Tax Talk, Volume 4, Issue 3 - October 2011

Dateline: Occupied Wall Street (Oct. 19, 2011). The 24th anniversary of Black Monday, October 19, 1987, dawns on an occupied Wall Street amid persistent gloom in global financial markets. The largest U.S. banks are in the midst of announcing their Q3 earnings, of which at least $12 billion comes from accounting gains due to a decline in their credit quality (we're not kidding). Nevertheless, our readers will be pleased to know that the tax law marches on and the Internal Revenue Service ("IRS") and the courts continue to work through the backlog of tax issues left over from the golden era in financial instruments. Thus, in the Q3 edition of Tax Talk we discuss proposed regulations that treat credit default swaps as notional principal contracts and that may spell doom for certain types of "bullet swaps," an IRS ruling addressing the connection (or lack thereof) between the deferral of cancellation of debt income and unamortized hedge gain and the Ninth Circuit's