[Code of Federal Regulations]
[Title 26, Volume 1]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.58-6]

[Page 527-528]
 
                       TITLE 26--INTERNAL REVENUE
 
     CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
 
PART 1--INCOME TAXES--Table of Contents
 
Sec. 1.58-6  Regulated investment companies; real estate investment trusts.

    (a) In general. Section 58(f) provides rules with respect to the 
determination of the items of tax preference of regulated investment 
companies (as defined in section 851) and their shareholders and real 
estate investment trusts (as defined in section 856) and their 
shareholders, or holders of beneficial interest. In general, the items 
of tax preference of such companies and such trusts are determined at 
the company or trust level and the items of tax preference so determined 
(other than the capital gains item of tax preference (sections 57(a)(9) 
and Sec. 1.57-1(i)) and, in the case of a real estate investment trust, 
accelerated depreciation on section 1250 property (sections 57(a)(2) and 
Sec. 1.57-1(b)) are treated as items of tax preference of the 
shareholders, or holders of beneficial interest, in the same proportion 
that the dividends (other than capital gains dividends) paid to each 
such shareholder, or holder of beneficial interest, bear to the taxable 
income of such company or such trust determined without regard to the 
deduction for dividends paid. In no case, however, is such proportion to 
be considered in excess of 100 percent. For example, if a regulated 
investment company has items of tax preference of $500,000 for the 
taxable year, none of which resulted from capital gains, and distributes 
dividends in an amount equal to 90 percent of its taxable income, each 
shareholder treats his share of 90 percent of the company's items of tax 
preference, or (a proportionate share of) $450,000, as items of tax 
preference of the shareholder. The remaining $50,000 constitutes items 
of tax preference of the company. Amounts treated under this paragraph 
as items of tax preference of the shareholders, or holders of beneficial 
interest, are deemed to be derived proportionately from each item of tax 
preference of the company or trust, other than the capital gains item of 
tax preference and, in the case of a real estate investment trust, 
accelerated depreciation on section 1250 property. Such amounts are 
taken into account by the shareholders, or holders of beneficial 
interest, in the same taxable year in which the dividends on which the 
apportionment is based are includible in income. The minimum tax 
exemption of the trust or company shall not be reduced because a portion 
of the trust's or company's items of tax preference are allocated to the 
shareholders or holders of beneficial interests.
    (b) Capital gains. Section 58(g)(1) provides that a regulated 
investment company or real estate investment trust does not treat as an 
item of tax preference the capital gains item of tax preference under 
section 57(a)(9) (and Sec. 1.57-1(i)) to the extent that such item is 
attributable to amounts taken into income by the shareholders of such 
company under section 852(b)(3) or by the shareholders or holders of 
beneficial interest of such trust under section 857(b)(3). Thus, such a 
company or trust computes its capital gains item of tax preference on 
the basis of its net section 1201 gain less the sum of (1) the capital 
gains dividend (as defined in section 852(b)(3)(C) or 857(b)(3)(C)) for 
the taxable year of the company or trust plus (2), in the case of a 
regulated investment company, that portion of the undistributed capital 
gains designated, pursuant to section 852(b)(3)(D) and the regulations 
thereunder, by the company to be includible in the shareholder's return 
as long-term capital gains for the shareholders's taxable year in which 
the last day of the company's taxable years falls. Amounts treated under 
section 852(b)(3) or 857(b)(3) as long-term capital gains of 
shareholders, or holders of beneficial interest, are automatically 
included, pursuant to sections 57(a)(9) and 1.57-1(i), in the 
computation of the capital gains item of tax preference of the 
shareholders, or holders of beneficial interest.

[[Page 528]]

    (c) Accelerated depreciation on section 1250 property. In the case 
of a real estate investment trust, all of the items of tax preference 
resulting from accelerated depreciation on section 1250 property held by 
the trust (section 57(a)(2) and Sec. 1.57-1(b)) are treated as items of 
tax preference of the trust, and, thus, none are treated as items of tax 
preference of the shareholder, or holder of beneficial interest.

[T.D. 7564, 43 FR 40484, Sept. 12, 1978]