1 See Institute Memorandum to Tax Committee No. 3-97, dated January 20, 1997.
2 Among the 15 IRS representatives at the meeting were (a) several attorneys with the IRS Financial Institutions and Products group, (b) Grete Carro, the IRS industry specialist for securities and
financial service firms, and (c) one or more IRS field agents.
April 11, 1997
TO: TAX COMMITTEE No. 13-97
ATTENDEES AT FEBRUARY 4, 1997 MEETING ON COMPENSATING BALANCES
RE: FOR YOUR REVIEW -- DRAFT SUBMISSION TO IRS
______________________________________________________________________________
As you know, on February 4 the Tax Committee met to discuss the use of "compensating
balance" arrangements by tax-exempt funds.1 Specifically, the meeting considered an issue
raised during the audit of a tax-exempt fund regarding whether "compensating balance" or
"expense offset" arrangements with custodians generate taxable income to the fund. Last
month, the Institute met with the Internal Revenue Service2 to discuss the Service’s position. At the conclusion of the
meeting, we offered to provide the Service with a written submission on the industry’s position.
Action Requested
Please review the attached draft Institute memorandum, that has been prepared for submission to the IRS, at your earliest convenience. All
comments should be provided to the undersigned (at 202-326-5832) or to Anne Barr (at 202-326-5837) no later than Wednesday, April 16, so that the submission
can be filed on Friday, April 18.
We will keep you informed of developments.
Keith D. Lawson
Associate Counsel - Tax
Attachment (in .pdf format)