The IRS and Treasury released proposed regulations (REG-118784-18) under sections 1001, 860G, and 1275 which were published in the Federal Register on October 9, 2019. These regulations are intended to provide taxpayer-favorable guidance with respect to alterations to debt instruments (and non-debt financial instruments) that replace interbank offered rates (e.g., LIBOR) with qualified replacement rates or provide fallback replacement rate provisions.
The proposed regulations generally provide relief consistent with taxpayer and practitioner recommendations. However, several aspects of the proposed rules may require subjective judgments and, in some instances, complex calculations or valuations. Market participants should continue to evaluate the potential tax impact of the transition from IBOR-based rates on their portfolio and operations.