IBOR Transition: Current Status of US Federal Tax Guidance

Interbank Offered Rates (IBORs), including the London Interbank Offered Rate (LIBOR), serve as widely accepted benchmark interest rates that represent the cost of short-​term, unsecured, wholesale borrowing by large globally active banks.

For US federal tax purposes, the main consideration for replacing an interbank offered rate (IBOR) with a fallback rate (like SOFR) is that this alteration could result in a deemed exchange of the instrument (resulting in tax implications for both the issuer and the holder of the instrument).

Our experts broke down the guidance for addressing the US federal tax consequences of replacing an IBOR with a successor rate into three areas:

  • Older rules for addressing the US tax consequences for amendments to debt in general
  • Treasury Regulations initially proposed in 2019, and
  • An IRS Revenue Procedure released in 2020

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