ICI Supports Efforts to Combat Abusive Tax Shelter Transactions

Washington, DC, December 31, 2002 - The Institute supports recent regulatory initiatives to combat abusive tax shelter transactions- including the Treasury Department's broad requirements for disclosing, registering, and maintaining lists of potentially abusive tax avoidance transactions-but, in a recent comment letter, notes that Treasury's goal can be achieved without placing undue burdens on registered investment companies (RICs), similar investment vehicles, and their investment advisers.

The Institute requests a number of revisions to the recently released proposed regulations and expresses concern regarding the breadth of the proposed regulations. Notwithstanding the fact that RICs are specifically exempted from certain reporting obligations under the proposed regulations, the regulations may still require RICs to disclose reportable transactions and maintain records with respect to such transactions in situations where the actual risk that the RIC has engaged in an abusive tax avoidance transaction is minimal.

The Institute also notes that the regulations proposed by Treasury provide certain exceptions for RICs that were suggested by the Institute in a September 2002 comment letter, in which the Institute stated that the expanded definition of a "reportable transaction" would place undue disclosure burdens on RICs engaged in routine portfolio transactions on behalf of their shareholders. The Institute therefore requested that the Treasury adopt specific rules exempting RICs from disclosure obligations for loss transactions, transactions with brief asset holding periods, and transactions with significant book-tax differences. The Institute stated that such disclosure exemptions would be appropriate because RICs are not tax-avoidance vehicles.