SEC. 6. DEFERRAL ADJUSTMENT

AND BIFURCATION ADJUSTMENT

The adjustment (a deferral adjustment) required by § 852(b)(3)(C) and § 1.852– 11(e) for a RIC with post-October capital losses or by § 857(b)(3)(C) for a fiscal year REIT with post-December capital losses must be made before calculating the limitations on the various classes of capital gain dividends for the RIC’s or REIT’s taxable year. The deferral adjustment is disregarded in determining the group in which any deferred gain or loss belongs, however, if the group depends on whether an item of gain or loss is taken into account before May 7, 1997, after July 28, 1997, or between those dates. For example, if a RIC’s sale of a capital asset held for 19 months occurs before May 7, 1997, but is treated under § 852(b)(3)(C) and § 1.852–11(e) as arising after that date, the sale gives rise to capital gain in the 28-percent group.

A RIC or REIT must make the bifurcation adjustment described in the next paragraph if: (1) its taxable year is not the period used to determine capital gain net income for purposes of the excise tax imposed by § 4982 or § 4981 (that is, it is a RIC with a taxable year that does not end on October 31 and that has not made an election under § 4982(e)(4) or it is a REIT whose taxable year is not the calendar