Banks urged to lobby against trust conversion penalty.

A prominent tax consultant is urging banks to lobby more aggressively for a proposal that could enable financial institutions to substantially boost their mutual fund assets.

The proposal would eliminate a penalty now assessed on the transfer of personal trust assets into mutual funds. Banks have been advocating the change as a way to make their mutual funds more marketable and efficient.

Consultant Kathy L. Anderson, a partner in New York with KPMG Peat Marwick, said she is asking chief executives and presidents of some of the country's largest banks to join the campaign, in meetings she hopes to begin with influential legislators in July.

Benefits of Conversions

She is urging the bankers to emphasize the benefits that trust conversions would provide investors. One plus for investors, she said, is that mutual funds must disclose share price information more often than trusts.

The reform was included in a grab bag tax bill passed earlier this year by the House. Bankers hope the Senate will consider the measure this September.

By itself, the tax reform is not considered controversial. But one barrier to its adoption is that it must be included in a larger tax bill. Such bills must be "revenue neutral" - that is, not increase the federal deficit.

And a problem has emerged on that front because of an analysis of one version of the reform by congressional staff. The analysis concluded that the reform would cut federal tax revenues by nearly $60 million, Ms. Anderson said.

Tax Loss Would Be Offset

The reason is that some personal trust conversions do, in fact, occur. The tax shortfall would come from penalties no longer collected.

Ms. Anderson said that one key to the campaign will be the circulation of a new federal revenue analysis she has prepared. It shows that the reform is likely to generate enough new federal revenues to offset any tax loss.

The new revenues would be from filing and registration fees that banks would pay to the Securities and Exchange Commission for trust conversions.

Ms. Anderson figures that those fees would total $50 million if most personal trusts with more than $30 million are converted to mutual funds, which she expects to happen if the reform is passed.

She said she will ask the executives to convey their support of the reform, along with the revenue and consumer impact analyses, to members of the Senate Finance Committee, including chairman Daniel Patrick Moynihan D-N.Y.

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