Regulation M


DEFINITION of 'Regulation M'

An IRS regulation that allows regulated investment companies to pass taxes from capital gains, dividends and interest distributions onto individual investors. Regulation M conforms to the 'conduit theory,' which states that investment firms should pass capitals gains, interest and dividends to shareholders in order to avoid double taxation both to the company and the individuals investors.

BREAKING DOWN 'Regulation M'

A mutual fund company serves as a conduit for investors, passing on dividends, interests and capital gains to investors. For example, suppose an investor owns a few shares of a mutual fund. The capital gains the fund incurs as well as the tax implications are passed onto the investor. Without regulation M, the company responsible for the mutual fund would pay taxes on the capital gain, and the remaining returns passed onto the investor would also be subject to taxes.

  1. Conduit Theory

    A theory stating that an investment firm that passes all capital ...
  2. Regulated Investment Company - ...

    A mutual fund, real estate investment trust (REIT) or unit investment ...
  3. Regulation Fair Disclosure - Reg ...

    A rule passed by the Securities and Exchange Commission in an ...
  4. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  5. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  6. Sales Tax

    A consumption tax imposed by the government on the sale of goods ...
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