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66 Tax Law. 331 (2012-2013)
RICs and the Retail Investor: A Marriage of Convenience or Necessity

handle is hein.journals/txlr66 and id is 349 raw text is: RICs and the Retail Investor: A Marriage of Convenience or Necessity? STEPHEN D. FISHER* ABSTRACT Regulated investment companies (RICs) hold the overwhelming majority of dollars that the mainstream public invests in pooled investment vehicles. This fact is somewhat surprising, at least if the common criticism of the RIC as a tax-inefficient structure is accurate. To explain the seeming paradox, this Article begins by taking an inventory of the pass-through vehicles in the Code. The Article considers the viability of each vehicle, based on tax considerations alone, as the structure for a general purpose pooled investment vehicle and illustrates why not every pass-through vehicle is suitable for this purpose. Having thereby narrowed the choices, the Article next considers the tax advantages and disadvantages of the structures that are viable because, notwithstanding the popular view of RICs as tax- inefficient, one possible reason for the prevalence of RICs could be the tax benefits they offer. Because the RIC structure is not in fact the most tax-efficient alternative, the Article next turns to other bodies of law that may explain the prevalence of the RIC-specifically, the federal securities laws. Based on an analysis of these provisions, the Article demonstrates that the prevalence of the RIC structure is due to the interaction between the Code and the federal securities laws. Because of this interaction, use of the RIC structure for pooled invest- ment vehicles designed for mainstream investors is de facto mandatory in many situations. I. Introduction One of the most important issues a money manager faces when launching a new investment fund is the selection of the fund's structure-for example, corporation, partnership, or trust. Although the manager invariably desires * Stephen D. Fisher is a principal in the Boston office of Ernst & Young LLP and a member of the adjunct faculty at the Boston University School of Law Graduate Tax Program. The views expressed in this article are those of the author in his individual capacity. The author thanks Stuart Fross, Alan Munro, Gregory Nowak, and Ameek Ashok Ponda for their helpful comments. Any errors are solely those of the author. Tax Lawyer, Vol. 66, No. 2 331

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