ICI Recommends Changes to Proposal Addressing Abusive Tax Avoidance Transactions

Washington, DC, January 23, 2003 - The Institute supports amendments made to a proposal by the Treasury and IRS regarding abusive tax avoidance transactions, but remains concerned that certain of the proposal's provisions could place undue burdens on registered investment companies, certain similar investment vehicles, and their investment advisers.

In a recent comment letter, the Institute makes several recommendations to the proposed regulations. In particular, the Institute comments on the apparent breadth of the regulations. The Institute notes that although investment companies are specifically exempted from certain reporting obligations under the proposed regulations, they may still be required to disclose reportable transactions and maintain records of those transactions in situations where the actual risk that the investment company has engaged in an abusive tax avoidance transaction is minimal.

In September 2002, the Institute responded to a Treasury announcement of its initiative to broaden and align the rules and regulations for disclosure, registration, and list-keeping of abusive tax avoidance transactions. The Institute urged the Treasury to consider adopting specific disclosure rules for investment companies because the proposed rules, which included an expanded definition of a "reportable transaction," would place undue disclosure burdens on regulated investment companies engaged in routine portfolio transactions on behalf of their shareholders.