Title 26, Internal Revenue CodeRelease 119-110
§4982 Excise Tax on Undistributed Income of Regulated Investment Companies
Title 26 › Subtitle D — Miscellaneous Excise Taxes › CHAPTER 44 — QUALIFIED INVESTMENT ENTITIES › § 4982
Summary
Regulated investment companies must pay a tax of 4% for any year if the money they are supposed to give to shareholders is more than what they actually paid out. What they are "supposed to give" is 98% of their ordinary income plus 98.2% of their capital gain net income for the one-year period ending October 31. If they paid less than required in a prior year, the required amount goes up to cover that shortfall. A special “grossed up” version of the required amount uses 100% instead of the 98% and 98.2% when figuring carryovers. The amount actually distributed counts dividend deductions and some other amounts already taxed under related rules. Overpayments from a prior year can lower the current year’s shortfall. A company can elect to treat certain estimated tax payments as distributions now and reduce next year’s distributed amount. The tax must be paid by March 15 of the year after the calendar year. Key terms: ordinary income = investment company taxable income without capital gains; capital gain net income = capital gains measured for the one-year period ending October 31 (reduced by net ordinary loss if needed). Special timing rules treat gains or losses after October 31 as next year, and some mark‑to‑market items are treated as if the year ended October 31. Companies with year-ends in November or December can elect to use their taxable year instead of the October 31 period (revocable only with consent). No tax applies if every shareholder all year long is a qualifying tax-exempt entity, certain insurance accounts, another qualifying company, or similar entities; up to $250,000 of organizing shares are ignored for that test.
Full Legal Text
Title 26, §4982
Internal Revenue Code, Source: USLM XML via OLRC
(a)Imposition of tax
There is hereby imposed a tax on every regulated investment company for each calendar year equal to 4 percent of the excess (if any) of— (1)
(2)the distributed amount for such calendar year.
(b)Required distribution
For purposes of this section
(1) In general
(2)Increase by prior year shortfall
The amount determined under paragraph (1) for any calendar year shall be increased by the excess (if any) of— (A)
(B)the distributed amount for such preceding calendar year.
(3)Grossed up required distribution
The grossed up required distribution for any calendar year is the required distribution for such year determined—
(A)with the application of paragraph (2) to such taxable year, and
(B)by substituting “100 percent” for each percentage set forth in paragraph (1).
(c)Distributed amount
For purposes of this section
(1) In general
(2)Increase by prior year overdistribution
The amount determined under paragraph (1) for any calendar year shall be increased by the excess (if any) of— (A)
(B)the grossed up required distribution for such preceding calendar year.
(3)Determination of dividends paid
The amount of the dividends paid during any calendar year shall be determined without regard to—
(A)the provisions of section 855, and
(B)any exempt-interest dividend as defined in section 852(b)(5).
(4)Special rule for estimated tax payments
(A)In general
In the case of a regulated investment company which elects the application of this paragraph for any calendar year—
(i)the distributed amount with respect to such company for such calendar year shall be increased by the amount on which qualified estimated tax payments are made by such company during such calendar year, and
(ii)the distributed amount with respect to such company for the following calendar year shall be reduced by the amount of such increase.
(B)Qualified estimated tax payments
For purposes of this paragraph, the term “qualified estimated tax payments” means, with respect to any calendar year, payments of estimated tax of a tax described in paragraph (1)(B) for any taxable year which begins (but does not end) in such calendar year.
(d)Time for payment of tax
The tax imposed by this section for any calendar year shall be paid on or before March 15 of the following calendar year.
(e)Definitions and special rules
For purposes of this section
(1) Ordinary income
(2)Capital gain net income
(A)In general
Except as provided in subparagraph (B), the term “capital gain net income” has the meaning given such term by section 1222(9) (determined by treating the 1-year period ending on October 31 of any calendar year as the company’s taxable year).
