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the fund elects to pay tax on the built-in gain

Line i. The fund’s tax on the net

during the 10-year period. See Temporary

recognized built-in gain is treated as a loss

Additional taxes and interest amounts may be

Regulations section 1.337(d)-6T for information

sustained by the RIC after October 31 of the

included in the total entered on line 7. Check

on how to make the election and figure the tax

same tax year. Deduct the tax attributable to:

the box for “Other” if the fund includes any of

•

for RIC elections and property transfers before

Ordinary gain as a deduction for taxes on

the taxes and interest discussed below. See

this date. The fund may also rely on Temporary

Form 1120-RIC, line 12.

How to report, below, for details on reporting

•

Regulations section 1.337(d)-5T for RIC

Short-term capital gain as a short-term

these amounts on an attached schedule.

elections and property transfers that occurred

capital loss on Schedule D (Form 1120), line 1.

•

Recapture of qualified electric vehicle

before January 2, 2002.

Long-term capital gain as a long-term capital

(QEV) credit. The fund must recapture part of

loss on Schedule D (Form 1120), line 6.

Worksheet instructions. Complete the

the QEV credit it claimed in a prior year, if

How to report. If the fund checked the “Other”

worksheet on this page to figure the built-in

within 3 years of the date the vehicle was

box, attach a schedule showing the

gains tax under Temporary Regulations section

placed in service, it ceases to qualify for the

computation of each item included in the total

1.337(d)-7T or 1.337(d)-6T.

credit. See Regulations section 1.30-1 for

for line 7, Schedule J; identify the applicable

details on how to figure the recapture.

Line a. Enter the amount that would be the

Code section and the type of tax or interest.

taxable income of the fund for the tax year if

Recapture of Indian employment credit.

only recognized built-in gain, recognized

Generally, if an employer terminates the

Line 8 –Total Tax

built-in loss, and recognized built-in gain

employment of a qualified employee less than

Include any deferred tax on the termination of

carryover were taken into account.

1 year after the date of initial employment, any

a section 1294 election applicable to

Indian employment credit allowed for a prior

Line b. Add the amounts shown on Form

shareholders in a qualified electing fund in the

tax year because of wages paid or incurred to

1120-RIC, page 1, line 24; Form 1120-RIC,

amount entered on line 8. See Form 8621, Part

that employee must be recaptured. For details,

Part II, line 1; and Form 2438, line 11. For this

V, and How to report, below.

see Form 8845 and section 45A.

purpose, refigure line 24 on page 1 of Form

Subtract. Amounts to subtract from the

Recapture of New Markets Credit (see Form

1120-RIC without regard to any election under

total for line 8 are the deferred taxes on the

section 852(b)(2)(F). Enter the result on line b

8874).

fund’s share of the undistributed earnings of a

of the worksheet on this page.

Interest due on:

qualified electing fund (see Form 8621, Part II).

•

Deferred tax attributable to (a) installment

Line c. The fund’s net unrealized built-in

How to report. Attach a schedule showing the

sales of certain timeshares and residential lots

gain is the amount, if any, by which the fair

computation of each item included in, or

(section 453(l)(3)) and (b) certain nondealer

market value of the assets of the fund at the

subtracted from, the total for line 8. On the

installment obligations (section 453A(c)).

beginning of its first RIC year (or as of the date

•

dotted line next to line 8, enter the amount of

Deferred gain (section 1260(b)).

the assets were acquired, for any asset with a

tax or interest, identify it as tax or interest, and

basis determined by reference to its basis (or

Built-in gains tax. If a C corporation elected

specify the Code section that applies.

the basis of any other property) in the hands of

to be taxed as a RIC for a tax year beginning

a C corporation) exceeds the aggregate

after January 1, 2002, or transferred property

adjusted basis of such assets at that time.

in a carryover basis transaction to a RIC on or

Schedule K

after January 2, 2002, the RIC is subject to the

Enter on line c the fund net unrealized

built-in gains tax under section 1374 unless

built-in gain reduced by the net recognized

Other Information

the C corporation elects deemed sale

built-in gain for prior years. See sections

treatment on the transferred property. If the C

The following instructions apply to questions 1

1374(c)(2) and (d)(1).

corporation does not make this election, the

through 11 on page 3, Form 1120-RIC.

Line d. If the amount on line b exceeds the

RIC must pay tax on any built-in gain during

Complete all the questions that apply to the

amount on line a, the excess is treated as a

the 10-year period beginning on its first day as

fund.

recognized built-in gain in the succeeding tax

a RIC or the day it acquired the assets in a

year.

Question 3

carryover basis transaction. Recognized

Line e. Enter the section 1374(b)(2)

built-in gains and losses on which a fund pays

Check the “Yes” box for question 3 if the fund

tax generally retain their character (e.g.,

deduction. Generally, this is any net operating

is a subsidiary in a parent-subsidiary controlled

ordinary income or capital gain) and are

loss carryforward or capital loss carryforward

group (defined below). This applies even if the

(to the extent of net capital gain included in

treated the same as other gains or losses of

fund is a subsidiary member of one group and

the fund. The fund’s tax on net recognized

recognized built-in gain for the tax year) arising

the parent corporation of another.

built-in gain is treated as a loss sustained by

in tax years for which the fund was a C

Note: If the fund is an “excluded member”

corporation. A capital loss carryforward must

the fund after October 31 of the same tax year

of a controlled group (see section 1563(b)(2)),

(see the instructions for line i of the Built-in

be used to reduce recognized built-in gain for

it is still considered a member of a controlled

the tax year to the greatest extent possible

Gains Tax Worksheet on this page). See

group for this purpose.

before it can be used to reduce the investment

Temporary Regulations section 1.337(d)-7T for

details.

company taxable income.

Parent-subsidiary controlled group. The

term “parent-subsidiary controlled group”

Different rules apply to elections to be a

Line h. Credit carryforwards arising in tax

means one or more chains of corporations

RIC and to transfers of property in a carryover

years for which the fund was a C corporation

connected through stock ownership (section

basis transaction that occurred prior to

must be used to reduce the tax on net built-in

1563(a)(1)). Both of the following requirements

January 2, 2002. For RIC elections and

gain for the tax year to the greatest extent

must be met:

property transfers before this date, the C

possible before the credit carryforwards can be

corporation is subject to deemed sale

used to reduce the tax on the investment

1. At least 80% of the total combined

treatment on the transferred property unless

company taxable income.

voting power of all classes of voting stock

Built-in Gains Tax Worksheet (keep for your records)

Excess of recognized built-in gains over recognized built-in losses . . . . . . . . . . . . . . . . . . . . . . . a.

b. Taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b.

Enter the net unrealized built-in gain reduced by any net recognized built-in gain for all prior years c.

d. Net recognized built-in gain (enter the smallest of lines a, b, or c) . . . . . . . . . . . . . . . . . . . . . . . d.

Section 1374(b)(2) deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e.

Subtract line e from line d. If zero, enter -0- here and on line i . . . . . . . . . . . . . . . . . . . . . . . . . . f.

g. Enter 35% of line f . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . g.

h. Business credit and minimum tax credit carryforwards under section 1374(b)(3) from C corporation h.

Tax. Subtract line h from line g (if zero or less, enter -0-). Enter here and include on line 7 of

Schedule J (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i.

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Instructions For Form 1120-Ric - U.s. Income Tax Return For Regulated Investment Companies - 2002 Page 11

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