Rev. Rul. 64-247

For all its taxable years prior to 1962, the taxpayer qualified to be taxed as a regulated investment company under subchapter M, chapter 1, subtitle A of the Internal Revenue Code of 1954. During 1962, the taxpayer brought a legal action against certain of its former officers and directors to recover excess management fees paid to a corporation owned by the former officers and directors. The amounts recovered as a result of this litigation exceeded ten percent of the taxpayer's gross income for its taxable year 1962.

Held , the amounts recovered are includible in the taxpayer's gross income; however, the inclusion of such amounts in its gross income will not cause the taxpayer to fail to meet the definition of a regulated investment company contained in section 851 of the Code, provided that in all other respects the taxpayer qualifies for regulated investment company status for its taxable year 1962.

For purposes of section 854 of the Code, relating to limitations applicable to dividends received from regulated investment companies, the amounts recovered by the taxpayer should be allocated between interest and dividends in proportion to the interest and dividends derived by the taxpayer during the taxable year of the recovery.