November 25, 1992
TO: TAX COMMITTEE NO. 43-92
RE: INSTITUTE LETTER ON MASSACHUSETTS TECHNICAL CORRECTIONS BILL
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As we previously informed you, Massachusetts earlier this
year enacted legislation (H.R. 5800) which extended pass-through
treatment of federal and state obligation interest to regulated
investment companies ("RICs") organized other than as
Massachusetts business trusts. (See Institute Memorandum to Tax
Members No. 51-92 and Money Market Members - One Per Complex No.
11-92, dated August 18, 1992.)
The Institute understands that the Department of Revenue
may propose a technical corrections bill to this statute.
Attached is a comment letter to the Department of Revenue
suggesting two changes. First, the statute currently requires
that, as a prerequisite for pass-through treatment, a RIC report
to shareholders the portion of the RIC’s distributions derived
from exempt obligations within 60 days after the close of the
RIC’s fiscal year. The Institute pointed out that, for other
than calendar year RICs, fiscal year reporting may give
misleading information to RIC shareholders, because the report
may not cover all distributions made during the calendar year,
particularly if the RIC makes monthly distributions. The
Institute recommended that the reporting requirement be changed
to a calendar year.
The Institute also commented on the method by which the
amount of taxable RIC dividends is determined. Under current
law, an investor in a tax-exempt bond fund appears to determine
Massachusetts gross income by adding to federal gross income all
exempt-interest dividends, regardless of the obligations from
which the income is derived. The exempt-interest dividends
derived from interest on Massachusetts obligations are then
subtracted from that amount. The Institute suggested that a
simpler method would be to add only the non-Massachusetts-derived
exempt-interest dividends to federal gross income, thus
eliminating the necessity for any kind of subtraction in arriving
at Massachusetts gross income.
We will keep you informed of further developments.
David J. Mangefrida Jr.
Assistant Counsel - Tax
Attachment