(B)Reduction by net ordinary loss for calendar year
The amount determined under subparagraph (A) shall be reduced (but not below the net capital gain) by the amount of the company’s net ordinary loss for the calendar year.
(C)Definitions
For purposes of this paragraph
(i) Net capital gain (ii) Net ordinary loss
(3)Treatment of deficiency distributions
In the case of any deficiency dividend (as defined in section 860(f))—
(A)such dividend shall be taken into account when paid without regard to section 860, and
(B)any income giving rise to the adjustment shall be treated as arising when the dividend is paid.
(4)Election to use taxable year in certain cases
(A)In general
If—
(i)the taxable year of the regulated investment company ends with the month of November or December, and
(ii)such company makes an election under this paragraph,
subsection (b)(1)(B) and paragraph (2) of this subsection shall be applied by taking into account the company’s taxable year in lieu of the 1-year period ending on October 31 of the calendar year.
(B)Election revocable only with consent
An election under this paragraph, once made, may be revoked only with the consent of the Secretary.
(5)Treatment of specified gains and losses after October 31 of calendar year
(A)In general
Any specified gain or specified loss which (but for this paragraph) would be properly taken into account for the portion of the calendar year after October 31 shall be treated as arising on January 1 of the following calendar year.
(B)Specified gains and losses
For purposes of this paragraph
(i) Specified gain (ii) Specified loss
(C)Special rule for companies electing to use the taxable year
In the case of any company making an election under paragraph (4), subparagraph (A) shall be applied by substituting the last day of the company’s taxable year for October 31.
(6)Treatment of mark to market gain (7) Elective deferral of certain ordinary losses
(A)In general
For purposes of determining a regulated investment company’s ordinary income, notwithstanding paragraph (1)(C), each specified mark to market provision shall be applied as if such company’s taxable year ended on October 31. In the case of a company making an election under paragraph (4), the preceding sentence shall be applied by substituting the last day of the company’s taxable year for October 31.
(B)Specified mark to market provision
For purposes of this paragraph, the term “specified mark to market provision” means section 1256 and 1296 and any other provision of this title (or regulations thereunder) which treats property as disposed of on the last day of the taxable year or which determines income by reference to the value of an item on the last day of the taxable year.
(f)Exception for certain regulated investment companies
This section shall not apply to any regulated investment company for any calendar year if at all times during such calendar year each shareholder in such company was—
(1)a trust described in section 401(a) and exempt from tax under section 501(a),
(2)a segregated asset account of a life insurance company held in connection with variable contracts (as defined in section 817(d)),
(3)any other tax-exempt entity whose ownership of beneficial interests in the company would not preclude the application of section 817(h)(4), or
(4)another regulated investment company described in this subsection.
For purposes of the preceding sentence, any shares attributable to an investment in the regulated investment company (not exceeding $250,000) made in connection with the organization of such company shall not be taken into account.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2014—Subsec. (e)(6)(B). Pub. L. 113–295, § 205(d)(1), inserted “or which determines income by reference to the value of an item on the last day of the taxable year” before period at end. Subsec. (e)(7)(A). Pub. L. 113–295, § 205(d)(2), substituted “such company may elect to determine its ordinary income and net ordinary loss (as defined in paragraph (2)(C)(ii)) for the calendar year without regard to any portion of any net ordinary loss” for “such company may elect to determine its ordinary income for the calendar year without regard to any net ordinary loss”. Subsec. (f)(2). Pub. L. 113–295, § 220(s), inserted comma at end. 2010—Subsec. (b)(1)(B). Pub. L. 111–325, § 404(a), substituted “98.2 percent” for “98 percent”. Subsec. (c)(4). Pub. L. 111–325, § 403(a), added par. (4). Subsec. (e)(5) to (7). Pub. L. 111–325, § 402(a), added pars. (5) to (7) and struck out former pars. (5) and (6) which related to treatment of foreign currency gains and losses after October 31 of calendar year and treatment of gain recognized under section 1296, respectively. Subsec. (f). Pub. L. 111–325, § 401(a)(1), struck out “either” before dash at end of introductory provisions. Subsec. (f)(3), (4). Pub. L. 111–325, § 401(a)(2)–(4), added pars. (3) and (4). 1997—Subsec. (e)(6). Pub. L. 105–34 added par. (6). 1989—Subsec. (b)(1)(A). Pub. L. 101–239 substituted “98 percent” for “97 percent”. 1988—Subsec. (e)(2). Pub. L. 100–647, § 1006(l)(2), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “The term ‘capital gain net income’ has the meaning given to such term by section 1222(9) (determined by treating the 1-year period ending on October 31 of any calendar year as the company’s taxable year).” Subsec. (e)(5). Pub. L. 100–647, § 1006(l)(5), added par. (5). Subsec. (f). Pub. L. 100–647, § 1006(l)(6), added subsec. (f). 1987—Subsec. (b)(1)(B). Pub. L. 100–203 substituted “98 percent” for “90 percent”.
