I fully concede the first point I didn't copy here, this is angels dancing on a pin stuff that I personally don't care about in a material way. But, if I held $1M only in the months of October-December 2023 in VUSXX, I might feel differently.I think you need to consider that every financial company, not just Vanguard/Fidelity/Schwab, but every mutual fund company with which I deal or have ever dealt, issues a USGO statement just like this. This cannot be an accident. While you talk about NJ, you need to consider that there could be IRS regulations on the subject of calculating USGO income percentages for investment companies and all the investment companies are following those.
I also don’t think the Vanguard statement really means anything. Fidelity has a similar statement on its USGO statement (“The information herein is general and educational in nature and should not be considered legal or tax advice….Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.” They are boilerplate disclaimers particularly given that investment companies don’t give tax advice.
In reality, my real are of interest is about the assumptions you make about how this works.
I have a major issue/concern/legal question about the entire process involved in taxpayers identifying, calculating, and reporting their tax exempt income for state income tax.
AFAIK, there are NO Federal / IRS regulations on the reporting of this information. If it were so, I would fully expect that we would have a new box on the 1099-DIV that tax exempt interest similar to what box 3 on 1099-INT for savings bonds and direct treasury obligations.
Worse, yet there is a patchwork of legal cases applying a centuries old ruling about taxation of federal obligations that have wound through state courts in the past 40 years with a myriad of outcomes. For example, CT/CA/NY apply a 50% rule to mutual funds that was challenged in other states and found unconstitutional. Another example, NJ and I believe several other states allow exemptions for distributions from IRAs for the portion that can be attributed to USGO. Some states also allow exemptions for capital gains on USGO, most do not.
Worse yet, in almost all cases, state governments go out of their way to obfuscate the exemption and how to apply it.
I have thoughts, but they cannot be shared due to forum guidelines.
I don't think the disavowal of responsibility for state data by the fund company's is just boilerplate. They are providing information that does not have the same level of legal requirements as the data provided on a 1099, therefore the funds will not take legal responsibility. If they report 1099 income incorrectly, there are legal and financial consequences for the fund and possibly investors.
Recent discussions about years of legal wrangling how foreign tax withholding was handled on some ex-US funds is a good example (mostly due to changing tax treaties). The IRS has been creating a very complex and broad set of reporting rules for foreign income because they have legal framework to implement.
Statistics: Posted by retiringwhen — Sun Apr 28, 2024 7:45 pm — Replies 19 — Views 1503