Trillions of dollars of debt instruments rely on the London Interbank Offered Rate (LIBOR) as a reference for establishing the interest rate payable on debt instruments. However, recent financial scandals and lack of a robust underlying market using LIBOR have resulted in the expectation that LIBOR will no longer be available after 2021. Thus, it will be necessary for such debt instruments to transition away from using LIBOR. Concerns have been raised regarding the potential tax implications resulting from alterations of debt instruments that transition away from LIBOR, including triggering a taxable event and application of the OID rules. This article highlights issues related to recently published proposed Treasury Regulations and provides recommendations for revisions to the proposed Treasury Regulations.

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