IRS Issues Guidance On Registered Bonds Days Before Repeal Of Bearer Bond Exception

The Foreign Account Tax Compliance Act ("FATCA"), which was enacted as part of the Hiring Incentives to Restore Employment Act, ends the practice by U.S. issuers (and controlled foreign corporations) of selling bearer debt to foreign investors under "TEFRA C" and "TEFRA D" after March 18, 2012.¹ As a result, debt issued after that date must be issued by U.S. issuers in registered form. FATCA codified Internal Revenue Service ("IRS") Notice 2006-99, providing that debt obligations cleared through dematerialized book-entry systems would be treated as being issued in registered form. On March 7, 2012, the IRS released Notice 2012-20 (the "Notice"), which addresses, among others, (i) the circumstances under which certain bonds are treated as in registered form, and (ii) a temporary relief from the requirement to collect IRS Forms W-8 in order to qualify for the portfolio interest exemption from U.S. withholding tax on interest. The U.S. Treasury Department said it intends