holding company income, and
At any time during the last half of the tax year more than 50% in value of its outstanding stock is owned, directly or indirectly, by five or fewer individuals.

See the Instructions for Schedule PH (Form 1120), U.S. Personal Holding Company (PHC) Tax, for definitions and details on how to figure the tax. Enter on line 6a the tax from Schedule PH (Form 1120), Part III, line 26.

Line 6b—Interest on Deferred Tax Liability for Installment Obligations Under Section 453A(c) Enter any interest on deferred tax attributable to certain nondealer installment obligations (section 453A(c)).

Line 6c—Interest on Deferred Tax Liability for Installment Obligations Under Section 453(l)(3) Enter any interest on deferred tax attributable to certain dealer installment obligations under section 453(I).

16 Instructions for Form 1120-RIC (2025)

Line 6d—Amount from Form 4255, Part I, Line 3, Column (r) Enter on line 6d the tax that cannot be reduced by nonrefundable credits from Form 4255, Part I, line 3, column (r), if applicable. See the Instructions for Form 4255.

Line 6z—Other Include on line 6z additional taxes and interest such as the following. Attach a statement showing the computation of each item included in the total for line 6z and identify the applicable Code section and the type of tax or interest.

Recapture of Indian employment credit. Generally, if an employer terminates the employment of a qualified employee less than 1 year after the date of initial employment, any Indian employment credit allowed for a prior tax year because of wages paid or incurred to that employee must be recaptured. For details, see Form 8845 and section 45A.
Recapture of new markets credit (see Form 8874 and Form 8874-B).
Recapture of employer-provided childcare facilities and services credit (see Form 8882).
Interest due on deferred gain recognition (section 1260(b)).
Interest due under section 1291(c)(3).

Recapture of low-income housing credit. If the RIC disposed of property (or there was a reduction in the qualified basis of the property) for which it took the low-income housing credit, and the RIC did not follow the procedures that would have prevented recapture of the credit, it may owe a tax. See Form 8611, Recapture of Low-Income Housing Credit, and section 42(j)(1) for more information.

Built-in Gains Tax

If, on or after January 2, 2002, property of a C corporation becomes property of a RIC by either (a) the qualification of the C corporation as a RIC; or (b) the transfer of such property to a RIC, then the RIC will be subject to the built-in gains tax under section 1374 unless the C corporation elects deemed sale treatment on the transferred property. Generally, if the C corporation does not make this election for tax years beginning in 2020, the RIC must pay tax on the net recognized built-in gain during the 5-year period beginning on its first day as a RIC or the day it acquired the property. Special rules apply to conversion transactions on or after June 7, 2019, as well as conversion transactions with a related section 355 distribution. See Regulations section 1.337(d)-7 for details.

A RIC’s recognition period for conversion transactions that occur on or after August 8, 2016, and on or before February 17, 2017, is the 10-year period beginning on its first day as a RIC or the day the RIC acquired the property, as described in Temporary Regulations section 1.337(d)-7T(b)(2)(iii), as in effect on August 8, 2016. However, under the provisions of final Regulations section 1.337(d)-7(g)(2)(iii), a RIC may choose to apply a 5-year recognition period to conversion transactions that occur on or after August 8, 2016, and on or before February 17,

See final Regulations section 1.337(d)-7 and Temporary Regulations section 1.337(d)-7T for details.

Recognized built-in gains and losses generally retain their character (for example, ordinary income or capital gain) and are treated the same as other gains or losses of the RIC. The RIC’s tax on net recognized built-in gain is treated as a loss sustained by the RIC after October 31 of the same tax year (see the instructions for line i of the Built-in Gains Tax Worksheet, later). See Regulations section 1.337(d)-7 for details.

Different rules apply to elections to be a RIC and to transfers of property in a carryover basis transaction that occurred prior to January 2, 2002. For RIC elections and property transfers before this date, the C corporation is subject to deemed sale treatment on the transferred property unless the RIC elects section 1374 treatment. See Regulations section 1.337(d)-6 for information on how to make the election and figure the tax for RIC elections and property transfers before this date. The RIC may also generally rely on Regulations section 1.337(d)-5 for RIC elections and property transfers that occurred before January 2, 2002.

