[15727]
March 7, 2003
TO: TAX COMMITTEE No. 13-03
ADVISER DISTRIBUTOR TAX ISSUES TASK FORCE No. 4-03
RE: DRAFT INSTITUTE COMMENTS ON PROPOSED CAPITALIZATION REGULATIONS
Attached are draft comments on the Administration’s proposed regulations governing
the capitalization of amounts expended to acquire, create or enhance intangible assets. There
will be a conference call to to discuss the draft comments on Tuesday, March, 11, 2003 at 2:00
pm EST.
The draft comments focus on five issues. First, the comment letter supports a provision
specifying that stock issuance costs of mutual funds are deductible, and request clarification
that the same treatment is available for stock redemption costs of mutual funds. Second, the
letter supports the regulations’ example providing that a contribution by an adviser to a money
market fund to avoid a net asset value of less than $1.00 per share is deductible. Third, the
comment letter supports the treatment of all employee compensation as deductible, and states
that the same treatment should be extended to contract employees and independent contractors
who are not hired to facilitate transactions and do not work predominantly on facilitating
transactions. Fourth, the regulations suggest that significant additional guidance is needed to
narrow the scope of what constitutes an amount expended to “enhance” an intangible asset.
The letter proposes that the final regulations should provide that expenses which are “regular
and recurring” and which only “incidentally” enhance intangible assets should not be required
to be capitalized under this provision. Finally, the comment letter suggests that greater
guidance should be included in the final regulations to distinguish between amounts paid to
induce a party to enter into a contract (which must be capitalized) and amounts paid in
expectation of a continued business relationship (which may be deducted).
We welcome your input on the issues discussed in the draft letter, as well as on issues
that are not discussed in this draft. If you would like to participate in the call on March 11,
please complete the attached form and fax it to Ezella Wynn, or email the requested information
to her at ewynn@ici.org. The dial-in number for the call will be 888-889-6352, and you will need
to give the undersigned’s name and the passcode “capitalization.”
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In addition, please feel free to contact the undersigned (dorlin@ici.org, 202/371-5436) or
Keith Lawson (lawson@ici.org, 202/326-3832) with any other comments or suggestions by
Thursday, March 13, 2003.
David Orlin
Assistant Counsel
Attachment no. 1 (in .pdf format)