IRS Issues Final Regulations and Other Guidance Addressing Mutual Fund Asset Diversification Rules

November 25, 2015

Client Alert
On September 14, 2015 the IRS issued final regulations under Section 851 of the Internal Revenue Code. The new regulations clarify that controlled groups under the rules for regulated investment companies may consist of only two entities, rather than two levels of entities as some practitioners had believed. This may cause unanticipated attributions of ownership, which would disqualify some RICs from beneficial tax treatment. In addition, Rev. Proc. 2015-45 announced a safe harbor for the application of RIC diversification tests when a RIC owns assets indirectly through another RIC that has a different quarter-end date.

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