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(2) Duplicate returns. If a share- | time or times, such returns are made and holder in a foreign corporation files, as placed in the mails in due course, propan officer or director in such corporation, erly addressed and postage paid, prothe returns required by section 338 (b) vided they are actually received in the and 9.338-2, such returns shall be office of the Commissioner of Internal considered as returns filed under section Revenue, Washington, D. C., even though 339 (b). received after such time or times.*+

(b) Form of return. The return under section 339 (b) and this section of the regulations shall be made on Form 957, copies of which, upon request, may be procured from any collector. Each shareholder should carefully prepare his return so as to set forth fully and clearly the information called for therein and by the applicable regulations. Returns which have not been so prepared will not be considered as meeting the requirements of the Act.

(c) Contents of return. The return shall, in accordance with the provisions of this section and the instructions on the form, set forth with respect to the taxable year of the foreign personal holding company the same information which is required under section 339 (a), § 9.338-1 (c) and § 9.339-1 (c), except that if all the required returns with respect to such year have been filed under section 339 (a) and § 9.339-1, no return under section 339 (b) and this section of the regulations is required.

If a person is required to file an annual return under section 339 (b) and this section of the regulations with respect to more than one foreign personal holding company, a separate return must be filed with respect to each foreign personal holding company.

(d) Verification of returns. All returns required by section 339 (b) and this section of the regulations shall be verified under oath or affirmation in the same manner as prescribed in § 9.51-4.

(e) Penalties. For criminal penalties for failure to file the returns required by section 339 (b) and this section of the regulations see section 340.*†

§ 9.339-3 Time and place of filing returns. Returns required by section 339 and the regulations thereunder shall be filed with the Commissioner of Internal Revenue, Washington, D. C., attention Income Tax Unit, Records Division, and will be considered filed within the time or times required by law if, within such

SEC. 340. Penalties.-Any person required under section 338 or 339 to file a return, or to supply any information, who willfully fails to file such return, or supply such information, at the time or times required by law or regulations, shall, in lieu of the penalties provided in section 145 (a) for such offense, be guilty of a misdemeanor and, upon conviction thereof, be fined not more than $2,000, or imprisoned for not more than one year, or both.

Subpart II-Mutual Investment
Companies

SUPPLEMENT MUTUAL INVESTMENT
COMPANIES

SEC. 361. Definition.—(a) In general.-For the purposes of this title the term "mutual investment company" means any domestic corporation (whether chartered or created as an investment trust, or otherwise), other than a personal holding company as defined in Title IA, if—

substantially all its business consists of, (1) It is organized for the purpose of, and holding, investing, or reinvesting in stock or securities; and

(2) At least 95 per centum of its gross income is derived from dividends, interest, and gains from sales or other disposition of stock or securities; and

(3) Less than 30 per centum of its gross income is derived from the sale or other disposition of stock or securities held for less than six months; and

(4) An amount not less than 90 per centum of its net income is distributed to its shareholders as taxable dividends during the taxable year; and

(5) Its shareholders are, upon reasonable notice, entitled to redemption of their stock for their proportionate interests in the corporation's properties, or the cash equivalent thereof less a discount not in excess of 3 per centum thereof.

(b) Limitations.-Despite the provisions of paragraph (1) a corporation shall not be considered as a mutual investment company if at any time during the taxable year

(1) More than 5 per centum of the gross assets of the corporation, taken at cost, was invested in stock or securities, or both, of any one corporation, government, or political subdivision thereof, but this limitation shall not apply to investments in obligations of the United States or in obligations of any corporation organized under general Act of Congress if such corporation is an instrumentality of the United States; or

(2) It owned more than 10 per centum of the outstanding stock or securities, or both, of any one corporation; or

(4) It fails to comply with any rule or regulation prescribed by the Commissioner, with the approval of the Secretary, for the purpose of ascertaining the actual ownership of its outstanding stock.

(3) It had any outstanding bonds or in- | (See section 361 (a) (2) and (3).) In debtedness in excess of 10 per centum of its determining the percentage of the corgross assets taken at cost; or poration's gross income which has been derived from such sources, a loss from the sale or other disposition of stock or securities does not enter into the computation. The determination of the period for which stock or securities have been held shall be governed by the provisions of section 117 (h) insofar as applicable.

