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New Bill Would Permit Tax Deferral of Certain Fund Capital Gain Distributions

Washington, DC, February 1, 2001 - Legislation introduced by Representative Jim Saxton (R-NJ), the Vice Chairman of Congress’ Joint Economic Committee, would permit a mutual fund shareholder to defer tax on certain distributions of capital gains reinvested in the fund.

Under H.R. 300, an individual would be permitted to exclude from gross income capital gain distributions (defined for this purpose to include distributions of short-term capital gains) of up to $5,000 ($10,000 on a joint return) if such gains are automatically reinvested in additional shares in the fund. The bill provides, however, that these new shares would have zero cost basis (thus, in effect, deferring tax on the reinvested gains until the new shares are redeemed). This modified taxation of mutual fund shareholders would apply to taxable years beginning after the date this change is enacted.

Rep. Saxton introduced similar legislation (H.R. 168), with lower exclusion amounts, earlier in the Congress. Similar legislation was also introduced last year (H.R. 4723).