A US investment company that meets certain tax requirements regarding its assets, income and distributions, and has made an election to be taxed as a RIC. Mutual funds and closed-end investment companies typically are taxed as RICs. Generally, a RIC must:
Derive at least 90% of its gross income from investment activities.
Annually distribute at least 90% of its taxable income to its stockholders.
Unlike a C-corporation, a RIC can deduct dividends distributed to its shareholders. A RIC is therefore generally not subject to an entity level tax on net investment income and net capital gain if it distributes these amounts to its shareholders within certain time limits.
RIC shareholders generally recognize ordinary income on distributions received from a RIC unless the distribution is eligible for the reduced rate for qualified dividends, is a designated capital gain dividend, is an exempt-interest dividend, or is a return of capital. Designated capital gain dividends are taxable to RIC shareholders as long-term capital gain.
