On October 9, the Internal Revenue Service (IRS) proposed regulations to eliminate tax issues that might otherwise arise due to the modification of instruments and transactions as a result of discontinuation of interbank offered rates (IBORs) used in debt instruments and non-debt contracts (such as derivatives). Under current rules, material alteration of the terms of instruments and contracts can result in tax events, including the realization of gain or loss for income tax purposes.

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Included as a revenue offset in the budget legislation (H.R. 1314) signed by President Obama are provisions that simplify the procedure for the Internal Revenue Service to audit and collect adjustments from partnerships. The new rules, which are generally effective beginning 2018, permit the IRS to send the bill for a prior year’s tax deficiency to the partnership, which would then have the obligation to pay the deficiency, unless the partnership elects an alternative payment procedure. The alternative payment procedure permits partnerships to pass the adjustments and related taxes back to the applicable partners, who will pay this additional tax in the year they are notified of the deficiency and will not be required to amend their prior years’ federal returns. (Partners will still be obligated to report the adjustments on amended state tax returns, unless the applicable state adopts similar procedures.) The details for making this election will be set forth in forthcoming US Treasury regulations.
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On September 14, the Internal Revenue Service (IRS) issued final regulations under Internal Revenue Code Section 851 clarifying that control groups under the regulated investment company (RIC) rules may consist of two entities (i.e., the RIC and one subsidiary), rather than two levels of entities, settling a decades-long debate. The IRS also issued Rev. Proc. 2015-45, 2015-39 IRB 1, which provides a safe harbor for fund of funds structures.
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