November 6, 1990
TO: TAX COMMITTEE NO. 29-90
ACCOUNTING/TREASURERS COMMITTEE NO. 34-90
RE: ROSTENKOWSKI STATEMENT ON PFICS
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As you may know, the Institute has proposed to the Treasury
Department that regulated investment companies ("RICs") be
permitted by regulation to mark to market shares in passive
foreign investment companies ("PFICs"). (See Institute
Memorandum to Tax Committee No. 23-90, dated August 22, 1990).
Such regulation, if promulgated, would permit RICs to invest in
PFICs without incurring the RIC-level tax that otherwise is
imposed by the PFIC rules on PFIC gains allocated to certain
years prior to the year in which the PFIC gains are realized.
However, the Treasure Department has not yet decided whether it
has the authority to promulgate the requested regulation.
Consequently, the Institute sought to have included in H.R.
5826 an amendment to section 1297(d) which would have clarified
the Treasury's authority to prescribe "regulations permitting
regulated investment companies to elect to mark-to-market (i.e.,
treat as sold for fair market value) stock in passive foreign
investment companies". Although Congress adjourned without
enacting H.R. 5826, the attached floor statement by Congressman
Rostenkowski, Chairman of the House Ways and Means Committee,
provides that the inaction by the Ways and Means Committee on
H.R. 5826 "does not alter any authority that the IRS possess
[sic] under present law to prescribe regulations in connection
with this issue."
The Institute will continue to pursue relief permitting
RICs to mark PFIC shares to market and will keep you informed of
developments.
Keith D. Lawson
Associate General Counsel
Attachment