[14682]
May 1, 2002
TO: TAX COMMITTEE No. 15-02
RE: INSTITUTE’S REQUEST FOR IRS BUSINESS PLAN GUIDANCE
The Institute has submitted the attached letter to the IRS and Treasury requesting that
the 2002 priority guidance plan include several items of interest to regulated investment
companies (“RICs”) and their shareholders. The items are:
(1) guidance regarding the definition of a government security for RIC
diversification purposes;
(2) guidance clarifying the application of the “business continuity” requirement to
RICs under Code section 368 and Treas. Reg. 1.368-1(d)(2);
(3) guidance regarding the interaction between the income tax rules of Subchapter
M of the Code and the excise tax minimum distribution requirements of section
4982,1 including:
(a) promulgation of “bifurcation adjustment” regulations;
(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;2 and
(d) guidance that would resolve long-standing technical issues arising from
the interaction between the income tax and excise tax regimes;3
1 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.
2 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.
2
(4) guidance updating the regulations under section 853 pursuant to which RICs
flow through foreign tax credits to their shareholders;4 and
(5) guidance to address the inadvertent and significant difficulties created by
Revenue Procedure 2002-16 for tax-exempt money market and municipal bond
funds that invest in synthetic tax-exempt variable rate instruments.
Catherine Barré
Assistant Counsel
Attachment (in .pdf format)
3 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 Code section 4982. We have also requested that related technical issues involving passive foreign investment
companies (“PFICs”) be addressed in any guidance project.
4 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.