§ 9.361-1 Definition of a mutual investment company. The term "mutual investment company" means a domestic corporation whether chartered or incorporated, or created under a trust instrument or otherwise, as an investment trust, and whether of the fixed or general management type (other than a personal holding company as defined in section 402), which complies with all the conditions prescribed by section 361. As to definition of a corporation see section 901.*†

(c) The Act provides that an amount not less than 90 percent of the corporation's net income for the taxable year must have been distributed to its shareholders as taxable dividends during the taxable year. The term "taxable dividends" means dividends (as defined in

section 115) which are taxable in the hands of such shareholders as are subject to taxation under Title I, and includes, for the purpose of section 361 (a) (4), the proportionate share of the net earnings of the current year to the date of redemption distributed to the shareholder upon redemption. A taxable dividend is not distributed to its shareholders during the taxable year within the meaning of section 361 (a) (4), unless the dividend is received by the shareholders during the taxable year of the company. See § 9.27 (b)-2, relating to when dividends are considered paid.

§ 9.361-2 Proof of status of a mutual investment company. (a) The Act requires that the corporation must have been organized for the purpose of, and that substantially all of its business must have consisted of, holding, investing or reinvesting in, stock or securities. It is not sufficient that the corporation is engaged in holding, investing or reinvesting in, stock or securities. It must have been organized for that purpose, and, throughout the taxable year, operated primarily as a medium through which contributing shareholders are offered centralized management and diversity of (d) The Act requires that shareholdinvestments. If its predominant purpose ers must, upon reasonable notice, be enis to hold, invest or reinvest in, stock or titled at all times during the taxable year securities, and if substantially all of its to redemption or purchase of their stock business consists of holding, investing or for their proportionate interests in the reinvesting in, such stock or securities, corporation's properties, or the cash the existence or exercise of incidental equivalent thereof, less a discount not powers to engage in other business will in excess of 3 percent thereof. Redempnot deprive a corporation of classification within 60 days of written notice is tion as mutual investment company. A finance corporation, or a corporation engaged in the business of a dealer in stock or securities, or of a trader in stock or securities for its own account, is not a mutual investment company.

redemption upon reasonable notice, even though subject to exception in case of extraordinary crises.*†

§ 9.361-3 Records to be kept for purpose of ascertaining actual ownership of outstanding stock of mutual invest(b) The Act provides that at least 95 ment companies. Every mutual investpercent of the corporation's gross income ment company shall maintain in the for the taxable year must be derived from collection district in which it is required dividends, interest, and gains from sales to file its income tax return permanent or other disposition of stock or securities, records showing the information relative and that less than 30 percent of the cor- to the actual owners of its stock conporation's gross income for the taxable tained in the written statements required year must have been derived from the by the regulations in this part to be desale or other disposition of stock or se- manded from the shareholders. The curities held for less than 6 months. term “actual owner of stock," as used in

corporation's taxable year, as provided in section 404. Statements giving such additional information shall be demanded not later than 30 days after the close of the corporation's taxable year, as follows:

the regulations in this part, includes the ❘ of the actual owners of any of its stock person who is required to include in gross at any time during the last half of the income in his return the dividends received on the stock. Such records shall be kept at all times available for inspection, by any authorized officer or employee of the Bureau of Internal Revenue, and shall be retained as long as the contents thereof may become material in the administration of any internal-reve-ing 2,000 or more actual owners of its nue law.

A mutual investment company shall demand of each of its shareholders (or in the case of a company all or substantially all of the capital stock of which is held by trustees for the purpose of exercising voting rights, such company shall demand of each of the registered holders of certificates of beneficial interest in the company) on or before the payment of any dividend a written statement giving (1) the name and address of the actual owner, as of the date the shareholder becomes entitled to the dividend, whether payable then or later, of the stock with respect to which the dividend is payable, (2) the name and address of the person who executes the statement, and (3) the number of shares to which the statement pertains, or if the statement is made by the actual owner, the total number of shares actually owned by such person.

At the time the first demand is made as required by this section, a like statement shall be demanded with respect to any prior dividends paid within the taxable year, unless at the time such dividends were paid ownership statements were demanded as required by § 3.48 (e)

4.*+

§ 9.361-4 Records to be kept for purpose of determining whether a corporation claiming to be a mutual investment company is a personal holding company. For the purpose of determining whether a domestic corporation claiming to be a mutual investment company is a personal holding company as defined in section 402, the permanent records of the corporation shall show, to the best of the knowledge and belief of the actual owners of its stock, the maximum number of shares of the corporation (including the number and face value of securities convertible into stock of the corporation) to be considered as actually or constructively owned by each

(1) In the case of a corporation hav

stock on any dividend payment date, as disclosed by statements received in response to demands made by the corporation as provided in § 9.361-3, from each person so disclosed or known to the corporation as the actual owner of 5 percent or more of its stock; or

(2) in the case of a corporation having less than 2,000 and more than 200 actual owners of its stock as so disclosed, from each person so disclosed or known to the corporation as actually owning 1 percent or more of its stock; or

