conduit theory

Conduit theory

A theory that because investment companies are merely conduits for capital gains, dividends, and interest, which are in fact passed through to shareholders, the investment company should not be taxed at the corporate level.

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conduit theory

The theory that states that because regulated investment companies merely act as conduits for the passage of dividends, interest, and capital gains to stockholders, these income items should not be taxed once to a company and again to the company's stockholders. If an investment company complies with certain federal regulations, the income is taxed only to the stockholders receiving the distributions. Also called pipeline theory. See also Subchapter M.