April 2, 1990
TO: TAX COMMITTEE NO. 8-90
CLOSED-END FUND COMMITTEE NO. 9-90
ACCOUNTING/TREASURERS COMMITTEE NO. 11-90
RE: INSTITUTE COMMENTS ON SECTION 852(b)(3)(C) POST-OCTOBER
LOSS REGULATIONS
________________________________________________________
As we previously informed you, the Internal Revenue
Service recently issued temporary and proposed regulations
providing guidance under Code section 852(b)(3)(C) on the
effect of a post-October capital loss and a post-October
currency loss on a regulated investment company's ("RIC's")
taxable income, its earnings and profits, and the amount that
it may designate as a capital gain dividend for the taxable
year in which the loss is incurred and the succeeding taxable
year. (See Institute Memorandum to Tax Members No. 7-90,
Closed-End Fund Members No. 7-90 and Accounting/Treasurers
Members No. 6-90, dated February 1, 1990).
The regulations are needed, and were requested by the
Institute, to permit the proper interaction between the
distribution requirements of the section 4982 excise tax and
Subchapter M. (See Institute Memorandum to Tax Committee No.
16-89, Closed-End Fund Committee No. 43-89 and
Accounting/Treasurers Committee No. 42-89, dated October 6,
1989).
The attached Institute comment letter to IRS addresses
three issues. First, the Institute seeks clarification that a
decline in value in a section 1256 contract between October 31,
when the contract is marked to market for excise tax purposes,
and the end of a RIC's fiscal year, when the section 1256
contract is marked to market for income tax purposes, is a
post-October loss. Second, the Institute seeks clarification
that a deferred post-October loss is treated as arising on the
first day of the RIC's next fiscal year in computing the
capital loss carryforward period. Third, the Institute seeks
additional transition-related relief arising from the delay in
issuing these regulations.
The letter also notes that supplemental comments may be
filed because the Institute's members have not yet actually
gone through the process of applying these regulations to their
prior distributions and that, when they do so, as yet
unidentified issues may be encountered. Consequently, please
let us know as soon as possible of any problems that arise when
you apply these regulations so that we can receive as much
guidance as possible from IRS before the deadline for making
retroactive elections (December 31, 1990).
We will keep you informed of developments.
Keith D. Lawson
Assistant General Counsel
Attachments
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