IRS

ESMA Final Draft RTS for Central Clearing of Interest Rate Swaps under EMIR

On October 2, the European Securities and Markets Authority (ESMA) published a report containing final draft regulatory technical standards (RTS) for the central clearing of interest rate swaps (IRS) under EMIR. The four IRS classes that will be subject to central clearing are basis swaps, fixed-to-float swaps, forward rate agreements and overnight index swaps, each denominated in a range of currencies.  Report.

Orrick Alert: IRS Issues Changes to the Mixed Straddle Regulations

On August 2, the IRS issued temporary regulations relating to accrued gain or loss associated with a position that becomes part of a section 1092(b)(2) identified mixed straddle.  The temporary regulations segregate pre-identification gain and loss on a mixed straddle position from post-identification gain and loss, preventing taxpayers from using identified mixed straddles as an alternative to selling assets to accelerate gain or loss.  For the complete Orrick alert, please click here.

Real Estate Mortgage Excess Servicing Spread is a Real Estate Asset for REIT Purposes

On July 12, the IRS released a private letter ruling issued on April 12, 2013, ruling that certain real estate mortgage excess servicing spread would constitute a real estate asset, and that income received from the spread would be treated as interest on obligations secured by mortgages on real property, for purposes of the tax rules governing REITs.  This ruling is similar in many respects to another ruling issued in May 2012.  Private letter rulings are not binding on the IRS other than with respect to the taxpayer to whom it is addressed, but REITs may find these rulings useful in analyzing tax issues associated with real estate mortgage excess servicing spreads.  IRS Private Letter Ruling 201328018 (April 12, 2013)IRS Private Letter Ruling 201234006 (May 24, 2012).

Extension of FATCA Withholding Start Date and Grandfathering End Date

On July 12, Treasury and the IRS announced that they intend to amend final Treasury regulations implementing the U.S. Foreign Account Tax Compliance Act (FATCA) to provide for a six-month extension to the start of FATCA withholding and the end of the FATCA grandfathering period, from January 1, 2014 (under current regulations) to July 1, 2014, in order to allow for a more orderly implementation of FATCA.  In addition, the timelines for implementing certain FATCA account due diligence requirements and FATCA registration requirements are to be extended, and Treasury and the IRS will provide a list of jurisdictions that will be treated as having in effect an intergovernmental agreement (IGA) with the U.S.  FATCA withholding is scheduled to apply to payments of U.S. source dividends, interest and other fixed payments beginning July 1, 2014, and to payments from the disposition of property producing such payments beginning January 1, 2017.  IRS Notice 2013-43.

Final Regulations Implementing the Foreign Account Tax Compliance Act

On January 17, 2013, the Internal Revenue Service (IRS) released final regulations (the Final Regulations) implementing the reporting and withholding provisions of the HIRE Act (commonly known as the Foreign Account Tax Compliance Act, or FATCA, provisions) that target noncompliance by U.S. taxpayers using foreign accounts.  The Final Regulations build on proposed regulations published on February 15, 2012, to provide additional certainty for financial institutions and government counterparts by finalizing the step-by-step process for U.S. account identification, information reporting and withholding requirements for foreign financial institutions (FFIs), non-financial foreign entities (NFFEs) and U.S. withholding agents.  For more information, please click here.

Treasury and IRS FATCA Regulations

On January 17, Treasury and the IRS issued comprehensive final regulations implementing the information reporting and withholding tax provisions commonly known as the Foreign Account Tax Compliance Act (FATCA).  These regulations finalize the step-by-step process for U.S. account identification, information reporting, and withholding requirements for foreign financial institutions (FFIs), other foreign entities, and U.S. withholding agents.  Treasury Release.  FATCA Information.

Tax Law Update: IRS Issues Final Treasury Regulations Expanding Definition of “Traded on an Established Securities Market” and Liberalizing Rules for Reopenings

On September 12, the IRS issued Final Treasury Regulations that clarify the circumstances that cause property to be treated as “traded on an established market” for purposes of determining the issue price of a debt instrument that is issued for property.  The Final Regulations broadly define the term “traded on an established market.”  These new rules could create adverse U.S. federal income tax issues for borrowers and certain lenders in connection with certain restructurings, recapitalizations, debt-for-debt exchanges and amendments or modifications to credit agreements and other debt instruments.  Click here to read more.

IRS Proposed Rules on Tax Treatment of Swaps

On September 15, pursuant to Section 1601 of the Dodd-Frank Act, the IRS proposed rules amending existing regulations regarding Sections 1256 and 446 of the Internal Revenue Code. The proposed rules provide guidance on the category of swaps and similar agreements that fall within the scope of Section 1256(b)(2)(B) and as a result are excluded from the definition of a Section 1256 contract. The proposed rules also expand the definition of a notional principal contract under Section 446 to include swaps on non-financial indices. Comments must be received by December 15. IRS Proposed Rules.