Proposed regulations - Revised examples illustrating controlled group rules for RICs 

August 1: The Treasury Department and IRS today released for publication in the Federal Register proposed regulations (REG-114122-12) that would revise examples that illustrate the controlled group rules related to regulated investment companies (RICs).

The preamble to the proposed revisions—REG-114122-12 [PDF 230 KB]—states that these rules would resolve an issue concerning how the controlled group rules are to be applied in connection with the RIC “asset diversification” test.

Reasons for proposed regulations

The preamble to today’s proposed regulations states that clarification is needed regarding whether a RIC and its controlled subsidiary are a controlled group if the subsidiary does not control (within the meaning of section 851(c)(2)) at least one other corporation.


The current regulations under section 851 include a series of examples. Some practitioners have interpreted section 851(c)(3) to require the presence of two levels of controlled entities for a controlled group to exist, and have relied on certain of the examples in the regulations, and legislative history, to support this interpretation.


Treasury and the IRS in today’s release stated that this interpretation is unwarranted, and that with today’s revisions to existing examples, the proposed regulations clarify that two corporations constitute a controlled group if the ownership requirements of section 851(c)(3) are met.


Read more about the proposed regulations in an August 2013 report [PDF 72 KB] prepared by KPMG LLP.




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