February 22, 1993
TO: BOARD OF GOVERNORS NO. 13-93
RE: INSTITUTE SUBMISSION TO IRS REGARDING DEDUCTIBILITY OF FUND
12b-1 FEES
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As I reported at the January Board of Governors meeting,
the IRS has opened a rulings project and announced its intention
to issue an industry-wide ruling regarding the deductibility of
12b-1 fees paid by mutual funds. Attached is an Institute
memorandum submitted to the IRS on this issue.
The memorandum urges the IRS to rule that mutual fund 12b-1
fees are deductible as ordinary and necessary business expenses.
As stated in the memorandum, mutual funds, unlike other
corporations, are continuously engaged in the issuance of their
shares. Thus, funds are permitted to deduct the expenses
associated with the issuance of new shares. An IRS ruling should
confirm the deductibility of 12b-1 fees as recurring, necessary
expenses of a fund's business operations.
We will keep you informed of developments.
Matthew P. Fink
President
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