Tax Facts

7931 / What special rules regarding the calculation of earnings and profits apply to a RIC?

Unlike in the case of an ordinary corporation, the current earnings and profits of a RIC are not reduced by amounts that are not allowed as a deduction when computing taxable income. This rule, however, does not apply to a RIC’s accumulated earnings and profits. 1Further, the rule excludes disallowed deductions for items relating to tax-exempt interest (so that these items are subtracted in determining current earnings and profits).2

The special rule for calculating current earnings and profits applies even if the RIC otherwise fails the RIC qualification tests (see Q 7923 to Q 7928) and is taxed as a regular corporation.3

If a RIC has a net capital loss for the tax year, that loss is not taken into account in determining the RIC’s earnings and profits (both current and accumulated). The amount carried over (and deemed to arise on the first day of the following tax year) is, however, taken into account in determining the RIC’s earnings and profits for that (subsequent) tax year.4

1.  IRC § 852(c)(1)(B).

2.  IRC §§ 852(c)(1)(B), 171(a)(2), 265.

Tax Facts Premium Tools
Calculators
100+ calculators specifically designed to help you easily assist clients with specific planning situations and calculations.
Practice Guidance
Designed to help you discover new ways for which to build and maintain client relationships.
Concepts Illustrated
Specifically designed to help you easily assist clients with specific planning situations and calculations.
Tax Facts Archives
Access to the entire library of Tax Facts dating back to 2012 allowing you to look up the exact tax figures from prior years.