On September 28, 2010, the House of Representatives passed the Regulated Investment Company Modernization Act of 2010, which would amend the Internal Revenue Code to modify certain rules governing the taxation of regulated investment companies (“RICs”). Among other provisions, the Act would:

  • permit RICs an unlimited carryforward of their net capital losses;  
  • allow income from commodities to be treated as qualifying income for purposes of the RIC gross income test;  
  • add savings provisions for failures of RICs to satisfy the RIC gross income and asset tests;  
  • modify the rules for designating and allocating RIC capital gain dividends;  
  • permit certain nondeductible items of income to be included in a RIC’s earnings and profits calculations;  
  • allow qualified funds-of-funds to pass through to their shareholders taxexempt interest and foreign tax credits, without regard to certain investment limitations;  
  • modify the rules relating to spillover dividends, return of capital distributions and stock redemptions;  
  • repeal the preferential dividend rule for publicly offered RICs;  
  • permit RICs to defer certain late-year losses; and  
  • modify certain excise tax and penalty rules applicable to RICs.