Security - Check Permissions

MFDF - Mutual Fund Directors Forum - IRS Proposes De Minimis Exception to SEC MMF Floating NAV Proposal Wash Sale Rules

Member Login

Request an account

Sample Banner 2

IRS Proposes De Minimis Exception to SEC MMF Floating NAV Proposal Wash Sale Rules

The IRS has proposed the adoption of a new Revenue Procedure, which would mitigate some of the tax compliance concerns articulated by the SEC in relation to the application of the wash sale rules to a floating NAV institutional money market fund. According to the proposal by the IRS, money fund shares would be deemed to have “relatively stable values” and therefore would not raise the concerns the wash sales rules were designed to address.

Under the Proposed Revenue Procedure, if a shareholder were to suffer a loss when redeeming floating NAV money fund shares, and if the amount were de minimis, the loss would not be subject to the wash sale rules under Section 1091 of the U.S. Internal Revenue Code. For the purposes of this proposal, a de minimis loss is defined as a loss realized upon the redemption of floating NAV money fund shares, of which the amount is less than or equal to .5% of the shareholder’s basis in the share.

While helpful, there continue to be issues with the SEC’s floating NAV proposal that this Proposed Revenue Procedure does not address. In the recent rule proposal, for example, the SEC noted that “money market funds would still incur operational costs to establish systems with the capability of identifying wash sale transactions, assessing whether they meet the de minimis criterion, and adjusting shareholder basis as needed when they do not.”

The recent Proposed Revenue Procedure represents a coordinated effort between the IRS and the SEC in connection with the SEC’s potential money market fund reform initiative.  However, it is yet to be seen whether either or both of the proposals of these agencies will be adopted.

The IRS proposal can be found here