May 6, 1991
TO: BOARD OF GOVERNORS NO. 30-91
TAX MEMBERS NO. 12-91
OPERATIONS COMMITTEE NO. 14-91
TRANSFER AGENT ADVISORY COMMITTEE NO. 23-91
RE: CONGRESSIONAL PROPOSAL TO REQUIRE SHAREHOLDER BASIS
REPORTING
__________________________________________________________
As you may know, last year the staff of the House Ways and
Means Committee included in its proposals for tax simplification
a proposal that would have required mutual funds to calculate the
basis of fund shares redeemed. (See Institute Memorandum to
Accounting/Treasurers Committee No. 16-90, Operations Committee
No. 11-90, Tax Committee No. 12-90, and Transfer Agent Advisory
Committee No. 17-90, dated June 20, 1990). In response to this
proposal, the Institute sent a letter to Chairman Rostenkowski
explaining the complexity and difficulty associated with such a
system. No further legislative efforts to require mutual fund
shareholder basis reporting were made last year, although it was
indicated that the issue would be revisited.
Recently, the staffs of the House Ways and Means Committee
and the Joint Committee on Taxation have expressed renewed
interest in a shareholder basis reporting proposal for mutual
funds. As we understand the current staff thinking, funds would
be required, with respect to accounts opened after some future
date, to report cost basis information to shareholders on a
first-in, first-out (FIFO) method, taking into account all
adjustments to basis, such as returns of capital, wash sales,
etc. This information would be reported to the Internal Revenue
Service and to fund shareholders, who would be required to use it
in computing their gains and losses for federal tax purposes.
On May 3, the Institute staff met with representatives of
the Congressional staffs to express industry concerns with
respect to shareholder basis reporting. We will be continuing
discussions on this issue and will keep you informed of
developments.
Matthew P. Fink
Senior Vice President and
General Counsel