The Securities and Exchange Commission’s Investment Management Division recently released guidance on how to comply with the new tax law for a small subset of mutual funds that pay income tax because they invest in master limited partnerships, or MLPs.
Staff Accounting Bulletin No. 118 provides guidance for publicly traded companies, auditors and others to help ensure timely public disclosures of the accounting impacts of the Tax Cuts and Jobs Act.
The SEC issued the information update to make clear that the new tax law will affect deferred tax assets and liabilities related to MLPs and that funds investing in MLPs should adjust their net asset values accordingly and disclose the adjustments to shareholders.
Recently, the IM Division said that it has received inquiries from certain investment companies as to whether investment companies may rely on guidance in SAB No. 118 with respect to the calculation of daily NAVs.
The guidance states that registrants may rely on the guidance in SAB No. 118 for purposes of calculating NAV and reporting measurement period adjustments.
Further, “consistent with Question 2 within SAB No. 118, the Division reminds each registrant that the registrant must disclose relevant information to investors to provide information about the material impacts of the Act to its calculation of NAV and material provisions for which the accounting is incomplete, if applicable,” the guidance states.
The disclosure about those impacts may be made in a press release, website disclosure, or some other reasonable manner.
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