A Mutual fund is a fund managed by investment companies with the financial objective of obtaining the highest rate of  return.  Regulated investment companies (RIC) are a mutual fund or real estate investment trust (REIT) that are eligible to pass the taxes on capital gains, dividends, or interest payments onto the clients or individual investors.  An RIC helps in avoiding double taxes for investment distributions.

Dividends are the periodic payments made by corporations out of the profits made by the corporations to its shareholders.  In the case of dividends, some dividends are considered qualified.  Qualified dividends gain preferential tax treatment.  They are taxed at the same reduced rate as capital gain.  Other dividends are non-qualified dividends and are taxed as ordinary income.

Generally, dividends from large U.S. companies that are not in the real estate business are qualified dividends.  Dividends from foreign companies and REITs or mutual funds or exchange-traded funds that invest in REITs are non-qualified dividends.

Generally, dividends from an RIC or mutual fund are taxable.  The original shareholders or persons holding beneficial interests in the shares can be taxed in the year when the distribution of dividend occurs[i].  When a RIC pays dividends later then when it was issued, the tax will be calculated in the year the dividend was actually issued[ii].  Some dividends are paid at year end.  However, if a dividend is declared at year end and paid by the mutual fund in the subsequent year, the dividend will be considered to have been received in the declaration year itself for tax purposes[iii].

[i] 26 CFR 1.852-4

[ii] 26 USCS § 855

[iii] 26 USCS § 852