REVENUE RULING ON CHARACTER OF REIMBURSED ADVISORY FEES FOR PURPOSES OF 90% QUALIFYING INCOME REQUIREMENT

11 The last representation is clearly intended to prevent a RIC from meeting the 30 percent test of Code section 851(b)(3) by reimbursing a portion of the investment advisory fee in order to lower the percentage of income derived from the sale of securities held for less than three months. June 30, 1992 TO: TAX MEMBERS NO. 41-92 CLOSED-END FUND MEMBERS NO. 30-92 ACCOUNTING/TREASURERS MEMBERS NO. 24-92 RE: REVENUE RULING ON CHARACTER OF REIMBURSED ADVISORY FEES FOR PURPOSES OF 90% QUALIFYING INCOME REQUIREMENT __________________________________________________________ The Internal Revenue Service has issued Revenue Ruling 92- 56 (attached), which holds that reimbursed investment advisory fees are qualifying income for purposes of Internal Revenue Code section 851(b)(2) when received by a regulated investment company (RIC) from its investment adviser. Under the facts in the ruling, investment advisory fees paid in one year were partially reimbursed to the RIC in the following tax year. The ruling assumes that the reimbursement is gross income to the RIC under Code section 61, and that the reimbursement was made in the normal course of the RIC’s business and not as part of a plan to artificially increase the RIC’s qualifying gross income. 11 The Ruling holds that the reimbursement is qualifying income under Code section 851(b)(2) because it is income derived with respect to the RIC’s business of investing in stock, securities, or foreign currencies. The Ruling also obsoletes two earlier rulings on this subject, Rev. Rul. 64-247 (relating to recovery of excess fees through a legal action by the RIC) and Rev. Rul. 74-248 (relating to a reimbursement of amounts improperly received by the adviser upon assignment of the advisory contract) to the extent that they would imply that the payments received by the RICs in the rulings were not qualifying income under Code section 851(b)(2) and to the extent they would treat the payments as dividend income under Code section 854. We will keep you informed of developments. David J. Mangefrida Jr. Assistant Counsel - Tax Attachment