rp-09-10.pdf

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Part III

Administrative, Procedural, and Miscellaneous

26 CFR 601.601: Rules and regulations.
(Also Part I, §§ 61, 1012, 1016; 1.61-1)

Rev. Proc. 2009-10

SECTION 1. PURPOSE

This revenue procedure provides a safe harbor for the treatment of certain
payments received by a regulated investment company under Part 1 of
subchapter M of the Internal Revenue Code (sections 851-855) that is a money
market fund registered with the Securities and Exchange Commission and
regulated under Rule 2a-7 of the Investment Company Act of 1940, 17 C.F.R.
270.2a-7 (“Money Market Fund”).
SECTION 2. BACKGROUND

.01 Payment. Money Market Funds strive to maintain a stable per share net
asset value of $1.00. Persons who contract to perform investment advisory or
management services (“Advisors”) are concerned that a decline in per share net
asset value to a threshold amount below $1.00 (commonly referred to as
"breaking the buck") will significantly harm their business reputations and could
lead to litigation by shareholders. These Advisors may make a payment
("Payment") to the Money Market Fund in order to maintain a per share net asset
value of $1.00. This Payment is not calculated with reference to the investment

advisory fees paid or to be paid to the Advisor by the Money Market Fund, is not
a loan to the Money Market Fund, and does not give the Advisor any ownership
interest in the Money Market Fund.
.02 Excess Amount Received in a Purchase Transaction. Alternatively, for
the same reasons described in section 2.01 of this revenue procedure, an
Advisor may purchase an asset of a Money Market Fund for an amount that
exceeds the asset’s fair market value (such excess hereinafter referred to as an
“Excess Amount”). For example, an Advisor may purchase a debt instrument
from the Money Market Fund for $100x at a time when the fair market value of
the debt instrument is $90x. When property is purchased for an amount above
fair market value for a purpose other than the acquisition of the property, the
Excess Amount (e.g.
, $10x in the example in the preceding sentence) is
generally not accounted for as part of the purchase/sale transaction for tax
purposes. Thus, in the example, the Advisor is treated as having a cost basis in
the purchased debt instrument of $90x. The Excess Amount should be treated in
the same manner as a Payment described in section 2.01 of this revenue
procedure.
SECTION 3. SCOPE
This revenue procedure applies to a Money Market Fund that receives a
Payment or Excess Amount described in section 2 of this revenue procedure.
SECTION 4. PROCEDURE
The Internal Revenue Service will not challenge the treatment of a Payment
or Excess Amount by a Money Market Fund to which this revenue procedure

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applies if the Money Market Fund treats the Payment or Excess Amount as
short-term capital gain in the taxable year in which the Payment or Excess
Amount is received. No inference should be drawn from this revenue procedure
as to whether or not other treatments of Payments or Excess Amounts may be
appropriate.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective with respect to Payments or Excess
Amounts received before January 1, 2010, by a Money Market Fund to which this
revenue procedure applies.
SECTION 6. DRAFTING INFORMATION
The principal author of this revenue procedure is Richard C. LaFalce of the
Office of the Associate Chief Counsel (Financial Institutions & Products). For
further information, contact him at (202) 622-3930 (not a toll-free call).