1 See Institute Memorandum to Tax Committee No. 31-97, dated September 26, 1997.
[9332]
VIA FAX
October 10, 1997
TO: TAX COMMITTEE No. 37-97
RE: MATERIALS FOR OCTOBER 15 TAX COMMITTEE MEETING
______________________________________________________________________________
Attached are two memoranda that will be discussed at the Tax Committee meeting on
October 15, 1997. The first memorandum, titled "Post-October Losses After the Taxpayer Relief
Act of 1997," also will be discussed on the afternoon of October 14 at the Committee’s capital
gains meeting.1 The second memorandum, titled "Technical Correction To Foreign Income Tax
Translation Rule," will be discussed only on the 15th.
The "post-October loss" memorandum focuses primarily on an issue created by the
Taxpayer Relief Act of 1997 for a fund that has a post-October loss in either its 28 percent rate
basket or its 20 percent rate basket, but has neither a net capital loss nor a net long-term loss.
The memorandum describes an approach being considered by IRS for modifying the post-
October loss rules of Treas. Reg. section 1.852-11 to deal with this situation, discusses various
alternative approaches to the issue and includes five examples.
The "foreign income tax translation rule" memorandum discusses a technical problem --
for funds that "flow through" foreign taxes under section 853 -- that is created by a provision in
the Taxpayer Relief Act of 1997 pursuant to which taxpayers "translate" their creditable foreign
taxes into US dollars. The provision, which was designed to reduce computational difficulties
for multinational corporations, inadvertently complicates foreign tax translations for portfolio
investors by requiring that foreign withholding taxes be translated at the average exchange rate
for a taxpayer’s fiscal year. In addition, as discussed in the memorandum, funds with fiscal
years ending on or after December 31 will not know this average exchange rate by the date they
declare their year-end distributions (which are grossed up, pursuant to section 853, by the US
dollar amount of any foreign taxes for which fund shareholders may claim foreign tax credits).
Keith D. Lawson
Associate Counsel - Tax
Attachments (in .pdf format)