CCA 200911032: RIC dividends sourced from short-term gains do not qualify for the dividends-received deduction

Number

200911032

Outcome

Advice

Document type

Chief Counsel Advice

IRS subject

Capital Gain Dividend

Topics

RICs and REITs

Code sections

§ 243, § 246, § 246A, § 854

Ruling dated

February 9, 2009

Publicly released

March 13, 2009

Source

View Official PDF

Apply this to your situation

This page covers legal advice the IRS Office of Chief Counsel wrote for IRS staff, issued in 2009, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It is advice from the IRS Office of Chief Counsel to IRS personnel on the facts they presented, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.

About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.

View official IRS release (PDF)

Plain-English summary

Chief Counsel gave an initial view on whether dividends from a regulated investment company (RIC) qualify for the dividends-received deduction (DRD) when sourced from short-term capital gains. Such payments are not the capital gain dividends addressed by Revenue Ruling 71-197. Section 854(b)(4) limits the RIC dividend treated as a dividend for DRD purposes to the amount the RIC could have deducted under section 243, after applying sections 246 and 246A as specified. Because no deduction would be allowed for the short-term gains, the RIC dividends sourced from them do not qualify for the DRD.

Ruling snapshot

Question: Do RIC dividends sourced from short-term capital gains qualify for the dividends-received deduction?
Outcome: Advice given: no deduction would be allowed for those gains, so the sourced dividends do not qualify for the DRD.
Key authorities: IRC §§ 243, 246, 246A, and 854(b)(4); Rev. Rul. 71-197.

Full text (IRS public release)

ID: CCA-291306-09 Number: 200911032
Release Date: 3/13/2009
Office: ----------
UILC: 854.01-00

From: -----------------
Sent:02/09/2009
To: ------------------
Cc: ----------------------------
Subject: RIC Arguments

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Although I have not studied these issues in any depth, my initial, quick, impressions are as follows: I believe that Rev. Rul. 71-197 deals with a "capital gain dividend" from a RIC, not dividend attributable to the RIC's STKGs. RIC dividends, even if sourced from STKGs, are not "capital gain dividends" that were the subject of 71-197.

That RIC dividends sourced from STKGs are not "capital gain dividends", however, is not sufficient to support a conclusion that the RIC dividends for the DRD. Under section 854(b)(4), the amount of a RIC dividend that is treated as a dividend for purposes of the computing the DRD is limited to the amount a deduction would have been allowed to the RIC under section 243, determined as if section 243 applied to dividends received by a RIC and after application of sections 246 (other than subsection (b)) and 246A
. As no deduction would be allowed for STKGs, the RIC dividends sourced from the STKGs do not qualify for the DRD.

Hope this provides some help. I want to think some more about the issues and will get back to you if I have any additional thoughts. If you have any questions or comments, please feel free to call or email me.

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