WASHINGTON -- The tax-exempt bond market and some investment banking firms may be hurt by pending tax simplification legislation that would treat as taxable the tax-exempt bond interest earned by large investment partnerships, securities officials said this week.

The legislation, which would take effect in the 1992 tax year for large partnerships whose tax-exempt interest income is less than 50% of their assets, was proposed to benefit such groups by simplifying their reporting and record-keeping requirements, House Ways and Means Committee aides said. These partnership have more than 250 investors who share income and tax benefits from securities, real estate, oil and gas, or other investments.

But securities officials this week said the legislation would adversely affect investment banking firms such as Goldman, Sachs & Co.,; J.C. Bradford & Co.; and Edward D. Jones & Co., which are organized as large private partnerships and receive tax-exempt interest income from the inventories of municipal bonds they hold.

The officials also said many large publicly traded investment partnerships that hold or buy tax-exempts could suffer financial losses from the legislation. They might be discouraged from investing in bonds in the future.

Edward Soule, chief financial officer for Edward D. Jones & Co. in St. Louis, said that municipal bonds are 16% of his firm's full-service retail business and that the legislation would treat as taxable about $4 million of municipal bond interest income per year for the firm.

"We're not taking this lightly at all," he said, adding that the legislation "has profound implications for the whole industry."

Goldman Sachs officials declined to discuss the issue. And officials with J.C. Bradford & Co. in Nashville could not be reached for comment.

Several industry officials agreed that the legislation would affect the buy-side of the municipal market. "My understanding is that it's not uncommon for master limited partnerships to have excess cash and, instead of putting it in Treasuries, they put it into municipals," said a knowledgeable industry official who did not want to be named.

Both the Securities Industry Association and the Public Securities Association are scrambling to gather information to assess the issue.

Securities Industry Association officials yesterday said they plan to propose that registered broker dealers and their related partnerships be allowed to elect an exemption from the simplification provisions in the same manner as oil and gas partnerships.

They said they would submit the proposals in written testimony on the tax simplification bill, H.R. 2777, to the House Ways and Means Committee later this week.

Meanwhile, the Public Securities Association is trying to determine the extent to which large investment partnerships are buyers of tax-exempt bonds.

PSA officials said they hope to have the data by the end of next week. They said they were focusing on the buy-side of the market, while the SIA and the securities firms are looking at effects on broker-dealer partnerships.

Tax committee aides said the legislation was introduced by House Ways and Means Committee Chairman Dan Rostenkowski, D-Ill., as part of his tax simplification bill. The bill was proposed after promoters of partnerships and the individual taxpayers who participate in them complained that the reporting and record-keeping requirements were too burdensome and costly, one aide said.

"It's definitely not meant as a cutting back of tax-exempt municipal bonds. It's a simplification. But if the committee was wrong, then we'd certainly like to know about it," the tax committee aide said.

"Partners have written us and said, 'Save us,'" the committee aide said. She added that one taxpayer complained about receiving $1,000 in income one year from a partnership, only to have to pay an accountant $700 to do his taxes.

At the same time, it was not clear why such detailed reporting was required of the partnerships because the Internal Revenue Service does not have the capability to match the data to individual taxpayer returns.

Partnerships currently must report more than 40 tax-related items, including tax-exempt interest, on K-1 forms that are distributed to their partners. The partners then use the information on the forms to fill out their own individual tax returns. The legislation would shrink to less than 10 the number of tax-related items to be reported on the K-1. Tax-exempt interest would no longer be a reportable item because it would be included as taxable income.

"When we put those provisions in there our view was that it was not going to affect partnerships holding bonds, because those holding them would be holding a lot of them," the tax committee aide said.

Concerns about the legislation were raised at a meeting of the American Bar Association's committee on tax-exempt financing that was held last week in Atlanta. Committee members, most of whom were hearing about it for the first time, discussed whether the legislation would affect the bond market and whether they should disclose it and its potential effects on certain investors in their opinions that bond issues are tax-exempt.

The committee decided not to investigate the issue further after several members said they believed that large partnerships were not big buyers of tax-exempt bonds and that the Public Securities Association was trying to pull together some information on the matter.

Bill Morris, a lawyer with Rogers & Wells, the firm that represents the Investment Program Association, a trade group for partnerships and other investment groups, said yesterday that the latest available data from the Treasury Department shows that 3,450 large partnerships existed in 1987. But that figure included all kinds of partnerships, not just those set up for investment purposes.

Mr. Morris said he believes that many securities firms, particularly large regional firms, are structured as large partnerships. SIA officials said they are only aware of the three investment banking firms so far, but that others may exist.

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