February 28, 1995
TO: BOARD OF GOVERNORS No. 34-95
FEDERAL LEGISLATION COMMITTEE No. 12-95
FEDERAL LEGISLATION MEMBERS No. 12-95
TAX COMMITTEE No. 7-95
RE: MARKET DISCOUNT LEGISLATION INTRODUCED
______________________________________________________________________________
On February 7, 1995, Congressmen Benjamin Cardin (D-MD) and Clay Shaw (R-FL)
introduced H.R. 843, a bill to revise the tax treatment of municipal securities purchased at
market discount.
In 1993, the Congress included in the deficit reduction legislation a provision treating
the gain on a tax-exempt bond sold at a market discount as ordinary income (rather than as a
capital gain). H.R. 843 would repeal the 1993 provision, so that the gain would once again be
treated as a capital gain.
The 1993 provision created a problem for funds that must distribute 98 per cent of their
ordinary income for the calendar year by December 31 each year. The Institute has proposed a
technical correction to resolve this problem by permitting funds to distribute market discount
on a November 1 - October 31 year basis. Obviously, repeal of the 1993 market discount
provision would eliminate the need for this technical correction.
A copy of H.R. 843 is attached. We will keep you informed as these matters develop.
For additional information, please contact the Legislative Affairs Department at (202) 326-5890.
This memo can be found on FUNDS, the Institute’s Fund User Network and Delivery System,
under "Legislative Affairs; Washington Update."
Michael Stern
Legislative Representative for Taxation
Keith Lawson
Associate Counsel for Taxation
Attachment