February 22, 1993
TO: TAX COMMITTEE NO. 9-93
ACCOUNTING/TREASURERS COMMITTEE NO. 9-93
RE: INSTITUTE SUBMISSION TO IRS REGARDING DEDUCTIBILITY OF
FUND 12b-1 FEES
__________________________________________________________
As we previously advised you, the IRS proposed business
plan for 1993 states that the IRS intends to issue guidance on
the deductibility of 12b-1 fees paid by a mutual fund. (See
Institute memorandum to Tax Committee No. 7-93, and Accounting/
Treasurers Committee No. 5-93, dated January 21, 1993.) 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.
Catherine L. Heron
Vice President - Tax and Pension
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