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Cash settlement and note from investment adviser are qualifying RIC income.(regulated investment company)

In Letter Ruling 200739010, the Service ruled that a regulated investment company's (RIC's) receipt of cash and a note from its investment adviser (IA) are qualifying income under Sec. 851(b)(2). Further, although the note caused a Sec. 851(b)(3) asset-test failure, the IRS ruled that satisfaction of the note within 30 days of the close of the quarter cured the failure.

Facts

A RIC invested in a passive foreign investment company (PFIC), which invested in segregated portfolio companies (SPCs) taxable as partnerships. The SPCs held deposits as collateral for the PFIC's trading activities with a company that operated as a private bank. At a certain point, the IA to the ...

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