MoFo Tax Talk - Volume 9, No. 3

Morrison & Foerster LLP

IRS Issues Proposed Regs on RIC Commodity Investments -

On September 27, 2016, the IRS issued proposed regulations (the “Proposed Regulations”) providing guidance relating to the income test and asset diversification requirements for determining whether a corporation qualifies as a RIC for federal income tax purposes. Generally, the Proposed Regulations state that (a) the IRS will no longer rule on what assets are securities for the purposes of section 851 and this determination will be made under the Investment Company Act of 1940, as amended (the “1940 Act”),1 and (b) inclusions from controlled foreign corporations (“CFCs”) and passive foreign investment companies (“PFICs”) will not be treated as dividends for purposes of the income test without a corresponding distribution from a foreign subsidiary’s earnings and profits.

This guidance is the first word on these issues since the IRS suspended its issuance of private letter rulings (“PLRs”) relating to commodity linked notes and indirect investments in commodities through wholly-owned subsidiaries in July 2011.

Please see full Issue below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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