Treasury And IRS Release Final Tax Regulations For LIBOR Replacement Amendments

The lengthy saga of the transition to a post-LIBOR world reached a degree of finality on the tax side with the issuance by the Department of Treasury and Internal Revenue Service (IRS) of long-awaited final regulations (the "Final Regulations") on December 30, 2021. The Final Regulations provide guidance on the tax consequences of amendments to debt instruments and/or certain associated interest rate swaps or other derivative contracts in order to replace LIBOR or other Interbank Offered Rates ("IBORs") with other reference rates used in determining interest rates on the applicable debt and/or derivative (referred to herein as "Replacement Index Amendments").

The Final Regulations maintain the fundamental principles of the Proposed Regulations released on October 8, 2019, discussed here, governing avoidance of tax realization events in connection with Replacement Index Amendments, but include several structural changes to the Proposed Regulations. These changes