Rejected before testingRejected · unspecified — never reached a specification · n/a — no backtest
The idea
US mutual funds pay a 4% excise tax unless they distribute 98% of ordinary income and 98.2% of capital gains by the end of the calendar year. The date is hard and published. The bet was that funds sell appreciated winners from October to December to realize gains and raise the cash for the payout, and that this selling ignores price because the deadline does not move.
It is not the same claim as tax-loss selling, which the lab had already tested and refuted: that one is about selling losers for a deduction. This one is about selling winners to meet a distribution rule.
How it was tested
No backtest. The entry test went straight to the statute, IRC Section 4982, looking for the sentence that obliges a fund to sell.
Where it died
Rejected on 2026-09-22. The statute has no such sentence. It taxes a shortfall. The capital gain it counts is gain already realized in the year ending October 31, so the required distribution is computed from what the fund has already chosen to sell. A fund with no realized gains owes no distribution, and a fund that falls short pays 4% on the gap. Nothing in the text says "sell".
What is left is a weaker channel: a fund may need cash to pay the distribution. That is an obligation to pay, not to sell a particular name, the same shape that had already sunk the redemption mechanism. Default dividend reinvestment shrinks it further, since much of the payout flows straight back into the fund. The direction of the trade was never tested, because the forced sale it depended on does not exist.
The record
Thesis
US mutual funds owe a 4% excise tax unless they distribute 98% of ordinary income and 98.2% of capital gains by calendar year-end (IRC Section 4982). The thesis was that funds sell appreciated winners in October to December to realise and fund the required distribution, ahead of a hard, published date.
Gates
Entry test — obligationfail
Is someone actually obliged to trade badly here, and unable to stop?
Why it died
The statute taxes a shortfall; it does not compel a sale. "Capital gain net income" is gains already realised in the year ending October 31 — the statute computes a number from what the fund has already sold, and a fund with no realised gains owes no distribution. There is no "shall sell", only "pay 4% on the gap", and the gap is set by past decisions. The residual channel — raising cash for the payout — is the same "obliged to pay, not to sell this name" shape that sank the redemption mechanism, and default dividend reinvestment shrinks it further.
What it taught
Read the statute before building anything. Not the same claim as tax-loss selling (funds selling losers for a deduction, refuted by its own discriminator); this one would have been about selling winners, and it fails more fundamentally — no forced-sale clause exists, so the direction never got tested.
Verdict history
2026-09-22Rejected at the entry test after reading Section 4982 Rejected before testing