June 13, 1989
TO: ACCOUNTING/TREASURERS COMMITTEE NO. 22-89
INDEPENDENT ACCOUNTANTS ADVISORY GROUP
RE: YEAR-END TAX REPORTING
__________________________________________________________
At the committee's last meeting, on March 30, 1989,
volunteers were solicited to form part of a liaison group
consisting of individuals from the Accounting/Treasurers
Committee (ATC) and the Broker/Dealer Advisory Committee (BDAC).
The group was formed to address concerns of the broker/dealer
representatives on the BDAC regarding year-end tax information
reporting by mutual funds to broker/dealers that maintain
shareholder accounts in "street name."
The membership of the ATC/BDAC Liaison Group is as follows:
ACCOUNTING/TREASURERS COMMITTEE:
Susan Cote - Prudential Mutual Funds
John Gargana - Lord, Abbett
David Karam - Carnegie
Jeff Nachman - Dreyfus
Vincent Nave - The Boston Co.
BROKER/DEALER ADVISORY COMMITTEE:
John Cirrito - Prudential-Bache
Tom Medlin - Piper Jaffray
Emil Polito - PaineWebber
John Nolan - Raymond James & Asso.
Alan Rubin - Shearson Lehman Hutton
The group held its first meeting on June 8, 1989. The
discussion centered around (1) problems encountered by
broker/dealers regarding the accuracy and timeliness of tax
reporting by funds, (2) the difficulties encountered by funds in
accurately estimating income for December dividend payments, and
(3) possible means by which the concerns of the broker/dealers
may be satisfied.
In attendance at the meeting were:
ACCOUNTING/TREASURERS COMMITTEE:
John Gargana - Lord, Abbett
Jeff Nachman - Dreyfus
Vincent Nave - The Boston Co.
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BROKER/DEALER ADVISORY COMMITTEE:
John Cirrito - Prudential-Bache
John Nolan - Raymond James & Asso.
Alan Rubin - Shearson Lehman Hutton
Robin Wallick - Piper Jaffray (attending for
Tom Medlin)
ICI STAFF:
Donald O'Connor
Don Boteler
Keith Lawson
The broker/dealer participants stated that due largely to
post year-end adjustments necessitated by reallocations of prior
distributions, the necessary information has often not been
provided by the funds in sufficient time to process and mail
1099's by January 31. They expressed a strong desire to have
complete and final year-end information on dividend
reclassifications in sufficient time to comply with the IRS
reporting deadline. They also wish to avoid the expense of
issuing amended 1099's after January 31 and the attendant
customer relations problems.
The fund representatives described some of the difficulties
inherent in estimating income for year-end dividend payments,
particularly for funds with substantial Section 988 currency
transactions. When an estimate turns out to be wrong, a
reclassification may be unavoidable. That leaves open the
question of how timely the corrected information can be provided.
A related problem is that broker/dealers relying on
dividend information supplied by public sources often do not have
complete information. For example, dividend payments reported to
S&P on a book basis may have a materially different tax basis.
Moreover, the tax composition of dividend payments (ordinary
income, capital gains, return of capital) is not available
through S&P.
In attempting to reach a reasonable compromise regarding
the need for more timely reporting to broker/dealers, the group
decided to bring to the full committee for discussion a proposed
industry standard deadline of January 15. The group's fund
representatives agreed that most of their funds would be able to
meet a January 15 deadline and believe that a large majority of
funds in the larger fund groups would be able to meet a January
15 deadline without much difficulty. To assist the Institute in
obtaining a profile of the industry on this matter, each
committee member is requested to complete the attached form ,
providing (1) the number of funds in your group, (2) the funds
for which a January 15 deadline would be difficult, and (3) brief
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explanations as to the nature of any difficulties. Please bring
the completed form with you to the June 20 committee meeting, or
if you are not attending the meeting, please send me the form by
June 23.
In discussing the related issue of the adequacy of dividend
information furnished by public sources, the group considered the
possibility of working toward the development of a central
reporting facility dedicated exclusively to the collection and
dissemination of year-end tax reporting information for mutual
funds. Such a facility would ideally contain more complete
information than is currently provided by independent sources and
relieve fund groups that sell through an extensive broker/dealer
network of having to report separately to each broker/dealer.
Questions to be discussed at the June 20 committee meeting
regarding this item include what information should be reported,
how it should be reported and disseminated, and what organization
should develop the facility.
We look forward to seeing you on June 20 and we will keep
you advised of developments.
Donald J. Boteler
Director of Operations/
Fund Accounting
Attachment