Last Thursday, the Senate Permanent Subcommittee on Investigations held a hearing on the tax treatment of mutual funds investing indirectly in commodities. Subcommittee Chairman Carl Levin (D-MI) has argued that the IRS should stop issuing private letter rulings that allow funds to invest in commodities through wholly-owned off-shore subsidiaries and other strategies. He believes that the exemptions are responsible for increased speculation and volatility in the markets. He also stated in his written testimony that by investing in commodities instead of stocks, mutual funds are depriving U.S. businesses of capital.
The IRS has issued more than 70 private letter rulings on this issue since 2006. In June, the IRS temporarily suspended new private letter rulings pending review of its policies. IRS Commissioner Douglas Shulman testified that the IRS issued these private letter rulings because the law is currently unclear. He stated that the IRS would like legislative action to clarify the law, but at a minimum, the industry needs guidance of general applicability that can be relied upon.
A recorded webcast and written testimony from the hearing are available here.