11/ A separate memorandum to Pension Members, Operations Members
and the Transfer Agent Advisory Committee describes various
pension-related provisions, including one that would permit
certain taxpayers to make deductible IRA contributions.
22/ See Institute Memorandum 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 and Transfer Agent
Advisory Committee No. 32-92, dated July 2, 1992.
33/ See Institute Memorandum to Tax Members No. 59-92,
Accounting/Treasurers Members No. 35-92, Closed-End Fund Members
No. 36-92, Operations Members No. 32-92, Unit Investment Trust
Members No. 49-92, International Members No. 20-92 and Transfer
October 8, 1992
TO: TAX MEMBERS NO. 65-92
ACCOUNTING/TREASURERS MEMBERS NO. 37-92
CLOSED-END FUND MEMBERS NO. 37-92
OPERATIONS MEMBERS NO. 37-92
UNIT INVESTMENT TRUST MEMBERS NO. 50-92
INTERNATIONAL MEMBERS NO. 22-92
TRANSFER AGENT ADVISORY COMMITTEE NO. 58-92
RE: CONGRESS APPROVES REVENUE ACT OF 1992
__________________________________________________________
The Senate today gave final approval to the Revenue Act of
1992, which was passed by the House of Representatives on October
6. If the President does not sign the bill within ten days after
receiving it, it will not become law.
This memorandum describes several non-pension-related
provisions in the bill that would affect regulated investment
companies ("RICs") and their shareholders. 1/1 Many of the
provisions contained in this bill are identical to provisions
contained in the bills previously passed by the House of
Representatives in July2/2 and by the Senate in September.3/3
Agent Advisory Committee No. 52-92, dated September 30, 1992.
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Anyone interested in obtaining a copy of relevant Conference
Committee Report and statutory bill language may do so by calling
the undersigned at (202) 955-3585.
I. Mutual Fund Tax Simplification
The bill would repeal the 30 percent test of Internal
Revenue Code section 851(b)(3) for taxable years ending 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 use the information for each account. The
provision would apply to accounts opened on or after January 1,
1995 but would not apply to accounts in which shares were
acquired other than through purchase.
In addition, the bill would permit the tax-free conversion
of bank common trust funds into RICs. The ability to convert
tax-free from a RIC to a common trust fund would be limited to
RICs the majority of whose shares were owned by accounts that
qualify for participation in a bank common trust fund. While the
provision permitting tax-free conversions of bank common trust
funds into RICs would apply to all transfers occurring after the
date of enactment, the provision permitting tax-free conversions
of RICs into bank common trust funds would apply only to
transactions occurring after date of enactment and on or before
September 30, 1993.
II. Foreign Investment Provisions
The bill would allow individuals with no more than $200 of
creditable foreign taxes ($400 in the case of a joint return) and
no other foreign source income to elect a simplified method for
claiming the foreign tax credit. The provision would apply to
taxable years beginning after December 31, 1991.
In addition, the bill would modify the passive foreign
investment company ("PFIC") rules. Under the bill, all shares of
passive foreign corporations ("PFCs") held by RICs would be
marked to market each year at October 31 for excise tax purposes
and at the RIC’s fiscal year-end for income tax purposes, unless
a "qualified electing fund" election had been made by the RIC to
currently include in its income the PFC’s income. Under a
transition rule, a RIC would be required to (1) mark to market
all PFC stock in its portfolio on the first day of the RIC’s
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first taxable year beginning after December 31, 1992, (2) pay a
nondeductible interest charge on the tax that would have been
collected had the PFC shares been marked to market in the prior
years and (3) distribute the mark-to-market gains to its
shareholders.
III. Amortization of Intangibles
The bill would require that the purchase price of certain
acquired intangible assets be amortized over a uniform 14-year
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period. Among the intangible assets covered by the bill are
goodwill, going concern value and various customer-based
intangibles, such as investment advisory contracts. The
provision would be generally effective for property acquired
after the date of enactment, although a taxpayer could elect to
have the bill apply to all property acquired after July 25, 1991.
IV. Taxpayer Bill of Rights Amendment
The bill would require that information statements sent to
payees include the name, address and phone number of the payor’s
information contact. The payor could provide the name and phone
number of the department with the relevant information. The
proposal would apply to statements required to be furnished after
December 31, 1993.
V. Private Foundation Common Investment Funds
The bill would provide, in new Code section 501(n), that an
organization comprised solely of at least 20 tax-exempt private
foundations generally would be treated as tax-exempt itself, so
long as the organization were organized and operated solely to
collectively invest in shares and securities on behalf of its
members. The proposal would apply to taxable years ending on or
after December 31, 1992.
VI. Educational Savings Bonds Provisions
The bill would expand eligibility for the benefits of Code
section 135, which provides that interest income earned on
certain qualified U.S. Series EE savings bonds is excludable from
gross income if the proceeds of the bond upon redemption do not
exceed the qualified higher education expenses paid by the
taxpayer during the taxable year. Under the bill, qualified
higher education expenses would include certain amounts paid by
the taxpayer to an "eligible educational institution", such as a
college, for the tuition and fees of any individual and not
simply dependents. Second, the bill would repeal the present law
provision which phases out the section 135 exclusion for married
taxpayers filing joint returns with adjusted gross income between
$60,000 and $90,000 and for single taxpayers with adjusted gross
income between $40,000 and $55,000. The provision would apply to
U.S. Series EE savings bonds issued after December 31, 1989 and
redeemed after December 31, 1992.
* * *
We will keep you informed of developments.
Keith D. Lawson
Associate Counsel - Tax
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