Excerpt
September 10, 2024
U.S. Department of the Treasury
1500 Pennsylvania Ave NW
Washington, D.C. 20220
Re: 2024 Proposed Regulations for the Identification of Basket Contract Transactions as Listed Transactions
Ladies and Gentlemen,
The Securities Industry and Financial Markets Association (SIFMA) appreciates the opportunity to submit comments on the 2024 proposed listed transaction regulations identifying certain basket transactions as listed transactions (the “proposed regulations”).
I. Executive Summary
As discussed in more detail below, SIFMA has serious concerns about the breadth of the proposed regulations and the severe implications of reclassifying basket transactions from transactions of interest to listed transactions. SIFMA makes the following recommendations in Sections III-V for narrowing the proposed regulations to exclude non-abusive benign transactions that should not be labeled as tax shelters:
- Section III.A: Restore the limiting language on the meaning of “substantially similar” from Notice 2015-74 so that taxpayers can know precisely what transactions are listed transactions and do not refrain from entering into non-abusive commercially-driven transactions out of a concern that they may be “substantially similar” under the broader standard.
- Section III.B: Narrow the definition of “designee” by replacing the “selected by” prong with an “acting in concert” standard. This change would ensure that the regime appropriately targets abusive transactions without unduly requiring disclosure of transactions that pose no risk of abuse and are not susceptible to challenge. Further, revisions should clarify that the mere payment of a commercially reasonable index licensing fee should not cause the index provider to be a designee.
- Section III.C: Clarify the meaning of “objective instructions, operations, or calculations” and/or “routine judgment in the administration of the rules” in the context of rules that may require index providers or committees to be involved in interpreting or making determinations under those rules.
- Section III.D: Exclude any contracts that reset at least annually. If the government is unwilling to exclude contracts with an annual reset, then the government should consider excluding those with a quarterly reset and should absolutely exclude contracts with a monthly reset. Likewise, all contracts that have terms of one year or less should be excluded, but if the government is unwilling to exclude all short-term contracts, the government should consider excluding those with a term of three months or less or at the very least, one month or less.
- Section III.E: Limit the definition of “tax benefit” to make clear that the deferral or conversion resulting from the transaction must arise specifically from the form of the transaction as a derivative over multiple positions.
- Section IV.A: Exclude from a counterparty’s reporting obligations any Non-U.S. Targeted Instruments (as defined below) distributed under a securities law program that is restricted to distribution outside of the United States, such as Regulation S issuances.
- Section IV.B: Allow a counterparty more flexibility in relying on withholding tax forms and representations regarding a taxpayer’s U.S. tax status to take a transaction out of scope.
- Section IV.C. Allow issuers to rely on their treatment of an instrument as a contingent payment debt instrument (“CPDI”) or variable rate debt instrument (“VRDI”), as indicated by the issuer’s disclosure in an offering document and/or by its filing of a Form 8281.
- Section V: Any transaction that is entered into prior to finalization should be New York 140 Broadway, 35th Floor | New York, NY 10005 analyzed under the preexisting rules of Notices 2015-73 and -74 and should be reported only as required thereunder, and no new disclosure should be required for transactions previously disclosed as transactions of interest under Notice 2015-74.