July 2, 1992
TO: BOARD OF GOVERNORS NO. 43-92
TAX MEMBERS NO. 42-92
ACCOUNTING/TREASURERS MEMBERS NO. 25-92
CLOSED-END FUND MEMBERS NO. 31-92
OPERATIONS MEMBERS NO. 23-92
UNIT INVESTMENT TRUST MEMBERS NO. 41-92
TRANSFER AGENT ADVISORY COMMITTEE NO. 32-92
RE: HOUSE APPROVES REVENUE ACT OF 1992
__________________________________________________________
The House of Representatives today approved tax legislation
containing several provisions relevant to the investment company
industry. The following is a summary of the provisions affecting
regulated investment companies (RICs) and their shareholders.
Except as otherwise described, all relevant provisions are
substantively identical to those previously contained in H.R.
4210, the "Tax Fairness and Economic Growth Act of 1992", which
was vetoed by the President in March. (See Institute Memorandum
to Board of Governors No. 19-92, Tax Members No. 15-92, Closed-
End Fund Members No. 13-92, Unit Investment Trust Members No.
20-92, Accounting/Treasurers Members No. 12-92, Operations
Members No. 11-92, International Committee No. 7-92,
Institutional Funds Committee No. 3-92 and Transfer Agent
Advisory Committee No. 14-92, dated March 23, 1992.) Anyone
interested in obtaining copies of relevant House Ways and Means
Committee Report and statutory bill language may do so by calling
the undersigned at (202) 955-3521.
I. Mutual Fund Tax Simplification
The bill would repeal the 30 percent test of Internal
Revenue Code section 851(b)(3) for taxable years beginning after
the date of enactment.
The bill also would require funds and brokers to provide
shareholders and the Internal Revenue Service with average cost
basis information for shares redeemed. The reporting would be
done on an account-by-account basis, and the taxpayer could elect
whether or not to the use the information for each account. The
provision would be effective for accounts opened after December
31, 1993, and would not apply to accounts in which shares had
been acquired other than through purchase.
A third mutual fund simplification provision would permit
tax-free conversions of bank common trust funds into RICs.
II. Foreign Investment Provisions
The bill would allow individuals with no more than $200 of
creditable foreign taxes and no other foreign source income to
elect a simplified foreign tax credit limitation which would not
require a taxpayer to complete a separate tax form. The
provision would apply to taxable years beginning after December
31, 1991.
The bill also contains modifications to the passive foreign
investment company ("PFIC") rules. It would add a mark-to-market
tax system to the two existing tax regimes for PFICs. The bill
contains a transition rule which would allow a RIC to mark-to-
market its PFIC stock held on the date of enactment of the bill
and pay a nondeductible interest charge on any gain. The PFIC
provisions would be generally applicable for taxable years
beginning after December 31, 1992.
III. Amortization of Intangible Assets
The bill would require that the purchase price of certain
acquired intangible assets be amortized over a uniform 14-year
period. Among the intangible assets included under the bill are
goodwill, going concern value, and various customer-based
intangibles such as investment advisory contracts. The provision
generally would be effective for property acquired after the date
of enactment of the bill, although a taxpayer may elect to have
the bill apply to all property acquired after July 25, 1991.
IV. Taxpayer Bill of Rights Amendment
The bill contains a provision which would require a payor,
including a RIC, to include the name, address and telephone
number of the payor’s information contact on information
statements sent to payees.
* * *
We will keep you informed of developments.
David J. Mangefrida Jr.
Assistant Counsel - Tax