(3) in the case of a corporation having 200 or less actual owners of its stock, from each person who is the actual owner of one-half of 1 percent or more of its stock.*†

§ 9.361-5 Additional information required in returns of shareholders. Any person who fails or refuses to comply with the demand of a mutual investment company for the written statements which §§ 9.361-3 and 9.361-4 require the company to demand from its shareholders shall submit as a part of the income tax return required by the Act of such person a statement showing, to the best of his knowledge and belief

(1) the number of shares actually owned by him at any and all times during the period for which the return is filed in any company claiming to be a mutual investment company;

(2) the dates of acquisition of any such stock during such period and the names and addresses of persons from whom it was acquired;

(3) the dates of disposition of any such stock during such period and the names and addresses of the transferees thereof;

(4) the names and addresses of the members of his family (as defined in section 404 (a) (2)); the names and addresses of his partners, if any, in any

For statutory and source citations, see note to § 9.1-1.

Page 1941

partnership; and the maximum number of shares, if any, actually owned by each in any corporation claiming to be a mutual investment company, at any time during the last half of the taxable year of such company;

(5) the names and addresses of any corporation, partnership, association, or trust in which he had a beneficial interest to the extent of at least 10 percent at any time during the period for which such return is made, and the number of shares of any corporation claiming to be a mutual investment company actually owned by each;

(6) the maximum number of shares (including the number and face value of securities convertible into stock of the corporation) in any domestic corporation claiming to be a mutual investment company to be considered as constructively owned by such individual at any time during the last half of the corporation's taxable year, as provided in section 404 and §§ 9.404 (a)-1 to 9.404 (a)-7 and § 9.404 (b)-1; and

(7) the amount and date of receipt of each dividend received during such period from every corporation claiming to be a mutual investment company.

SEC. 362. Tax on mutual investment com

panies. (a) Supplement Q net income.-For the purposes of this title the term "Supplement Q net income" means the adjusted net income minus the basic surtax credit computed under section 27 (b) without the application of paragraphs (2) and (3).

(b) Imposition of tax.-There shall be levied, collected, and paid for each taxable year upon the Supplement Q net income of every mutual investment company a equal to 161⁄2 per centum of the amount

thereof.

tax

§ 9.362-1 Tax on mutual investment companies. If a corporation, as defined in section 901, shows to the satisfaction

of the Commissioner that it is entitled

to the status of a mutual investment
company, as defined in section 361, it is
taxable upon its Supplement Q net in-
come, as defined in section 362 (a), at
the rate of 161⁄2 percent. A mutual in-
vestment company is not allowed, under
section 362 (a), the credit for dividends
received provided in section 26 (b). In
all other respects, a mutual investment
company is treated, for purposes of tax-
ation, as any other corporation subject
to taxation under the Act.*†
Subpart JJ-Exchanges and Distribu-
tions in Obedience to Orders of Secu-
rities and Exchange Commission
SUPPLEMENT R-EXCHANGES AND DISTRIBUTIONS

IN OBEDIENCE TO ORDERS OF SECURITIES AND
EXCHANGE COMMISSION

SEC. 371. Nonrecognition of gain or loss-(a) Exchanges of stock or securities only.transferor if stock or securities in a corporaNo gain or loss shall be recognized to the tion which is a registered holding company or a majority-owned subsidiary company are ciate company thereof which is a registered transferred to such corporation or to an assoholding company or a majority-owned sub

When making demand for the written statements required of each shareholder under the regulations in this part, the company shall inform each of the shareholders of his duty to submit as a part of his income tax return the statements which are required by this section if he fails or refuses to comply with such demand. A list of the persons failing or refusing to comply in whole or in part with a company's demand shall be main-sidiary company solely in exchange for stock tained as a part of its records required by the regulations in this part. A company which fails to keep such records to show the actual ownership of its outstanding stock as are required by the regulations in this part, or which may be required from time to time by any rule or regulation prescribed by the Commissioner, with the approval of the Secretary, for such purpose, shall not be taxable as a mutual investment company.

or securities (other than stock or securities which are nonexempt property), and the exchange is made by the transferee corporation in obedience to an order of the Securities and Exchange Commission.

