ICI Urges Changes to Tax Reporting Legislation

Washington, DC, September 26, 2007 - ICI has urged the House and Senate leaders to consider important changes to a bill that would mandate cost-basis reporting by brokers (including mutual funds) on the sale or redemption of certain securities.

Background
H.R. 878, the Simplification Through Additional Reporting Tax (START) Act of 2007, was introduced in February 2007. The bill would amend the Internal Revenue Code of 1986 to require broker reporting of customers' basis in securities transactions, and for other purposes.

Over the past 15 years, a substantial portion of the mutual fund industry has voluntarily provided basis information to a significant and growing portion of its shareholders. ICI has participated actively in cost-basis reporting discussions since a legislative initiative on the issue was raised in 1990. Since January 2006, ICI has also spent considerable time with industry tax and operations experts examining the remaining operational impediments to mandatory cost-basis reporting on all fund share purchases. Industry views have evolved as ICI members have focused intently on some of the most complex operational issues.

Mutual fund shareholders may calculate cost basis using FIFO, specific identification, or the average cost method. Once a shareholder elects to compute basis under the average cost method, this method must be utilized for all shares in the shareholder's account.

ICI Position
The Institute and its members support efforts to assist taxpayers in complying with their tax obligations, according to a letter from Institute President and CEO Paul Schott Stevens to House Ways and Means Committee leaders. Changes urged by the Institute in recent testimony are needed so that mandatory cost basis reporting is administrable and effective for shareholders, funds, brokers and other distributors, and the government.

ICI believes its recommendations will ensure that funds are able to comply with the newly proposed requirements and that the information provided to shareholders is accurate and useful. Implementing a cost-basis reporting regime without taking these considerations into account will impose considerable burdens on all parties, including the government, without providing significant utility to tax administration.

ICI sent a similar letter to Senate Finance Committee leaders.

Related Links
This website includes a section devoted to tax issues affecting funds and their shareholders.