More On Legal & Compliancefrom The Advisor's Professional Library
- The New and Improved Form ADV Whether an RIA is describing its investment strategy in advertisements or in the new Form ADV Part 2, it is important the firm articulates material risks faced by advisory clients and avoids language that might be construed as a guarantee.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
Two days before Christmas, President Obama signed into law The Regulated Investment Company Modernization Act of 2010, which updates and simplifies several mutual fund tax rules.
After the bill was signed into law on Dec. 23, Paul Schott Stevens, president of the Investment Company Institute (ICI), said in a statement that the Act will “make funds more efficient and reduce the need for investors to file amended tax returns related to their investments.” The Act, Stevens continued, also “streamlines and updates technical tax rules, allowing fund companies to focus on innovating and serving shareholders.”
The Congressional Research Service, a branch of the Library of Congress, released the following summary of the Act after its passage:
Title I - Capital Loss Carryovers of Regulated Investment Companies
Section 101 -
Sets forth a special rule allowing unlimited carryovers of the net capital losses of regulated investment companies (RICs).
Title II - Modification of Gross Income and Asset Tests of Regulated Investment Companies
Section 201 -
Exempts RICs from loss of tax-preferred status and additional tax for failure to satisfy the gross income and assets tests if such failure is due to reasonable cause and not due to willful neglect and is de minimis.
Title III - Modification of Rules Related to Dividends and Other Distributions
Section 301 -
- Revises the definitions of “capital gain dividend” and “exempt-interest dividend” for purposes of the taxation of RICs and their shareholders to require such dividends to be reported to shareholders in written statements. Sets forth a special rule for the allocation of the excess reported amounts of such dividends.
Section 302 -
Excludes net capital losses of RICs from earnings and profits. Prohibits an RIC’s earnings and profits from being reduced by any amount which is not allowable as a deduction in computing taxable income, except with respect to such a net capital loss.
Section 303 -
Allows an RIC, in the case of a qualified fund of funds, to pay exempt-interest dividends and allow its shareholders the foreign tax credit without regard to certain investment requirements in state and local bonds and foreign securities.
Section 304 -
Modifies rules for dividends paid by RICs after the close of a taxable year (spillover dividends).
Section 305 -
Revises the method for allocating RIC earnings and profits to require such earnings and profits to be allocated first to distributions made prior to December 31 of a calendar year.
Section 306 -
Allows RICs with shares that are redeemable upon demand to treat distributions in redemption of stock as an exchange for income tax purposes.
Section 307 -
Repeals preferential dividend rules for RICs that are publicly offered.
Section 308 -
Allows an RIC to elect to treat a post-October capital loss and any late-year ordinary loss as arising on the first day of the following taxable year.
Section 309 -
Exempts from holding period requirements applicable to RIC stock regular dividends paid by an RIC which declares exempt-interest dividends on a daily basis in an amount equal to at least 90% of its net tax-exempt interest and distributes such dividends on a monthly or more frequent basis.
Title IV - Modifications Related to Excise Tax Applicable to Regulated Investment Companies
Section 401 -
Extends the exemption from excise tax for failure to distribute taxable income of an RIC to other tax-exempt entities with an ownership interest in an RIC.
Section 402 -
Allows specified gain and loss of an RIC derived after October 31 of a calendar year to be deferred, for excise tax purposes, until January 1 of the following calendar year.
Section 403 -
Sets forth a special rule for estimated excise tax payments of RICs.
Section 404 -
Increases from 98% to 98.2% the amount of capital gain net income RICs are required to distribute.
Title V - Other Provisions
Section 501 -
Repeals the additional penalty on RICs for tax deficiencies for which a deficiency dividend has been distributed.
Section 502 -
Modifies the deferral rule for load charges in acquiring RIC stock where the taxpayer acquires the RIC stock before January 31 of the calendar year following the calendar year in which the original stock is sold.