7922 / What is a regulated investment company (RIC)?
To be taxed as a RIC, the RIC must affirmatively make an election with its tax return by computing taxable income as a RIC.3 To qualify to make this election, the corporation must have been taxed as a RIC for all tax years ending on or after November 8, 1983, or it must have no earnings and profits from any year in which it was not taxed as a RIC.4 Practically, this means that most corporations seeking to qualify for RIC status will need to make distributions out of accumulated earnings and profits in order to comply.5 Once a corporation elects RIC treatment, the election is irrevocable for the initial and succeeding tax years.6
Further, to qualify as a RIC, the corporation must satisfy a gross income test (see Q 7923 and Q 7924) and certain asset diversification tests ( Q 7926 and Q 7927). A RIC must also comply with income distribution requirements (see Q 7928) in order to maintain its qualification.
For information on the tax treatment of a qualified RIC, see Q 7929. For a discussion of how RIC shareholders are taxed upon the distribution of dividends, see Q 7933 to Q 7935.
1. IRC § 851(a)(1).