The Department of the Treasury and Internal Revenue Service (IRS) have issued a series of proposed regulations the agencies said are designed to address taxpayer regulatory relief initiatives.
The proposed modifications address the possibility of altering a debt instrument, derivative or other financial contract to replace a reference rate based on an interbank offered rate (IBOR).
The changes would allow taxpayers to avoid adverse tax consequences from changing the terms of debt, officials added, noting the proposed rules respond to a request for guidance from the Alternative Reference Rates Committee (ARRC), a broad-based committee of private sector and ex-officio government stakeholders convened by the Board of Governors of the Federal Reserve System.
“A smooth and successful transition away from IBOR and towards an alternative rate, is important for the stability of global financial markets,” Treasury Secretary Steven T. Mnuchin said. “These proposed regulations provide certainty and clarity to taxpayers as they make the critical transition away from IBOR.”
Taxpayers and their parties may apply the proposed regulations to changes that occur, officials said, provided they apply the proposed regulations consistently, noting interested parties are invited to submit written comments on the proposed regulations through Nov. 25.
Although the market shift from IBORs to alternative rates is expected to be completed by the end of 2021, the guideline is being released as early as possible to facilitate an orderly market transition, officials said.
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