7927 / Are there any remedial measures that an otherwise qualified RIC can take to preserve status as a RIC despite failure to meet the asset diversification tests?

Yes. The first remedial measure is available, and the asset diversification tests for the quarter will be deemed satisfied, if:

(1) the RIC files a schedule containing a description of each asset that caused the RIC to fail the asset tests;

(2) the failure is due to reasonable cause and not willful neglect; and

(3) the RIC disposes of the assets described in the schedule (above) within six months after the last day of the quarter in which the RIC identified the failure.¹

However, if this first remedial provision is relied upon, the RIC will be liable for an excise tax equal to the greater of (1) $50,000 or (2) the amount determined by multiplying the net income generated by the assets described in the schedule over a certain period by the highest corporate income tax rate.² For purposes of (2), above, the period over which the relevant income is generated is a period that begins the day the assets caused the failure and ends upon the earlier of (a) the day the assets are disposed of or (b) the end of the first quarter when there is no longer a failure).³

The second remedial measure is available for a RIC that fails the asset diversification tests if the failure is considered to be “de minimis.” For this purpose, a de minimis failure is one that is due to the RIC’s ownership of assets, the total value of which does not exceed the lesser of (1) 1 percent of the total value of the RIC’s assets at the end of the quarter or (2) $10,000,000. In this case, following identification of the failure, the RIC must dispose of the assets in order to satisfy the asset diversification tests within six months after the last day of the quarter in which the failure occurred.⁴