1 See Institute Memorandum to Accounting/Treasurers Committee No. 47-96 and Tax Committee No. 36-96,
dated November 26, 1996.
2 See Institute Memorandum to Tax Committee No. 6-97, dated February 20, 1997.
March 14, 1997
TO: ACCOUNTING/TREASURERS COMMITTEE No. 8-97
TAX COMMITTEE No. 10-97
RE: INSTITUTE SUBMISSION TO IRS ON PERFORMANCE-BASED ADVISORY
FEES
______________________________________________________________________________
As we previously informed you, last fall the Institute made a submission to the IRS in
response to IRS Announcement 96-95, which requested comments regarding the treatment
under the preferential dividend rules of (1) expense waivers and reimbursements in multiple-
class funds, and (2) investment advisory fees that differ among the classes of a multiple-class
fund because the fees are based on the investment performance of each class.1 At a meeting
with IRS representatives to discuss the submission, several questions came up regarding the
use of performance-based advisory fees by multiple-class funds.2 In response to the IRS’
questions, the Institute submitted the attached memorandum, which discusses the SEC rules
governing performance fees and waivers and reimbursements of performance fees.
We will keep you informed of further developments.
Anne M. Barr
Associate Counsel - Tax
Attachment (in .pdf format)