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SEC Staff Meets with IRS to Discuss Tax Implications of a Floating Net Asset Value (NAV)

SEC staff recently met with staff members of the IRS to discuss the tax implications of adopting a floating net asset value (NAV) for money market funds. The discussion centered on the tax treatment of small gains and losses for investors in money market funds, and the IRS reportedly told the SEC there is limited flexibility in interpreting current tax law. A floating NAV could require individual and institutional investors to regard every money market fund transaction as a potentially taxable event.

Investors would have to determine how to match purchases and redemptions for purposes of calculating gains, losses and share cost basis. The SEC reached out to the IRS as it continues to consider measures, including a floating NAV, to enable money market funds to better withstand severe market disruptions.

For additional discussion of money market reform, please see "SEC Debates on Money Market Reforms Continue" in our January 2013 and October 2012 updates.

Sources: John D. Hawke, Jr., Economic Consequences of Proposals to Require Money Market Funds to 'Float' Their NAV, SEC Comment Letter File No. 4-619, November 2, 2012; Christopher Condon and Dave Michaels, SEC Said to Discuss Floating NAV for Money Funds with IRS, Bloomberg, March 7, 2013; Joe Morris, SEC Sounding Out IRS on Floating NAV, Ignites, March 7, 2013.

Copyright © 2020 Godfrey & Kahn S.C.National Law Review, Volume III, Number 105


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Godfrey & Kahn has one of the Midwest's largest investment management practices, with a team of attorneys dedicated solely to investment management clients. Our team offers a wide range of experience and includes attorneys who have worked at the SEC, held senior executive positions at national and international mutual fund groups and served as in-house counsel to companies within the investment management industry. This broad experience gives us the insight and understanding necessary to advise clients in the United States and abroad on the complex issues faced by investment management...