The United States Treasury Department has confirmed that tax-exempt funds will retain their favorable tax status under the recently announced federal-guaranty program.
According to the Treasury statement: "The Treasury and the IRS intend to issue guidance that will confirm that participation in the temporary guaranty program will not be treated as a federal guaranty that jeopardizes the tax-exempt treatment of payments by tax-exempt money market funds."
In the past week, investors pulled more than USD220 billion from money market funds after it emerged that the Reserve Primary Fund, one of the world's largest money market funds, had lost billions as a result of investments in debt instruments issued by Lehman Brothers, which collapsed just over a week ago.
According to the Treasury, all money market mutual funds that are regulated under Rule 2a-7 of the Investment Company Act of 1940 and are publicly offered and registered with the Securities and Exchange Commission will be eligible to participate in the program.
The temporary guaranty program will be designed to provide coverage to shareholders for amounts held by them in such funds as of the close of business on September 19, 2008.
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