INSTITUTE REQUEST FOR GUIDANCE PROJECTS TO BE INCLUDED ON 1999 IRS/TREASURY BUSINESS PLAN

1 At the request of the Institute, this issue has been on the IRS business plan for the past two years. See, e.g., Institute Memoranda to Tax Committee No. 5-98, dated February 6, 1998; and to Tax Committee No. 8-98 (among others), dated March 4, 1998. 2 These “interaction” issues were addressed in the Institute’s May 1998 submission to IRS. See Institute Memorandum to Tax Committee No. 19-98, dated May 29, 1998. 3 See Institute Memorandum to Tax Members No. 45-97 (among others), dated November 12, 1997. 4 The requested guidance would (a) clarify that the constructive sale rules (including the closed transaction exception) apply on the basis of a RIC’s taxable year only and (b) provide, to any RIC seeking certainty as to the includability of constructive sale income for excise tax purposes, an election not to apply the closed transaction exception. [10605] December 24, 1998 TO: TAX COMMITTEE No. 41-98 RE: INSTITUTE REQUEST FOR GUIDANCE PROJECTS TO BE INCLUDED ON 1999 IRS/TREASURY BUSINESS PLAN _____________________________________________________________________________ The Institute has submitted the attached letter to the IRS and Treasury requesting that the 1999 IRS/Treasury Priority Guidance Plan (also known as the “business plan”) include several items of interest to regulated investment companies (“RICs”) and their shareholders. The items are: (1) guidance setting forth the “safe harbor” circumstances under which the IRS will not raise preferential dividend issues relating to expense limitations involving multiple-class mutual funds;1 (2) guidance regarding the interaction between the income tax rules of Subchapter M of the Code and the excise tax minimum distribution requirements of section 4982,2 including: (a) regulations addressing the “bifurcation adjustment”described in IRS Notice 97- 64;3 (b) guidance that would clarify that short-term losses subject to section 852(b)(4)(A) are “recharacterized” as 20 percent rate losses; (c) guidance that would address the interaction between the constructive sale rules of section 1259 and the excise tax rules;4 and (d) guidance that would resolve long-standing technical issues arising from the 5 These issues include: (a) pre-January ordinary losses; (b) post-December ordinary losses; (c) the automatic deferral of post- October losses for dividend designation purposes; (d) post-October net short-term capital losses; (e) ordinary income and loss on dispositions of capital assets; and (f) application of the post-October loss rules to RICs exempt from section 4982. 6 Among other things, the regulations should clarify that RICs no longer need to provide shareholders with foreign tax credit information calculated on a country-by-country basis, as the statutory requirement for such reporting was repealed in 1976. 7 See Institute Memorandum to Tax Members No. 27-97 (among others), dated August 1, 1997. interaction between the income tax and excise tax regimes;5 (3) guidance regarding the definition of a government security for RIC diversification purposes; (4) guidance updating the regulations under section 853 pursuant to which RICs flow through foreign tax credits to their shareholders;6 and (5) guidance (to be issued no later than early in 2000) regarding the procedures pursuant to which taxpayers, including RIC shareholders, may elect to mark assets to market as of January 1, 2001 to establish eligibility for the qualified 5-year gain provision in the Taxpayer Relief Act of 1997.7 Keith D. Lawson Senior Counsel Attachment