Full text of Federal Reserve Bank of New York Circulars : 4238. Collective Investment of Trust Funds, Amendment to Regulation F

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

FEDERAL RE SE R V E BANK
OF NEW YORK

r C ircu la r N o . 4 2 3 8 1
Ju n e 9, 1955

L

COLLECTIVE INVESTMENT OF TRUST FUNDS
Amendment to Regulation F

To all Member and Nonmember Clearing Banks
in the Second Federal Reserve D istrict:

The Board of Governors of the Federal Reserve System has
amended, effective June 13, 1955, section 10(c) of Regulation F, relat­
ing to trust powers o f national banks. The purpose o f the amendment
is to permit the collective investment o f funds of trusts which are
established under em ployers’ pension, profit-sharing, or stock bonus
plans, without requiring compliance with the provisions of section 17
o f Regulation F, provided each such trust is exempt from Federal
income taxes and collective investment is specifically authorized by the
trust instrument or by court order. The funds o f pension and similar
trusts may, as heretofore, be invested in participations in common trust
funds operated pursuant to section 17, provided the requirements of
that section are complied with.
A copy o f the amendment to Regulation F is enclosed; additional
copies will be furnished upon request.




A

llan

S

proul,

President.

J

T R U S T POW ERS O F N A T IO N A L B AN KS
AM EN D M EN T T O R E G U L A T IO N F

I ssu e d

by t h e

B oard

of

G overnors

of t h e

E ffective June 13, 1955, subsection
lation F is amended to read as follow s:

F e d e r a l R e se r v e S y s t e m

(c)

o f section 10 of Regu­

(c)
C ollective investment o f trust10 funds. - Funds re­
ceived or held by a national bank as fiduciary shall not be invested
c o lle c tiv e ly 11 except that (i) such collectiv e investments may be
made in accordance with section 17 o f this regulation, and (ii)
funds of a trust which forms part o f a pension, profit-sharing, or
stock bonus plan of an employer for the exclu sive benefit o f his
employees or their beneficiaries and which is exempt from Federal
income taxes under the Internal Revenue Code may be invested
collectiv ely with funds of other such pension, profit-sharing, or
stock bonus plan trusts if such collectiv e investment is sp ecifi­
ca lly authorized by the instrument creating the trust or by court
order.lla

U n le s s the c o n t e x t o t h e r w is e i n d i c a t e s , the term " t r u s t ,” a s u s e d in th is
s e c t i o n or in a n y oth er part o f th is r e g u la tio n , r e fe r s t o any fid u c ia r y r e la tio n s h ip
w h ic h a n a tio n a l ban k is a u th o riz e d to en ter in to under the p r o v is io n s o f s e c t io n
1 l ( k ) o f the F e d e r a l R e s e r v e A c t .
l l T h i s d o e s not p rev en t the ban k from in v e s t in g the fun ds o f s e v e r a l tru sts in a
s in g l e re a l e s t a t e lo a n if the bank o w n s n o p a r tic ip a tio n in the lo a n an d h a s no
in te r e s t th erein e x c e p t in its c a p a c i t y a s fid u c ia r y .
l l a S e c t i o n 584 o f the Internal R e v e n u e C o d e o f 1954 p ro v id e s that a com m on
tru st fund m ain ta in ed in co n fo rm ity w ith r u le s an d r e g u la tio n s o f the B oard o f
G o v e r n o r s o f the F e d e r a l R e s e r v e S y s te m " p e r t a in in g to the c o l l e c t i v e in v e stm e n t
o f tru st fu n ds b y n a tio n a l b a n k s" and m eetin g c e r ta in o th e r re q u ire m e n ts s h a ll not
b e s u b je c t t o F e d e r a l in co m e ta x a tio n . T h e r u le s an d r e g u la tio n s o f the B oard o f
G o v e r n o r s for the p u r p o s e s o f s e c t io n 5 8 4 a re c o n ta in e d s o l e l y in s e c t i o n 17 o f
t h is r e g u la tio n ; and the p e rm is s io n c o n ta in e d in e x c e p t io n ( i i ) o f s e c t i o n 1 0 ( c ) is
not in ten d ed to c o n fe r e x e m p tio n from F e d e r a l in co m e ta x a tio n under s e c t i o n 5 8 4 .




