MFA Comment Letter on Proposed Net Investment Income Tax Rules

MFA submitted a comment letter to the IRS in response to the Service’s proposed rules to implement the net investment income tax provisions of the Health Care and Education Reconciliation Act of 2010.  In the letter, MFA encouraged the IRS to amend the proposed rules to:

(1)   better ensure that gains and losses derived from the trade or business of trading in securities or commodities can be netted against each other;

(2)   permit net operating loss carryforwards with respect to eligible items, subject to appropriate tracking;

(3)   ensure that capital gains and losses can be fully netted against each other;

(4)   permit up to $3,000 in capital losses to be deducted from so-called Category 1 income;

(5)   permit the election with respect to the treatment of controlled foreign corporations and so-called electing passive foreign investment corporations to be made by funds on behalf of their investors, or allow the election to be made on individual CFCs/PFICs; and

(6)   permit taxpayers to deduct foreign taxes in calculating their net investment income under the rules.

MFA encouraged the IRS to make these changes to better achieve the statutory objective of taxing the net investment income of taxpayers subject to the rules by permitting taxpayers to subtract appropriate expenses, losses, and deductions from their investment income.  MFA expressed concern that, if these suggested amendments were not incorporated into the final rules, taxpayers would be subject to over-taxation as they would be required to pay taxes on an amount greater than their actual net investment income.