Statutory Notes and Related Subsidiaries
Effective Date
of 2014 AmendmentAmendment by section 205(d) of Pub. L. 113–295 effective as if included in the provision of the Regulated Investment Company Modernization Act of 2010, Pub. L. 111–325, to which such amendment relates, with
Savings Provision
in certain cases of an election by a regulated investment company under section 852(b)(8) of this title, see section 205(f) of Pub. L. 113–295, set out as a note under section 852 of this title.
Effective Date
of 2010 Amendment Pub. L. 111–325, title IV, § 401(b), Dec. 22, 2010, 124 Stat. 3552, provided that: “The amendment made by this section [amending this section] shall apply to calendar years beginning after the date of the enactment of this Act [Dec. 22, 2010].” Pub. L. 111–325, title IV, § 402(b), Dec. 22, 2010, 124 Stat. 3553, provided that: “The
Amendments
made by this section [amending this section] shall apply to calendar years beginning after the date of the enactment of this Act [Dec. 22, 2010].” Pub. L. 111–325, title IV, § 403(b), Dec. 22, 2010, 124 Stat. 3554, provided that: “The amendment made by this section [amending this section] shall apply to calendar years beginning after the date of the enactment of this Act [Dec. 22, 2010].” Pub. L. 111–325, title IV, § 404(b), Dec. 22, 2010, 124 Stat. 3554, provided that: “The
Amendments
made by this section [amending this section] shall apply to calendar years beginning after the date of the enactment of this Act [Dec. 22, 2010].”
Effective Date
of 1997 AmendmentAmendment by Pub. L. 105–34 applicable to taxable years of United States persons beginning after Dec. 31, 1997, and to taxable years of foreign corporations ending with or within such taxable years of United States persons, see section 1124 of Pub. L. 105–34, set out as a note under section 532 of this title.
Effective Date
of 1989 Amendment Pub. L. 101–239, title VII, § 7204(a)(2), Dec. 19, 1989, 103 Stat. 2334, provided that: “The amendment made by paragraph (1) [amending this section] shall apply to calendar years ending after July 10, 1989.”
Effective Date
of 1988 AmendmentAmendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
Effective Date
of 1987 Amendment Pub. L. 100–203, title X, § 10104(b)(2), Dec. 22, 1987, 101 Stat. 1330–387, provided that: “The amendment made by paragraph (1) [amending this section] shall take effect as if included in the
Amendments
made by section 651 of the Tax Reform Act of 1986 [section 651 of Pub. L. 99–514, see
Effective Date
note below].”
Effective Date
Pub. L. 99–514, title VI, § 651(d), Oct. 22, 1986, 100 Stat. 2297, provided that: “The
Amendments
made by this section [enacting this section and amending section 852 and 855 of this title] shall apply to calendar years beginning after December 31, 1986.”
Reference
Citations & Metadata
Citation
26 U.S.C. § 4982
Title 26, Internal Revenue Code
Last Updated
Sep 22, 2026
Release point: 119-110