The Investment Company Institute recently issued a "Supplemental Letter to IRS and Treasury regarding Money Market Fund Reform Tax Guidance regarding the IRS & Treasury's "Proposed Guidance on Taxation of Money Market Funds." The letter, dated March 11, was addressed to the Treasury's Michael Novey, Associate Legislative Counsel, and the IRS's Steven Harrison Branch Chief, Branch 1 Office of Associate Chief Counsel (Financial Institutions and Products). It was authored by ICI's Karen Lau Gibian, Associate General Counsel -- Tax Law, and says, "The Investment Company Institute is pleased to provide additional information in response to questions raised at the public hearing on recently proposed regulations regarding the taxation of money market funds with floating net asset values ("NAVs"). Specifically, this letter addresses: Permitting use of the NAV method on an account-by-account basis; Aligning use of the NAV method by regulated investment companies ("RICs") for income and excise tax purposes; Clarifying the definition of "fair market value" for purposes of the NAV method; and Permitting existing money market funds with both retail and institutional investors to separate into two separate funds in a tax-free manner. In addition to these points, the Institute plans to ask for additional guidance that was not requested in our original comment letter. It has come to our attention that some investment advisors are discussing the possibility of making payments to existing institutional money market funds to bring the NAV up to $1.0000 before the compliance date for the final Securities and Exchange Commission ("SEC") money market fund rule. The Institute plans to seek guidance regarding the proper tax treatment of such payments. Given the time sensitivity of the issues described above, however, the Institute plans to submit a separate letter in the near future regarding advisor contributions. The Institute appreciates the efforts of the Treasury Department and the Internal Revenue Service ("IRS") to issue final guidance on floating NAV money market funds in a timely manner. We hope that this supplemental information will be useful as the government works to finalize the guidance prior to implementation of the final SEC money market fund rule." (Click here to read the full 27-page letter.)
