Morgan Lewis Secures Private Letter Ruling from IRS
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date:
04/11/2006 -
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Income and gains from certain commodity-linked notes will be qualifying income for purposes of mutual fund qualification tests.
Philadelphia, April 11, 2006 — On behalf of its client, Rydex Investments, Morgan Lewis secured a private letter ruling from the Internal Revenue Service (IRS) on Monday, April 10, 2006, which concludes that income and gains from certain commodity-linked notes will be deemed qualifying income for purposes of mutual fund qualification tests.
In December 2005, the IRS ruled that mutual funds’ investments in swap contracts based on changes in commodities indexes would not produce qualifying income for purposes of the mutual fund qualification tests after June 30, 2006. In addition to requiring commodity-focused mutual funds to move from investments in swaps to investments in other financial instruments, the December 2005 ruling raised the question of whether commodity-linked notes might also be viewed as not producing qualifying income for these purposes. Recent articles in The Wall Street Journal raised concerns about whether enough issuers of commodity-linked notes would be available by June 30, 2006 for mutual funds to continue pursuing an investment objective focused on exposure to changes in commodities.
Although the private ruling can technically be relied upon only by the requesting Rydex funds, it is hoped that the private letter ruling will provide some certainty to issuers of such notes and to the investing mutual funds that the IRS will view the income and gains from investments in such notes as qualifying income for purposes of the applicable tests.
Bill Zimmerman, a partner with Morgan Lewis’ tax group, and John McGuire, a partner with Morgan Lewis’ investment management group, spearheaded the effort to secure the ruling. Assistance was provided by Gary Wilcox, a partner with Morgan Lewis’ tax group, and Steve Poulathas, an associate with the tax group. For more information, please contact Bill Zimmerman at 215.963-5023. Click here to view a PDF of the ruling.
About Morgan, Lewis & Bockius LLP
Morgan Lewis is a global law firm with more than 1,200 lawyers in 20 offices located in Beijing, Boston, Brussels, Chicago, Dallas, Frankfurt, Harrisburg, Irvine, London, Los Angeles, Miami, New York, Palo Alto, Paris, Philadelphia, Pittsburgh, Princeton, San Francisco, Tokyo, and Washington, D.C. For more information about Morgan Lewis, please visit www.morganlewis.com.
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