IRS Issues Proposed Regulations Providing Guidance On The Tax Qualification Of Mutual Funds -

On September 27, 2016, the Internal Revenue Service (IRS) issued proposed regulations (Proposed Regulations) that provide guidance relating to the gross income and asset diversification tests used to determine whether a mutual fund qualifies as a regulated investment company (RIC) for federal income tax purposes. The IRS simultaneously announced that it no longer will issue rulings on whether a financial instrument constitutes a security for certain purposes applicable to RICs. The Proposed Regulations, if adopted in their current form, would have a significant effect on RICs that hold investments in controlled foreign corporations (CFCs) or passive foreign investment companies (PFICs). Because of their situs outside the United States, CFCs and PFICs are subject to special Internal Revenue Code provisions designed to prevent deferral of federal income tax.