Rev. Rul. 88-14

1988-1 C.B. 405, 1988-9 I.R.B. 4.

                       Internal Revenue Service

                                 Revenue Ruling

   REGULATED INVESTMENT COMPANIES; SERIES INVESTMENT COMPANIES; TREATMENT OF

                         FUNDS AS SEPARATE CORPORATIONS

                          Published: February 29, 1988

26 CFR 301.7805-1: Rules and regulations.

(Also Section 851.)

  Regulated investment companies; series investment companies; treatment of funds as separate corporations. New section 851(q), which provides that each fund of a series investment company is a separate corporation, renders Rev. Rul. 56-246 obsolete.

  The Internal Revenue Service periodically reviews rulings that have been published in the Internal Revenue Bulletin. The Service has reviewed Rev. Rul. 56-246, 1956-1 C.B. 316, and determined that it is obsolete.

  Rev. Rul. 56-246 holds that a series investment company, organized as a corporation, constitutes one taxpayer for federal income tax purposes. Therefore, each fund maintained by such a company does not realize gain or loss on the transfer of assets from one series fund to another.

  A series investment company is an open-end investment company registered under the Investment Company Act of 1940 (1940 Act) that, in accordance with the provisions of section 18(f)(2) of the 1940 Act, issued two or more classes or series of preferred or special stock, each of which is preferred over all other classes or series with respect to assets specifically allocated to that class or series. See 17 C.F.R. section 270.18f-2(a) (1987).

  Part I of subchapter M of the Internal Revenue Code (sections 851-855) provides special tax treatment for certain companies that are subject to regulation by the Securities and Exchange Commission under the 1940 Act. Section 654 of the Tax Reform Act of 1986 amended section 851 by adding new section 851(q), which provides that each fund of a series investment company is a separate corporation for purposes of the Code. This amendment, which applies to both incorporated and unincorporated series investment companies, is effective for taxable years of series investment companies beginning after October 22, 1986. Accordingly, Rev. Rul. 56-246 is declared to be obsolete.

DRAFTING INFORMATION

  The principal author of this revenue ruling is Lon Smith of the Individual Tax Division. For further information regarding this revenue ruling contact Mr. Smith on (202) 566-3635 (not a toll-free call).

Rev. Rul. 88-14, 1988-1 C.B. 405, 1988-9 I.R.B. 4.