Built-in Gains Tax Worksheet Instructions

Complete the worksheet to figure the built-in gains tax under Regulations section 1.337(d)-6 or 1.337(d)-7.

Line a. Enter the amount that would be the taxable income of the RIC for the tax year if only recognized built-in gain, recognized built-in loss, and recognized built-in gain carryover were taken into account.

Line b. Add the amounts shown on:

Form 1120-RIC, page 1, line 24;
Form 1120-RIC, Part II, line 1; and
Form 2438, line 11. For this purpose, refigure line 24 on page 1 without regard to any election under section 852(b)(2)(F). Enter the result on line b of the Built-in Gains Tax Worksheet.

Line c. The RIC’s net unrealized built-in gain is the amount, if any, by which the FMV of the assets of the RIC at the beginning of its first RIC year (or as of the date the assets were acquired, for any asset with a basis determined by reference to its basis (or the basis of any other property) in the hands of a C corporation) exceeds the aggregate adjusted basis of such assets at that time.

Enter on line c the RIC’s net unrealized built-in gain reduced by the net recognized built-in gain for prior years. See sections 1374(c)(2) and (d)(1).

Line d. If the amount on line b exceeds the amount on line a, the excess is treated as a recognized built-in gain in the succeeding tax year.

Line e. Enter the section 1374(b)(2) deduction. Generally, this is any net operating loss or capital loss carryforward (to the extent of net capital gain included in recognized built-in gain for the tax year) arising in tax years for which the RIC was a C corporation. A net loss carryforward must be used to reduce recognized built-in gain for the tax year to the greatest extent possible before it can be used to reduce the RIC’s taxable income.

Instructions for Form 1120-RIC (2025) 17

Built-in Gains Tax Worksheet (keep for your records)

a. Excess of recognized built-in gains over recognized built-in losses . . . . . . . . . . . . . . . . . . . . . . a.

b. Taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b.

c. Enter the net unrealized built-in gain reduced by any net recognized built-in gain for all prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c.

d. Net recognized built-in gain (enter the smallest of line a, b, or c) . . . . . . . . . . . . . . . . . . . . . . . d.

e. Section 1374(b)(2) deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e.

f. Subtract line e from line d. If zero, enter -0- here and on line i . . . . . . . . . . . . . . . . . . . . . . . . . . f.

g. Enter 21% of line f . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . g.

h. Business credit and minimum tax credit carryforwards under section 1374(b)(3) from C corporation (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . h.

i. Tax. Subtract line h from line g (if zero or less, enter -0-). Enter here and include on line 6z of Schedule J (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i.

Line h. Credit carryforwards arising in tax years for which the RIC was a C corporation must be used to reduce the tax on net built-in gain for the tax year to the greatest extent possible before the credit carryforwards can be used to reduce the tax on the RIC’s taxable income.

Line i. The RIC’s tax on the net recognized built-in gain is treated as a loss sustained by the RIC after October 31 of the same tax year. Deduct the tax attributable to:

the RIC entitled to vote, or (b) the total value of all classes of stock of the RIC.

The constructive ownership rules of section 318 apply in determining if a RIC is foreign owned. See section 6038A(c)(5) and the related regulations.

Enter on line 5b(1) the percentage owned by the foreign person specified in question 5. For line 5b(2), enter the name of the owner’s country.

If there is more than one 25%-or-more foreign owner, complete lines 5b(1) and 5b(2) for the foreign person with the highest percentage of ownership.

Ordinary gain as a deduction for taxes on Form 1120-RIC, line 12;
Short-term capital gain as a short-term capital loss in Part I of Form 8949; and
Long-term capital gain as a long-term capital loss in Part II of Form 8949.

Foreign person. The term “foreign person” includes:

Line 8a—Total before Deferred Tax Add lines 5 and 7. Enter the total on line 8a. Include any deferred tax on the termination of a section 1294 election applicable to shareholders in a qualified electing fund in the amount entered on line 8a. See the Instructions for Form 8621, Part VI.

Line 8b—Deferred Tax on Undistributed Earnings of a QEF Enter on line 8b the deferred tax on the RIC’s share of the undistributed earnings of a qualified electing fund. See the Instructions for Form 8621, Part III.