ProductsQuestion 36 of 110
To be treated as a regulated investment company and avoid paying tax at the fund level on distributed income, a fund must distribute at least:
a.50% of its net investment income to shareholders
b.75% of its realized capital gains to shareholders
c.100% of its gross income to shareholders
d.90% of its net investment income to shareholders
Explanation
Under Subchapter M of the Internal Revenue Code, a fund that distributes at least 90% of its net investment income acts as a conduit and is taxed only on what it retains. Falling below that threshold subjects the fund's entire income to corporate taxation, creating a second layer of tax for shareholders. Distributing all gross income is neither required nor possible after expenses.
Law Reference: Internal Revenue CodePractice all 110 questions free — no signup required.
Related questions on this topic
- A grandparent withdraws $8,000 from a 529 plan and uses all of it for the beneficiary's college tuition. The federal tax treatment of the earnings portion is:
- Which statement about control of a 529 plan account is accurate?
- The Investment Company Act of 1940 classifies investment companies into which three types?
- When must a prospectus be delivered to a purchaser of open-end fund shares?
- A customer asks for more detail about a fund's officers, its brokerage allocation practices, and its full financial statements. This information is found in the:
- For purposes of combining purchases to reach a breakpoint, which of the following does NOT qualify as a single "person"?
Last reviewed: · editorial process
PrepPass Editorial Team · Verified against FINRA Series 6 — Investment Company & Variable Contracts Rep · How we review