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New IRS rules simplify compliance for money market fund shares

BY SALLY P. SCHREIBER, J.D.

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In response to new SEC pricing rules for shares in certain money market funds (MMFs), the IRS on Wednesday issued guidance that allows a simplified method for calculating gain or loss on shares in MMFs subject to the new rules and exempts redemptions of shares in these MMFs from the wash sale rules.

As the Treasury explained in its announcement on the new rules, “These particular MMFs will no longer be able to utilize the special exemptions that currently allow them to maintain a stable net asset value (NAV), and instead the share price will float, so the funds will be known as ‘floating-NAV’ MMFs.” For the many taxpayers who use these MMFs for cash management purposes, purchasing and selling shares in them often, the frequent transactions may produce many small gains and losses that will make tax compliance difficult (Fact Sheet: Treasury Guidance on Accounting for Gains and Losses in Certain Money Market Funds).

Proposed regulations, which taxpayers can rely on, permit taxpayers to use a new simplified method of calculating net gain or loss on floating-NAV MMFs shares that allows aggregate gain or loss to be determined for each computation period without determining gain or loss for any particular redemption of a taxpayer’s shares. The proposed regulations also clarify that the existing exemption from the broker reporting requirements in Secs. 6045, 6045A, and 6045B, that apply to MMFs will also apply to floating-NAV MMFs. In addition, the IRS issued Rev. Proc. 2014-25, which exempts redemptions of shares in floating-NAV MMFs from the wash-sale rules.

The SEC’s new pricing rules do not apply to MMFs that are government MMFs or retail MMFs. A government MMF is an MMF that invests 99.5% or more of its total assets in cash, government securities, and/or fully collateralized repurchase agreements, and retail MMFs are MMFs that have policies in place designed to limit investors to natural persons (Rev. Proc. 2014-45).   
     
—Sally P. Schreiber (sschreiber@aicpa.org) is a JofA senior editor.