FOR YOUR REVIEW: DRAFT letter to Treasury/IRS on Liquidity Fee-Related Tax Issues for Money Market Funds

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August 15, 2023

TO: Money Market Funds Advisory Committee
Tax Committee RE: FOR YOUR REVIEW: DRAFT letter to Treasury/IRS on Liquidity Fee-Related Tax Issues for Money Market Funds

 

The attached draft letter to US Treasury and IRS officials requests guidance on two liquidity fee-related tax issues for money market funds that arise from the new SEC rule. The ICI discussed these issues, and one involving the reversed distribution method (RDM), recently with the officials. First, we request an exemption from the wash sale rule for redemptions on which a liquidity fee is imposed. Second, we request guidance on various issues related to the treatment of liquidity fees received by a money market fund. Specifically, the letter requests that: (1) money market funds treat receipt of the liquidity fee as a non-taxable event; (2) shareholders treat the liquidity fee as a reduction of gross proceeds; and (3) liquidity fees distributed by a fund (to avoid breaking the buck on the upside) be deemed to be taxable income to the extent that the distribution otherwise would be a return of capital.

Please provide any comments on the draft letter to Katie Sunderland (at katie.sunderland@ici.org or 202-326-5826) or the undersigned (at lawson@ici.org or 202-326-5832) no later than Thursday, August 17. Thank you.

 

 

Keith Lawson
Deputy General Counsel - Tax Law