IRS Issues Proposed Guidance Regarding LIBOR Phase Out

On October 8, the U.S. Department of the Treasury issued proposed guidance on the tax consequences of a modification to a debt instrument undertaken in anticipation of the 2021 phase out of the London interbank offered rate (LIBOR). The proposed regulations are open for comment until November 25, 2019, so could change upon final adoption. However, as proposed, the guidance generally provides that if the terms of a debt or derivative instrument are modified to replace, or provide a new fallback to, a LIBOR referencing rate and the modification does not change the fair market value of the instrument, the modification will not result in the realization of income, deduction, gain or loss. For tax-exempt obligations, this means the modification will not result in a reissuance for tax purposes as long as the modification falls within the safe harbors described in the proposed regulations. Certain limited provisions of the proposed regulations may be implemented immediately in advance of the adoption of the final regulations. A link to the proposed regulations is available here.

For more information about the proposed regulations, the safe harbors and the proposed applicability dates of the new regulations, please contact Susan Price, Tyler Kalachnik, David Nie or the Ice Miller lawyer with whom you are familiar.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.