AICPA Recommends Changes
to Mutual Fund Regs.
by Eileen Sherr, Technical Manager

The AICPA Tax Divisions International Taxation Technical Resource Panel recently submitted a comment letter to the IRS, recommending that it amend Sec. 853 regulations to conform to Code changes made more than 20 years ago. A clean-up amendment would simplify reporting requirements for mutual fund shareholders by eliminating unnecessary information, thus enhancing shareholder compliance.

A significant number of mutual funds invest assets abroad and can pass through a foreign tax credit to their shareholders. The typical international mutual fund has investments in 15 to 35 different countries, but pays only an insignificant amount of foreign taxes per share. The AICPA proposal would reduce fund administrators time and expense (often passed on to shareholders) of providing superfluous tax information.

The AICPA comments included proposed amendments to the Sec. 853 regulations and recommended that Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), indicate that distributions from regulated investment companies are exempt from per-country reporting. The comments also suggest changing the due date for certain shareholder notices to 60 days, to conform to 1986 law changes.

The proposal provides a no-cost opportunity to improve shareholder tax compliance, enhance investor relations and reduce fund expenses. No revenue will be lost, because the changes do not affect the computation of taxes, either directly or indirectly; rather, they simply eliminate reporting voluminous, unused information, thereby reducing fund expenses for compiling information, drafting, printing and mailing, and answering phone calls from perplexed shareholders. Finally, the proposal eliminates the confusion caused by the extensive table required to report per-country information. The AICPAs comment letter is available at www.cpa2biz.com/ResourceCenters/Tax/International/ FTC_rptg_mutual_funds.htm.

AICPA Comments on Simplifying Employer-Provided Retirement Plan Rules

by Lisa A. Winton, Technical Manager

The AICPA has recently submitted comments on the Presidents FY2004 budget proposal to simplify the employer-provided retirement plan rules. It applauds this effort in general, and particularly commends the efforts to consolidate the variety of retirement plan options into a single benefits structure. However, the AICPA is concerned that these simplification efforts may have unintentional, broadly applicable consequences.

The proposed changes do not encourage small employers to offer retirement savings plans to their employees, but may encourage those that currently offer retirement plans to terminate them. This would thwart the Administrations goal of promoting more retirement savings.

The Administrations proposal would create three new retirement savings accounts: (1) Retirement Savings Accounts (RSAs); (2) Lifetime Savings Accounts (LSAs); and (3) Employer Retirement Savings Accounts (ERSAs). RSAs and LSAs would allow individuals to invest up to $7,500 in 2003 (adjusted annually) and permit account gains to grow tax free. LSA withdrawals could be made tax free, at any time and for any purpose. RSA withdrawals would only be tax free if the holder was at least age 58. ERSAs are modeled after Sec. 401(k) plans and would replace all employer plans (including Sec. 401(k) plans, simplified employee pensions and savings incentive match plans for employees (SIMPLE) IRAs).

The full set of comments may be found at www.cpa2biz.com/ResourceCenters/Tax/budget_critique.htm. For further assistance, contact Lisa Winton at (202) 434-9234 or lwinton@aicpa.org.

Reporting Foreign Bank Account Information

by Eileen Sherr, Technical Manager

The AICPA reminds tax advisers to ask clients about the existence of foreign bank accounts and to disclose such information on Form 1040, Schedule B, Part III, Question 7. Tax advisers should also consider notifying clients of their responsibility to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, by June 30, 2003.
This form is required to be filed by U.S. citizens and residents who have a financial interest in or signature or other authority over any financial accounts (including bank, securities or other types of financial accounts in a foreign country), if the aggregate value of such accounts exceeded $10,000 during 2002.

In recent testimony, Treasury clarified that addressing the lack of disclosure of foreign financial accounts has become a priority. The IRSs Offshore Voluntary Compliance Initiative allows partial amnesty until April 15, 2003 (see Tax Practice & Procedures, Amnesty for Offshore Tax Evaders, this issue.) Congress is likely to add new, easier-to-impose penalties this year for not filing Form TD F 90-22.1.
Treasury can impose on any person who willfully violates this reporting requirement a civil penalty, in the amount of the transaction or the value of the account, up to a $100,000 maximum (the minimum penalty is $25,000). In addition, any person who willfully violates this reporting requirement is subject to a criminal penaltya fine of not more than $250,000 or imprisonment for up to five years, or both; if the violation is part of a pattern of illegal activity, the maximum fine increases to $500,000 and the maximum length of imprisonment increases to 10 years.