Reg. § 1.852-3 Investment company taxable income.
Section requires certain adjustments to be made to convert taxable income of the investment company to investment company taxable income, as follows:
(a) The excess, if any, of the net long-term capital gain over the net short-term capital loss shall be excluded;
(b) The net operating loss deduction provided in section shall not be allowed;
(c) The special deductions provided in part VIII (section and following, except section ), subchapter B, chapter 1 of the Code, shall not be allowed. Those not allowed are the deduction for partially tax-exempt interest provided by section , the deductions for dividends received provided by sections , , and , and the deduction for certain dividends paid provided by section . However, the deduction provided by section (relating to organizational expenditures), otherwise allowable in computing taxable income, shall likewise be allowed in computing the investment company taxable income. See section and for treatment of the deduction for partially tax-exempt interest (provided by section ) for purposes of computing the normal tax under section ;
(d) The deduction for dividends paid (as defined in section ) shall be allowed, but shall be computed without regard to capital gains dividends (as defined in section and ); and
(e) The taxable income shall be computed without regard to section . Thus, the taxable income for a period of less than 12 months shall not be placed on an annual basis even though such short taxable year results from a change of accounting period.