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October 02, 2023 at 03:20 PM
The Internal Revenue Service has issued guidance to reduce undue tax compliance burdens resulting from money market fund reforms finalized in July by the Securities and Exchange Commission.
The IRS guidance “allows redeeming money market fund shareholders to immediately take losses attributable to liquidity fees,” Katie Sunderland, associate general counsel at the Investment Company Institute, a mutual fund trade group, told ThinkAdvisor on Monday.
The IRS exemption “from the wash sale rule is timely as it takes effect on [Oct. 2] the same date as the SEC’s new liquidity fee requirements,” Sunderland said. “The IRS guidance thus relieves everyday investors from significant unwarranted tax reporting complexities that otherwise would arise from the new SEC rule.”
For all money market funds, the SEC increased the daily liquid asset minimum to 25% of total assets from 10% and the weekly liquid asset minimum to 50% of total assets from 30%.
Accordingly, the IRS states in its new guidance that it “will not treat as part of a wash sale a redemption of a share” in any money market mutual fund.
As the ICI explained, “any shareholder who redeems shares of a fund and reinvests dividends every month will have a wash sale — absent an exemption — any time the redemption is at a loss (due to the 30 days before/after aspect of the wash sale rule).”
