The IRS today released an advance version of Rev. Proc. 2016-31 that provides temporary relief for certain money market funds (MMFs) that receive contributions from their advisers as the MMFs transition to comply with U.S. Securities and Exchange Commission (SEC) rules that change how certain MMF shares are priced.
Rev. Proc. 2016-31 [PDF 96 KB] provides that certain contributions that money market funds receive from sponsors may be excluded from the distribution requirements of section 852(a) but are included in investment company taxable income for purposes of section 852(b).
The IRS explained that “in the interest of sound tax administration” section 852 will be applied in a manner that will support the efforts of the staff of the SEC Division of Investment Management to facilitate a smooth transition to compliance with SEC MMF reform rules. The revenue procedure states that excluding certain adviser contributions from a regulated investment company’s (RIC’s) investment company taxable income for purposes of the distribution requirements in section 852(a) will facilitate those contributions but that the contributions are to be excluded from the RIC’s income for other federal tax purposes.
Rev. Proc. 2016-31 applies to a top-up contribution that is received by an MMF as part of a transition to implement the floating net asset value per share (NAV) reform before the October 14, 2016 compliance deadline. If an MMF receives an eligible contribution, the IRS will not challenge the MMF’s treatment of the contribution as an amount that is included in investment company taxable income (ICTI) for purposes of section 852(b)(2), but is excluded from ICTI for purposes of section 852(a)(1). An example illustrating this treatment is provided.
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.