We learned from Stradley Ronon Attorney John Baker that the IRS has issued Notice 2013-48, "Application of Wash Sale Rules to Money Market Fund Shares". An IRS bulletin says, "Notice 2013-48 establishes a de minimis exception to the wash sale rules of Section 1091 for certain redemptions of shares of money market funds that, under regulations proposed by the Securities and Exchange Commission, would no longer maintain a constant share price. Under the proposed revenue procedure, if a taxpayer realizes a loss upon a redemption of shares in such a fund, and the amount of the loss is not more than 0.5 percent of the taxpayer's basis in the shares, the IRS will treat such loss as not subject to Section 1091. Notice 2013-48, will be published in Internal Revenue Bulletin 2013-31 on July 29, 2013." The IRS will take comments through Oct. 28.
The IRS says, "This notice proposes a revenue procedure describing circumstances in which the Internal Revenue Service (IRS) will not treat a redemption of shares in a money market fund as part of a wash sale under Section 1091 of the Internal Revenue Code. The proposed revenue procedure provides that if a taxpayer realizes a loss upon a redemption of certain money market fund shares and the amount of the loss is not more than a specified percentage of the taxpayer's basis in such shares, the IRS will treat such loss as not realized in a wash sale."
They add, "This proposed guidance is intended to mitigate tax compliance burdens that may result from proposed changes in the rules that govern the prices at which certain money market fund shares are issued and redeemed. The Securities and Exchange Commission (SEC) has issued proposed regulations to effect these changes. See Money Market Fund Reform, Securities Act Release No. 9408, Investment Advisors Act Release No. 3616, Investment Company Act Release No. 30,551, 78 Fed. Reg. 36834 (proposed June 5, 2013). The proposed revenue procedure is drafted as if the SEC had already adopted final rules addressing floating net asset value in substantially the same form as the proposed rules. If those rules are not adopted in substantially the same form as they have been proposed, the revenue procedure proposed by this notice may not be adopted or may be adopted in materially modified form."
Stradley's Baker tells us, "The IRS has issued a proposed Revenue Procedure (link here) that sets forth circumstances under which a shareholder's loss on redemption of a floating-NAV money market fund will not be disallowed as a wash sale. The proposed Rev. Proc. is drafted as if the SEC had already adopted final rules addressing floating net asset value in substantially the same form as the proposed rules. If those rules are not adopted in substantially the same form as they have been proposed, the proposed Rev. Proc. may not be adopted or may be adopted in materially modified form."
He explains, "As you know, the Internal Revenue Code (specifically, section 1091(a)) disallows a loss realized by a taxpayer on a sale of securities if, within a period beginning 30 days before and ending 30 days after the date of the sale, the taxpayer acquires substantially identical securities (a "wash sale"). The proposed Rev. Proc. states that redemptions of shares of money market funds, which have relatively stable values even when share prices float, do not give rise to the concern that section 1091 is meant to address, and tracking wash sales of MMF shares will present shareholders of floating-NAV MMFs with significant practical challenges."
Baker tells us, "Accordingly, the proposed Rev. Proc. States that a redemption of a floating-NAV MMF that results in a de minimis loss will not be treated as part of a wash sale. For this purpose, a "de minimis loss" mean a loss that is not more than 0.5% of the taxpayer's basis in the shares."
He adds, "The SEC stated in its money market fund reform proposal last month, "We understand that the Treasury Department and IRS are actively considering administrative relief under which redemptions of floating NAV money market fund shares that generate losses below a de minimis threshold would not be subject to the wash sale rules." Treasury has now announced that administrative relief more quickly than expected. However, the SEC went on to say, "We recognize, however, that money market funds would still incur operational costs to establish systems with the capability of identifying wash sale transactions, assessing whether they meet the de minimis criterion, and adjusting shareholder basis as needed when they do not." Those are still issues."
