1 A copy of the draft submission will be distributed later this week.
2 See Institute Memorandum to Board of Governors No. 38-91, Tax Committee No. 14-91 and 12b-1 Ad
Hoc Committee, dated June 4, 1991.
3 See Institute Memorandum to Accounting/Treasurers Members No. 35-93 and Tax Members No. 38-93,
dated November 15, 1993.
[10002]
VIA FAX
June 9, 1998
TO: TAX COMMITTEE No. 20-98
ADVISER/DISTRIBUTOR TASK FORCE
RE: JUNE 30 MEETING ON DISTRIBUTOR 12b-1 TAX ISSUES
______________________________________________________________________________
A joint meeting of the Institute’s Tax Committee and the Adviser/Distributor Task
Force has been scheduled for Tuesday, June 30 at 10:00 a.m. to discuss a draft Institute
submission to the IRS National Office regarding the tax consequences to a distributor of the sale
of mutual fund "B" shares.1 The meeting will be held in the David Silver Conference Room, on
the 12th Floor of the Institute’s office at 1401 H Street, N.W. Lunch will be served following the
meeting. Please complete the attached meeting response form if you or one of your colleagues
plan to attend the meeting on June 30.
As you may know, the Institute in 1991 submitted to IRS a memorandum in connection
with a proposed coordinated issue paper on this issue.2 In 1993, the IRS withdrew the proposed
coordinated issue paper and issued Technical Advice Memorandum 9345003, in which IRS
concluded that a mutual fund distributor (1) may deduct (as a dealer) commission payments to
brokers under Treas. Reg. sec. 1.263(a)-2(e) and (2) does not include in income at the time of
sale an estimate of the 12b-1 fees that may be earned in future years with respect to "B" shares
sold.3 Thereafter, IRS approved a distributor’s request to change its method of accounting (to
deduct rather than capitalize these commission payments) and issued a private letter ruling
permitting the deduction of commission payments by a distributor who represented that it was
a dealer for purposes of the section 263 regulation. Notwithstanding the determinations
reached by the IRS National Office, IRS field agents have continued to raise issues relating to
the treatment of "B" share arrangements during audits of fund advisers and distributors.
The submission being prepared by the Institute urges the National Office to reconfirm
its prior position and to reject the IRS field agents’ efforts to reopen these issues.
Keith D. Lawson
Senior Counsel
Attachment
ATTENDANCE RESPONSE FORM
INVESTMENT COMPANY INSTITUTE
DISTRIBUTOR 12b-1 TAX ISSUES MEETING
Tuesday, June 30, 1998
Please fax this portion by Friday, June 26, 1998, to Alice Bennett
Investment Company Institute, 202-326-5841.
YES NO
____ ____ DISTRIBUTOR 12b-1 TAX ISSUES MEETING
TUESDAY, JUNE 30 at 10:00 a.m.
____ ____ LUNCH
__________________________________________________
ATTENDEES’ NAME
_________________________________________________
COMPANY NAME
_ Please check here if you need special services due to a disability.