(b) Exchanges of property for property by nized to a transferor corporation which is a corporations.-No gain or loss shall be recogregistered holding company or an associate company of a registered holding company, if such corporation, in obedience to an order of the Securities and Exchange Commission transfers property solely in exchange for property (other than nonexempt property), Nothing in the regulations in this part the transferor corporation is necessary or and such order recites that such exchange by shall be construed to relieve mutual in-appropriate to the integration or simplificavestment companies or their shareholders tion of the holding company system of which from the duty of filing information rethe transferor corporation is a member. turns required by regulations prescribed only-If there is distributed, in obedience to (c) Distribution of stock securities under sections 147 and 148.*†

от

an order of the Securities and Exchange Com

sum of such money and the fair market value of such other property, and the loss, if any, to the recipient shall not be recognized.

mission, to a shareholder in a corporation | nized, but in an amount not in excess of the which is a registered holding company or a majority-owned subsidiary company, stock or securities (other than stock or securities which are nonexempt property), without the surrender by such shareholder of stock or securities in such corporation, no gain to the distributee from the receipt of the stock or securities so distributed shall be recognized.

(d) Transfers within system group.-(1) No gain or loss shall be recognized to a corporation which is a member of a system group (A) if such corporation transfers property to another corporation which is a member of the same system group in exchange for other property, and the exchange by each corporation is made in obedience to an order of the Securities and Exchange Commission, or (B) if there is distributed to such corporation as a shareholder in a corporation which is a member of the same system group, property, without the surrender by such shareholder of stock or securities in the corporation making the distribution, and the distribution is made and received in obedience to an order of the Securities and Exchange Commission. an exchange by or a distribution to a corportion with respect to which no gain or loss is recognized under any of the provisions of this paragraph may also be considered to be within the provisions of subsection (a), (b), or (c), then the provisions of this paragraph only shall apply.

If

(2) If an exchange is within the provisions of paragraph (1) of this subsection and if it includes a distribution which has the effect of the distribution of a taxable dividend, then there shall be taxed as a dividend to each distributee such an amount of the gain recognized under such paragraph (1) as is not in excess of his ratable share of the undistributed earnings and profits of the corporation accumulated after February 28, 1913. The remainder, if any, of the gain recognized under such paragraph (1) shall be taxed as a gain from the exchange of property.

(f) Application of section.-The provisions of this section shall not apply to an exchange or distribution unless (1) the order of the Securities and Exchange Commission in obedience to which such exchange or distribution was made recites that such exchange or distribution is necessary or appropriate to effectuate the provisions of section 11 (b) of the Public Utility Holding Company Act of 1935, (2) such order specifies and itemizes the stock and securities and other property which are ordered to be transferred and received upon such exchange or distribution, and (3) such exchange or distribution was made in obedience to such order and was completed within the time prescribed therefor in such order.

(g) Non-application of other provisions.-If an exchange or distribution made in obedience to an order of the Securities and Exchange Commission is within any of the provisions of this section and may also be considered to be within any of the provisions of section 112 (other than the provisions of paragraph (8) of subsection (b)), then the provisions of this section only shall apply.

(2) If the property received upon an exchange which is within any of the provisions of paragraph (1) of this subsection consists in whole or in part of stock or securities issued by the corporation from which such property was received, and if in obedience to an order of the Securities and Exchange Commission such stock or securities (other than stock which is not preferred as to both dividends and assets) are sold and the proceeds derived therefrom are applied in whole or in part in the retirement or cancellation § 9.371-0 Terms used. The following of stock or of securities of the recipient corterms are defined in section 373 and when poration outstanding at the time of such exchange, no gain or loss shall be recognized used in this section and §§ 9.371-1 to to the recipient corporation upon the sale 9.373-1 shall have the meanings therein of the stock or securities with respect to which such order was made; except that if assigned to them: "Order of the Secuany part of the proceeds derived from the rities and Exchange Commission"; "regsale of such stock or securities is not so ap-istered holding company"; "holdingplied, or if the amount of such proceeds is in excess of the fair market value of such stock or securities at the time of such exchange, the gain, if any, shall be recognized, but in an amount not in excess of the proceeds which are not so applied, or in an amount not more than the amount by which the proceeds derived from such sale exceed such fair market value, whichever is the greater.

(e) Exchanges not solely in kind.—(1) If

company system"; "associate company"; "majority-owned subsidiary company"; "system group"; "nonexempt property"; and "stock or securities." Any other term used in this section and §§ 9.371-1 to 9.373-1, which is defined in the Act, shall be given the respective definition contained in the Act.*†

an exchange (not within any of the provi- § 9.371-1 Purpose and scope of excepsions of subsection (d)) would be within the provisions of subsection (a) or (b) if it tion. The general rule is that the were not for the fact that property received entire amount of gain or loss from the in exchange consists not only of property sale or exchange of property is to be permitted by such subsection to be received recognized (see section 112 (a)) and without the recognition of gain or loss, but also of other property or money, then the that the entire amount received as a gain, if any, to the recipient shall be recog-dividend is to be included in gross in

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