AMENDMENT T O APPENDIX T O REGULATION F
I ssu e d

by th e

B oard

of

G overnors

of t h e

F ederal R

ese r v e

S ystem

By A ct o f August 16, 1954, the Internal Revenue laws o f the
United States were revised and recodified as the Internal Revenue Code
o f 1954. There are printed below certain provisions of the Code which
are pertinent to section 17 of Regulation F , relating to the establish­
ment and operation o f common trust funds. These provisions supersede
section s 104(a) and 169 of the former Internal Revenue Code of 1939.
SEC. 581. DEFINITION OF BANK.
For purposes of sections 582 and 584, the term "bank* means a
bank or trust company incorporated and doing business under the laws
of the United States (including laws relating to the D istrict o f Columbia),
o f any State, or o f any Territory, a substantial part of the business of
which con sists of receiving deposits and making loans and discounts,
or o f exercising fiduciary powers similar to those permitted to national
banks under section 11 (k) of the Federal Reserve Act (38 Stat. 262;
12 U. S. C. 248 (k)), and which is subject by law to supervision and
examination by State, Territorial, or Federal authority having super­
vision over banking institutions.
Such term also means a domestic
building and loan association.
SEC. 584. COMMON TRUST FUNDS.
(a) D efinition s.— For purposes o f this subtitle, the term "common
trust fund” means a fund maintained by a bank—
(1) exclu sively for the collectiv e investment and reinvestment
o f moneys contributed thereto by the bank in its capacity as a trustee,
executor, administrator, or guardian; and
(2) in conformity with the rules and regulations, prevailing from
time to time, of the Board of Governors of the Federal Reserve System
pertaining to the collectiv e investment of trust funds by national
banks.
(b) Taxation o f Common Trust Funds.— A common trust fund shall
not be subject to taxation under this chapter and for purposes of this
chapter shall not be considered a corporation.
(c) Income o f Participants in Fund.—
(1)
Inclusions in Taxable Income. — Each participant in the
common trust fund in computing its taxable income shall include,
whether or not distributed and whether or not distributable—
(A)
as part of its gains and losses from sales or exchanges
of capital assets held for not more than 6 months, its proportionate
share of the gains and losses of the common trust fund from sales
or exchanges o f capital assets held for not more than 6 months;



(B) as part of its gains and losses from sales or exchanges
o f capital assets held for more than 6 months, its proportionate
share o f the gains and losses of the common trust fund from sales
or exchanges o f capital assets held for more than 6 months;
(C) its proportionate share o f the ordinary taxable income or
the ordinary net loss of the common trust fund, computed as pro­
vided in subsection (d).
(2)
Dividends and Partially Tax Exenpt Interest. — The pro­
portionate share of each participant in the amount of dividends to
which section 34 or section 116 applies, and in the amount of partial­
ly tax exempt interest on obligations described in section 35 or
section 242, received by the common trust fund shall be considered
for purposes o f such sections as having been received by such par­
ticipant. If the common trust fund elects under section 171 (relating
to amortizable bond premium) to amortize the premium on such obli­
gations, for purposes of the preceding sentence the proportionate
share of the participant o f such interest received by the common trust
fund shall be his proportionate share o f such interest (determined with­
out regard to this sentence) reduced by so much of the deduction under
section 171 as is attributable to such share.
(d) Conputation o f Common Trust Fund Income. — The taxable
income of a common trust fund shall be computed in the same manner
and on the same basis as in the ca se o f an individual, except that—
(1) there shall be segregated the gains and lo ss e s from sales or
exchanges o f capital assets;
(2) after excluding all items of gain and loss from sales or ex­
changes of capital assets, there shall be computed—
(A) an ordinary taxable income which shall con sist of the
excess of the gross income over deductions; or
(B) an ordinary net loss which shall con sist o f the ex ce ss of
the deductions over the gross income;
(3) the deduction provided by section 170 (relating to charitable,
e tc., contributions and gifts) shall not be allowed; and
(4) the standard deduction provided in section 141 shall not be
allowed.
(e) Admission and Withdrawal.— No gain or loss shall be realized
by the common trust fund by the admission or withdrawal o f a participant.
The withdrawal of any participating interest by a participant shall be
treated as a sale or exchange of such interest by the participant.
(f) Different Taxable Years of Common Trust Fund and Partici­
pant.— If the taxable year of the common trust fund is different from that
of a participant, the inclusions with respect to the taxable income of the
common trust fund, in computing the taxable income o f the participant
for its taxable year, shall be based upon the taxable income o f the
common trust fund for any taxable year of the common trust fund ending
within or with the taxable year of the participant.




(g)
Net Operating L oss D eduction.— The benefit o f the deduction
for net operating lo ss e s provided by section 172 shall not be allowed to
a common trust fund, but shall be allowed to the participants in the
common trust fund under regulations prescribed by the Secretary or his
delegate.
SEC. 6032.
RETURNS OF BANKS WITH RESPECT TO COMMON
TRUST FUNDS.
Every bank (as defined in section 581) maintaining a common trust
fund shall make a return for each taxable year, stating sp e cifica lly , with
respect to such fund, the items o f gross income and the deductions
allowed by subtitle A, and shall include in the return the names and
addresses of the participants who would be entitled to share in the
taxable income if distributed and the amount of the proportionate share
of each participant. The return shall be executed in the same manner as
a return made by a corporation pursuant to the requirements o f section s
6012 amd 6062.