[15948]
April 25, 2003
TO: TAX COMMITTEE No. 26-03
RE: INSTITUTE RESPONSE TO IRS REQUEST FOR PFIC ISSUE PRIORITIZATION
The Institute has submitted the attached letter in response to a request from the Internal
Revenue Service (the “Service”) to prioritize items discussed in the Institute’s 2002 comment
letter1 on passive foreign investment company (“PFIC”) issues. The Service also requested that
the Institute indicate which of the industry’s issues could be simply addressed within the
Service’s current project involving the proposed regulations containing procedures for certain
US persons holding marketable stock in a PFIC to elect mark-to market treatment for that stock
under Section 1296 of the Code (the “Proposed Regulations”).2
The letter indicates that the industry’s first priority in the PFIC area is the elimination of
the PFIC asset test of Code section 1297(a)(2). The letter also discusses the need for:
• guidance regarding situations where a foreign corporation in a RIC’s portfolio
moves into and/or out of PFIC status;
• guidance coordinating the PFIC mark-to-market rules with the excise and
income tax distribution requirements to which RICs are subject;
• guidance permitting a RIC to determine its taxable income with reasonable
certainty where the RIC and a foreign corporation in which it invests have
different taxable year-ends;
• guidance regarding coordination issues for the first year of a section 1296
election by a RIC that marked PFIC stock to market under the pre-statutory
regime; and
1 See Institute Memorandum to Accounting/Treasurers Members No. 52-02, Closed-End Investment Company
Members No. 67-02, Tax Members No. 52-02, and Unit Investment Trust Members No. 39-02, dated December 17,
2002.
2See Institute Memorandum to Accounting/Treasurers Members No. 27-02, Closed-End Investment Company
Members No. 34-02, Tax Members No. 37-02, and Unit Investment Trust Members No. 20-02, dated August 13, 2002.
2
• guidance related to long-standing issues under the rules for qualified electing
funds (“QEFs”) that effectively have prohibited RICs from utilizing the QEF
regime.
Catherine Barré
Assistant Counsel
Attachment (in .pdf format)