The Internal Revenue Service has provided guidance to mutual fund
distributors on ways they can account for commissions paid on the sales of
mutual fund B shares. Rev. Proc. 2000-38, 2000-40 I.R.B. 310 (Oct. 2,
2000). Revenue Procedure 2000-38 allows distributors to use the
distribution fee period method, the five-year method, or the useful life
method; under all three methods, the distributor capitalizes the commissions
paid. Distributors that wish to change to one of these accounting methods
must obtain consent from the IRS Commissioner using the procedures contained
in Revenue Procedure 2000-38.
The new IRS position represents a compromise between an industry
practice of deducting commission costs as an expense during the year they
were incurred and an IRS position that no deduction should ever be allowed
for these costs except when the fund is terminated. According to an article
in the September 25 issue of Fund Action, the new procedure was the result
of an Investment Company Institute initiative and represents the first use
of the IRS's procedures for working things out with industries.
Revenue Procedure 2000-38 is contained in Internal Revenue Bulletin
2000-40, available in PDF format at
John M. Baker <JBaker@...
Stradley, Ronon, Stevens & Young, LLP
1220 19th Street, N.W., Suite 700, Washington, DC 20036
(202) 822-9611 Fax (202) 822-0140
FundLaw Listowner Http://www.egroups.com/group/fundlaw