Floating-NAV money market fund shares | KPMG | US

Simplified treatment, certain redemptions of floating-NAV money market fund shares

Floating-NAV money market fund shares

The Treasury Department and IRS today released guidance—final regulations (T.D. 9774) and Rev. Proc. 2016-39—concerning the treatment of gains or losses with respect to redemptions of shares in floating net asset value (floating-NAV) money market funds. The treatment under the final regulations also applies to stable-NAV money market funds.


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Read text of the final regulations [PDF 225 KB] and Rev. Proc. 2016-39 [PDF 24 KB] that provides procedures for automatic change in method of accounting to the NAV method.


The U.S. Securities and Exchange Commission in July 2014 voted to require certain money market funds to price shares in a manner that more accurately reflects the market value of the funds’ underlying portfolios. As such, these money market funds were no longer be able to use certain rules that had allowed them to maintain a stable net asset value (NAV). Instead, the share price would “float”—so the funds will be known as “floating-NAV” money market funds. 

If a shareholder frequently purchases and redeems shares (e.g., when the fund is used as a “sweep arrangement”), the shareholder could experience a high volume of small gains and losses. As such, tax compliance could be difficult and burdensome if these taxpayers had to ascertain the cost basis and gain or loss for each transaction. To address these issues, the IRS and Treasury in July 2014 issued proposed regulations and Rev. Proc. 2014-45 to provide a simplified, aggregate annual method of tax accounting for these gains and losses.

The proposed regulations allowed shareholders to measure net gain or net loss without transaction-by-transaction calculations, thereby simplifying tax compliance for shareholders. As a result, shareholders could determine their net gain or loss using information that the funds routinely provide to them for non-tax purposes. In particular, the net gain (or loss) generally is determined as:

  • The increase (or decrease) in the value of the investor’s shares during a period (such as the tax year), minus 
  • The net investment in those holdings (purchases minus sales) during the period

The guidance also provided to floating-NAV money market funds the same waiver of gross-proceeds reporting, basis reporting, and holding-period reporting rules that applied to stable-value money market funds.

Under the 2014 revenue procedure, the IRS said it will not treat a qualifying redemption of a floating-NAV money market fund share as part of a “wash sale” under section 1091.

Final regulations

With today’s release, the IRS and Treasury are finalizing—with certain changes and clarifications—the regulations that were proposed in July 2014. 

  • The final regulations permit taxpayers to apply the NAV method to shares in stable-NAV money market funds, as well as shares in floating-NAV money market funds.
  • The final regulations permit money market fund shareholders to use different methods of accounting for shares in different money market funds or for shares in a single money market fund held in different accounts.
  • The NAV method is applicable for purposes of computing and determining whether the excise tax under section 4982 applies with respect to a regulated investment company (RIC), but that the RIC must consistently apply the NAV method to money market fund shares for income and excise tax purposes. The final regulations also eliminate the consistency requirement that the computation periods be of approximately equal duration. 
  • The final regulations clarify that the fair market value of a share in a money market fund at the time of a transaction is presumed to be the published NAV (or other published amount for which the share would be redeemed, determined without regard to any liquidity fee or other redemption amount).
  • The final regulations include provisions for determining the amount received for purposes of computing a taxpayer’s net investment in a money market fund for a computation period, and clarify that the phrase “if a transaction is one in which gain or loss would be recognized” means the recognition of gain or loss other than pursuant to the NAV method.
  • The final regulations clarify the effect on net investment of a share acquired from another person with a transferred basis, and provide that if a shareholder receives a transferred basis in money market fund shares and the person transferring the shares used the NAV method, then the adjusted basis for the shares is the fair market value at the time of the acquisition (presumed to be the next NAV or other published redemption amount).
  • The final regulations retain the simplifying rule for mixed-character accounts.
  • The final regulations do not extend an exemption from the wash sale rules to stable-NAV money market funds.

Accounting method changes

The final regulations provide a taxpayer may adopt the NAV method for shares in a floating-NAV money market fund for the first tax year which the taxpayer holds the shares in the money market fund and that money market fund is a floating-NAV money market fund. For taxpayers seeking a change to or from the NAV method, the IRS today issued Rev. Proc. 2016-39 setting forth the procedures by which a taxpayer may obtain automatic consent of the IRS Commissioner to change to or from the NAV method.

In some instances, Rev. Proc. 2016-39 provides a “simplified method” and permits taxpayers to change to the NAV method on a federal tax return without having to file Form 3115, Application for Change in Accounting Method. For other changes, the automatic consent procedures require a “short” Form 3115.

Effective date

The final regulations will be published in the Federal Register on Friday, July 8, 2016. The final regulations concerning the NAV method apply to tax years ending on or after July 8, 2016. 

For tax years ending on or after July 28, 2014, and beginning before July 8, 2016, shareholders of money market funds may rely on the rules concerning the NAV method in the proposed or final regulations.

The provisions of the final regulations concerning information reporting apply to sales of shares in 2017 and later (i.e., calendar years beginning on or after July 8, 2016). Taxpayers and brokers may rely on the regulations for information reporting for sales of shares in calendar years beginning before July 8, 2016.

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