[16109]
May 23, 2003
TO: TAX MEMBERS No. 30-03
PENSION MEMBERS No. 26-03
ACCOUNTING/TREASURERS MEMBERS No. 26-03
INTERNATIONAL MEMBERS No. 17-03
TRANSFER AGENT ADVISORY COMMITTEE No. 52-03
529 PLAN ADVISORY COMMITTEE No. 31-03
RE: INSTITUTE SUGGESTIONS FOR 2003-2004 TREASURY/IRS BUSINESS PLAN
The attached Institute letter requests that the Treasury Department and the Internal
Revenue Service include in their 2003-2004 IRS/Treasury Guidance Priority List (also known as
the “business plan”) several issues of interest to regulated investment companies (“RICs”) and
their shareholders, to education savings, and to retirement security. In addition, the letter
requests the issuance by June 30 (the end of the 2002-2003 business plan year) of numerous
guidance projects included on that plan.
Issues for Regulated Investment Companies and Their Shareholders
The Institute requests that the 2003-2004 business plan include four projects of interest to
RICs and their shareholders. First, the letter requests the inclusion of guidance, previously
requested by the Institute, clarifying that the merger of two RICs will satisfy the “business
continuity” requirement applicable to RICs under Code section 368 and Treas. Reg. section
1.368-1(d)(2).
Second, we request targeted guidance, reflecting the interaction between the Subchapter
M income tax rules and the Code section 4982 excise tax minimum distribution requirements,
providing that ordinary losses that fall in one calendar year will not reduce earnings and profits
created by ordinary income that arises in the same taxable year but in a different calendar year.
The letter also notes that guidance is warranted on all of the issues described in the submission
that the Institute made to Treasury and the IRS in 1998 regarding the interaction of the income
tax and excise tax rules.
Third, we request that the business plan include guidance on the proper tax treatment of
severely distressed, and speculative, debt. The letter specifically identifies as an area for
guidance the accrual of original issue discount on debt instruments after an issuer has filed for
bankruptcy -- where IRS has issued inconsistent guidance.
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Finally, we request that the business plan include guidance updating the regulations
under Code section 853 pursuant to which RICs flow through foreign tax credits to their
shareholders. 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.
Education Savings Issues
The letter also requests guidance clarifying the reporting requirements for Coverdell
Education Savings Accounts (“ESAs”). More specifically, the guidance should: (1) provide that
ESA record keepers should not be required to track earnings and basis in ESA accounts; (2)
alternatively, provide that any obligation imposed on ESA record keepers to calculate earnings
and basis should be imposed only prospectively, for new accounts opened after a transition
period sufficient to permit record keepers to comply with the new requirements; (3) clarify the
requirements of Notice 2001-81 with respect to ESA reporting, including the requirement to
aggregate accounts; and (4) clarify or resolve several technical issues regarding reporting on
Forms 5498-ESA and 1099-Q.
Retirement Security Issues
Guidance on six retirement savings issues also is requested in the letter. First, we
request that the business plan include guidance clarifying the pension portability provisions of
the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”). Among other
things, guidance should: (1) confirm that a plan receiving after-tax rollovers from a distributing
plan can combine in one account (or “bucket”), if it chooses, both after-tax rollover amounts and
after-tax contributions made directly to the receiving plan; (2) clarify the means by which after-
tax contribution information should be communicated among employer-sponsored plans; (3)
clarify the extent to which particular plan types may receive after-tax rollover amounts from
different types of plans; and (4) confirm that assets rolled over from one plan to another
generally attain the attributes of the recipient plan.
Second, we request that the Service issue guidance concerning the treatment of separate
accounts under the Code section 401(a)(9) final regulations. Specifically, guidance should allow
separate accounts established in the year following death to be recognized in that year for
required minimum distribution (“RMD”) purposes.
Third, we seek guidance on voluntary correction issues relating to SIMPLE plans under
section 408(p).
Fourth, the letter requests additional guidance under section 72(t)(2)(A)(iv) (pertaining
to substantially equal periodic payments). Among other things, the guidance should clarify (1)
whether individuals who are already receiving distributions under the required distribution
method may change to a different RMD table and (2) certain issues that arise when the one-time
election to change distribution methods is made near the end of a calendar year.
Fifth, we request that the IRS issue guidance on “orphan” or “abandoned” plans.
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Sixth, we request the inclusion of guidance on either the 2003-2004 or the 2004-2005 plan
regarding “qualified Roth contribution programs” that are effective for taxable years beginning
after December 31, 2005.
Keith Lawson
Senior Counsel
Note: Not all recipients receive the attachment. To obtain a copy of the attachment, please visit our members website
(http://members.ici.org) and search for memo 16109, or call the ICI Library at (202) 326-8304 and request the
attachment for memo 16109.
Attachment (in .pdf format)