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April 23, 1992
TO: TAX MEMBERS NO. 27-92
ACCOUNTING/TREASURERS MEMBERS NO. 21-92
CLOSED-END FUND MEMBERS NO. 21-92
INTERNATIONAL MEMBERS NO. 9-92
RE: INSTITUTE REQUESTS THAT PROPOSED PFIC REGULATIONS BE ISSUED
IN TEMPORARY FORM
__________________________________________________________
As you know, the Treasury Department recently issued
proposed regulations which would allow regulated investment
companies ("RICs") to eliminate the otherwise applicable RIC- tax
on gain or income attributable to investments in passive foreign
investment companies ("PFICs") by permitting RICs periodically to
mark PFICs to market. (See Institute Memorandum to Tax Members
No. 23-92, Accounting/Treasurers Members No. 20-92, Closed-End
Fund Members No. 19-92, and International Members No. 7-92, dated
April 3, 1992.)
One important provision of the regulations is a transition
rule which would allow RICs to mark to market gain on PFICs
currently held by them, distribute that gain to shareholders and
pay a nondeductible interest charge on the gain which eliminates
any tax deferral benefit. The RIC would thereafter mark to
market each PFIC share as provided by the regulations. However,
this mark-to-market system and the transition rule would be
available only with respect to taxable years of RICs ending after
the date that the proposed regulations are made final.
In the attached letter, the Institute asks that the
regulations be made retroactive to the effective date of the Tax
Reform Act of 1986, which created the inadvertent RIC-level tax.
In the alternative, the letter requests that Treasury make the
regulations temporary and allow RICs immediate use of the
transition rule.
The letter also briefly mentions a clarification that would
be helpful with respect to the interaction between the PFIC mark-
to-market rules and the excise tax provisions of Code section
4982. This issue will be dealt with in greater detail in a
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second letter that the Institute is currently preparing on the
proposed regulations.
We will keep you informed of further developments.
David J. Mangefrida Jr.
Assistant Counsel - Tax
Attachment