July 9, 1993
TO: PENSION COMMITTEE NO. 24-93
TAX COMMITTEE NO. 33-93
RE: INSTITUTE STATEMENT ON TAX SIMPLIFICATION
__________________________________________________________
As part of this year's tax legislative process, the House Ways and Means
Subcommittee on Select Revenue Measures has been holding hearings on pending
and proposed legislation. Among the items subject to the hearings are
proposed modifications to provisions contained in H.R. 13, the Tax
Simplification Act of 1993, which was introduced this January by Ways and
Means Committee Chairman Rostenkowski. (See Institute Memoranda to Tax
Members No. 5-93, Accounting/Treasurers Members No. 3-93, Closed-End Fund
Members No. 4-93, Operations Members No. 4-93, Unit Investment Trust Members
No. 4-93, International Members No.
4-93 and Transfer Agent Advisory Committee No. 3-93, dated January 13, 1993
and to Pension Members No. 4-93, dated January 14, 1993.)
The Institute has submitted the attached written statement regarding
proposed modifications to provisions in H.R. 13 relating to (1) tax-free
conversions of bank common trust funds, (2) shareholder basis reporting and
(3) nondiscrimination safe harbors for salary reduction SEPs.
Tax-Free Conversion of Bank Common Trust Fund. The Institute supports
the proposed change to permit a bank common trust fund to transfer
substantially all of its assets to one or more regulated investment companies
("RICs") pursuant to a single plan on a tax-free basis. Since current law
would permit the tax-free split up of a common trust fund and H.R. 13 would
permit the tax-free conversion of a common trust fund to a RIC, there would
appear to be no policy justification for prohibiting a common trust fund from
accomplishing each of these objectives in one step.
Shareholder Basis Reporting. The Institute urges the Committee to adopt
a shareholder basis reporting requirement for mutual fund shareholders that
limits shareholder confusion and administrative difficulties arising from
amended cost basis statements. The Institute also supports, with
modifications, the special provisions of H.R. 13 relating to wash sales and
sales load basis deferral. Specifically, the Institute suggests that the wash
sale rule of Code section 1091 be modified to disregard any shares purchased
in January of the year following the year in which shares were redeemed at a
loss from a "covered account" and either (a) the shares were purchased on any
date in January pursuant to a divided reinvestment plan or (b) the amount of
the loss that would be disallowed by Code section 1091 is $25 or less. In
addition, the sales load basis deferral rule of Code section 852(f) should not
apply where the shareholder (a) computes basis using the average cost method
and (b) acquires fund shares at a reduced or waived load after January 31 of
the year following the year of the redemption.
Nondiscrimination Safe Harbors for Salary Reduction SEPs. The Institute
urges that H.R. 13 be amended to apply the nondiscrimination safe harbors to
both 401(k) plans and salary reduction SEPs. The salary reduction SEP is
intended as a simpler and easier-to-administer alternative to the qualified
401(k) plan and thus should not be subject to more rigorous non-discrimination
testing than the 401(k) plan.
We will keep you informed of developments.
Keith D. Lawson
Associate Counsel - Tax
Kathy D. Ireland
Associate Counsel - Pension
Attachment