On August 28, 2019, the U.S. Department of Treasury submitted proposed regulations on the tax consequences related to the phased elimination of interbank offered rates (the “Proposed Regulations”) to the Office of Management and Budget for review by the Office of Information and Regulatory Affairs (OIRA). Many countries, including the United States, are in the process of replacing interbank offered rates, such as the London Interbank Offered Rate (LIBOR) which is expected not to be available after 2021, with alternative benchmark rates.
In April 2019, the Alternative Reference Rates Committee—a group of market participants convened by the Federal Reserve Board and the New York Fed to identify an alternative reference rate and make recommendations to mitigate risks with respect to the cessation of LIBOR—submitted a letter to Treasury and the Internal Revenue Service requesting guidance on the U.S. federal income tax issues relating to the transition from interbank offered rates to alternative benchmark rates. We expect the highly anticipated Proposed Regulations to provide guidance on whether a modification to a debt instrument or derivative to accommodate a transition from an interbank offered rate to an alternative referenced rate will be treated as a taxable event for U.S. federal income tax purposes.
Under a memorandum of agreement between OIRA and Treasury, OIRA generally completes its review of tax regulations within 45 days. Treasury should release the Proposed Regulations to the public after completion of the OIRA review. We will provide an update once the Proposed Regulations are publicly available.