Tax Facts

7933 / How is a RIC shareholder taxed upon the distribution of an ordinary income dividend?

In general, ordinary income dividends that are distributed by a RIC are included in a shareholder’s gross income to the extent of the RIC’s earnings and profits in the year that the dividend is received. However, if the RIC has no earnings and profits, the dividend is treated as a nontaxable return of capital that reduces the shareholder’s basis.1

1. Treas. Reg. § 1.852-4(a), IRC § 854(b).

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