| WASHINGTON, July 16
WASHINGTON, July 16 A bipartisan group of U.S.
senators is pressuring the Treasury Department to relieve money
market fund investors from tax rules that will kick in if the
Securities and Exchange Commission decides to force some funds
to float their share price.
In a series of three letters dated July 15 and seen by
Reuters, Democratic Senators Bob Menendez of New Jersey and Mark
Warner of Virginia and Republicans Pat Toomey of Pennsylvania
and Mike Crapo of Idaho said the Treasury needs to issue quickly
guidance because it will help inform both the public and the
All four senators sit on congressional committees with
jurisdiction over the SEC and the Internal Revenue Service.
"Money market mutual fund investors must be given an
opportunity to review and comment on the proposed solution to
the tax compliance burden, and the SEC and Department of
Treasury should have the benefit of those comments," Toomey
wrote in his letter.
The pressure from the four senators come at a crucial time
for the SEC, which is close to finishing new reforms for money
market funds that aim to reduce the risk of investor runs like
the one on the Reserve Primary Fund during the 2008 financial
The SEC is leaning toward adopting a combination of two key
reforms, according to a person familiar with the matter. One
would force prime funds used by institutional investors to
switch from a stable $1-per-share net asset value (NAV)to a
floating net asset value.
The other would allow fund boards to shut "gates" on
redemptions and charge liquidity, or withdrawal, fees in times
of market stress.
Although in principle most SEC commissioners are likely to
support a floating NAV, the still-unresolved tax concerns could
be a wrinkle for SEC Chair Mary Jo White as she tries to build a
consensus with the other four commissioners.
The primary tax concern for money funds has to do with rules
that would be triggered requiring investors to track gains and
Today, all money funds have a stable $1 per share NAV. That
makes things simple for tax purposes because a stable price does
not generate gains or losses. But if the share price floats,
investors will need to track tiny gains and losses.
In addition, floating shares of money funds could also
separately trigger "wash sale" tax rules, which bar an investor
from recognizing losses from the sale of securities if the
investor purchased substantially identical shares within 30 days
before or after such sale.
The IRS last year proposed new guidance that would exempt
investors from wash sale rules if they meet certain criteria,
but has not issued guidance on how to treat gains and losses.
The SEC has said the IRS is working on a fix on the tax
reporting concern that would simplify tax returns.
But several of the senators said that simplifying tax
reporting and creating a safe harbor from the wash sale rules
does not go far enough.
"Investors could still be deterred from investing in or
using money market mutual funds for cash management if they must
calculate and track the small capital gains and losses resulting
from frequent transactions in a fund," wrote Menendez and
SEC Republican Commissioner Mike Piwowar on Tuesday told
reporters he is aware of a tax fix that is being developed, but
declined to say what it is or whether it will go far enough.
A Treasury spokeswoman said the department received the
letters and would respond.
(Reporting by Sarah N. Lynch; Editing by Jonathan Oatis)