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.

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.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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References in periodicals archive

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The Service expanded the scope of the conduit theory in 1984 by disregarding (in two revenue rulings) the intermediary financial transactions of corporations located in a country with a reduced treaty withholding rate.

The IRS further expanded its application of the conduit theory in Letter Ruling (TAM) 9133004.(45) A Canadian parent corporation purchased debentures from, and made a capital contribution to, its Dutch finance subsidiary.(46) On the same day, the Dutch finance subsidiary made loans in the same amounts to its U.S.

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