[16353]
July 25, 2003
TO: 529 PLAN ADVISORY COMMITTEE No. 41-03
ACCOUNTING/TREASURERS COMMITTEE No. 28-03
ADVISER DISTRIBUTOR TAX ISSUES TASK FORCE No. 10-03
TAX COMMITTEE No. 43-03
RE: DRAFT COMMENT LETTER ON TAX SHELTER DISCLOSURE OBLIGATIONS FOR
YOUR REVIEW
The Treasury Department (“Treasury”) and the Internal Revenue Service (“IRS”)
released final regulations under sections 6011 and 6112 of the Internal Revenue Code (the
“Code”).1 The final regulations provide several exceptions for regulated investment companies
(“RICs”) that were suggested by the Institute following issuance of the regulations.2
The attached comment letter requests additional guidance regarding the tax shelter
disclosure obligations. Specifically, the Institute addresses a concern that the final regulations
and accompanying guidance continue to have an overly broad application in certain limited
situations. Specifically,
• losses on RIC shares are subject to reporting because Revenue Procedure 2003-24 does
not permit RIC shareholders to have a “qualifying basis” in their shares;
• the scope of the “confidential transaction” category is so expansive as to include
transactions where the confidentiality agreement covers only legitimate proprietary
concerns and does not cover the intended tax benefits of the transaction; and
1 See Institute Memorandum to 529 Plan Advisory Committee No. 14-03, Accounting/Treasurers Members No. 13-03,
Advisor Distributor Tax Issues Task Force No. 5-03, Tax Members No. 15-03 and Unit Investment Trust Members No.
9-03 (No. 15707), dated March 7, 2003 for a discussion of the final regulations.
2 See Institute Memorandum to Accounting/Treasurers Committee No. 55-02, Advisor Distributor Tax Issues Task
Force No. 4-02, Tax Members No. 56-02 and Unit Investment Trust Members No. 41-02 (No. 15499), dated December
31, 2002 and Institute Memorandum to 529 Plan Advisory Committee No. 4-03 (No. 15568), dated January 23, 2003
for a discussion of the comments we submitted in response to the temporary and proposed regulations.
2
• it is unclear whether tax-exempt entities are subject to the full panoply of tax shelter
disclosure obligations simply because their tax-exempt status may fall within the
definition of a “tax benefit” in a reportable transaction.
To address these concerns, our comment letter requests that guidance be issued:
• modifying Revenue Procedure 2003-24 to permit RIC shareholders to hold a “qualifying
basis” in RIC shares, so that such losses are not taken into account in determining
whether a transaction is a reportable transaction;
• modifying the section 6011 regulations to clarify that confidentiality relates to tax
benefits and to treat as a “confidential transaction” only those transactions where the
predominant reason for offering the transaction under conditions of confidentiality is
related to the tax structure or potential tax benefit that may result from the transaction;
and
• modifying the section 6011 regulations to exclude tax-exempt entities from the
disclosure rules, except in certain potentially abusive situations, as described in the
comment letter.
If you have comments concerning the letter, please submit them by Wednesday, July 30,
2003. You may contact Lisa Robinson at 202-326-5835 or lrobinson@ici.org. You may also
contact Keith Lawson at 202-326-5832 or lawson@ici.org.
Lisa Robinson
Assistant Counsel
Attachment (in .pdf format)