On March 13, 2014, the Department issued Letter Ruling 14-2, which ruled that the members of an LLC—four S Corporations—qualified as mutual fund services corporations because the income passed through from the LLC to its members qualified as income from mutual fund services.

The LLC was treated as a partnership for federal and Massachusetts tax purposes.  It provided services to a fund advisor, on behalf of a regulated investment company (“RIC”).  The fund advisor, with the advice of the LLC, determined which securities should be purchased, held, or sold by the RIC.  The LLC also selected brokers and dealers and arranged for the purchases and sales by the RIC through those brokers/dealers.  The Department found these activities were mutual fund services within the meaning of M.G.L. ch. 63, § 38(m).

The LLC’s members were found to be mutual fund services corporations because the income that passed-through to each member as part of its distributive share retained its character as income from the provision of mutual fund services.  The members had no operations or activities other than the interests held in the LLC.

M.G.L. ch. 63, § 38(m) defines a mutual fund service corporation as any corporation doing business in the commonwealth which derives more than 50% of its gross income from the provision of certain mutual fund services to or on behalf of a  RIC.  Thus, the members of the LLC qualified as mutual fund service corporations because they had no income other than the income passed-through from the LLC, and that income was derived from the provision of mutual fund services.