IRS Provides Guidance On TLAC

On December 16, 2016, the Internal Revenue Service ("IRS") issued Revenue Procedure 2017-12 (the "Revenue Procedure"), which provides that certain instruments issued by global systemically important banking organizations ("GSIBs") that provide total loss-absorbing capacity ("TLAC") will be treated by the IRS as indebtedness for federal income tax purposes.

The IRS guidance comes one day after the Board of Governors of the Federal Reserve System (the "Board") issued final regulations (the "Federal Reserve Regulations") that prescribe the amount and form of TLAC required for domestic GSIBs and the U.S. operations of foreign GSIBs.¹

Under the Federal Reserve Regulations, GSIBs are required to issue both "external TLAC," which is TLAC issued to third-party investors, and "internal TLAC," which is issued to related parties. One example of internal TLAC is in the context of a foreign GSIB with a significant U.S. presence that holds securities issued by its domestic