PRODUCTIVITY
AND MUTUAL FUNDS

By Andy Thibault 
Editor, APS Publications 

          Shawn Travis, a young, heady associate at the premiere Boston, USA law firm Ropes & Gray, has written an award-winning paper that could save his clients - and mutual fund investors everywhere - lots of money. Travis' paper, "The Accelerated and Uneconomic Bearing of Tax Burdens By Mutual Fund Shareholders" won the prestigious Tannenwald Writing Competition, named in honor of the late chief judge of the U.S. Tax Court, Theodore Tannenwald. Travis wrote it while a student at Harvard Law School last year. Travis was presented a $3,000 check and honored during festivities in New Orleans in January as part of the annual meeting of the Fellows of the American College of Tax Counsel. That meeting occurred in conjunction with the American Bar Association Section of Taxation Mid-Year Meeting. Already, a major finance industry group is reviewing Travis' paper.
          The Investment Company Institute, the national association of the American investment company industry, gets behind proposals it likes in a big way. ICI already is touting a much more modest proposal, the Saxton Bill, which would give MF shareholders a $3,000 per year deduction ($6,000 for couples filing jointly). Travis, however, said this plan is not grounded in some theory about how MFs should be taxed. Rather, he said, it represents an arbitrary cut-off point designed to make the bill more palatable to Treasury and Congress. "The solution I prefer," Travis said, "is to define MF portfolio trading as having no direct tax consequences, either for the MF itself or for its shareholders."
          He is proposing that Congress define MF portfolio trading as exempt from capital gains taxation. MFs would be able to sell appreciated portfolio securities without triggering an capital gains tax liability, or sell depreciated portfolio securities without triggering any capital loss benefit. MFs would never have any realized capital gains to distribute, so MF shareholders would typically never receive capital gains distributions, and so never face tax liability for those distributions. However, MFs would continue distributing dividend income from their portfolio securities, and shareholders would continue paying current tax on these distributions. "Shawn is a bright, talented guy," said one his bosses at Ropes & Gray, partner Susan Johnston. "We are thrilled that he has joined us, and that he is interested in the investment management area, since that is central to our firm's practice."
          Johnston and Ropes & Gray partner James Brown are the authors of a highly-regarded book on the taxation of mutual funds, "Taxation of Regulated Investment Companies and Their Shareholders," Warren, Gorham & Lamont, 1999. Travis just joined Ropes & Gray in 2001 after graduating from Harvard Law School. Prior to that, he earned an M.A. and Ph.D from Princeton, where he wrote a dissertation on Spinoza's metaphysics. Harvard Law Professor Al Warren told Travis about the Tannenwald Award and nominated him for it. The deadline to enter the 2002 Tannenwald Competition is July 1. Inquiries about the competition should be directed to Atty. Herbert Beller in Washington, D.C. at 202-274-4241.