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IRS Guidance on B Share Commissions

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  • Baker, John
    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
    Message 1 of 1 , Oct 1, 2000
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      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

      http://ftp.fedworld.gov/pub/irs-irbs/irb00-40.pdf


      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
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