* See Institute Memorandum to Accounting/Treasurers Members No. 45-94 and Tax Members No. 52-94, dated
December 23, 1994.
VIA FAX
March 10, 1995
TO: TAX COMMITTEE No. 13-95
CONTINGENT DEBT RULES SUBCOMMITTEE
RE: DRAFT COMMENTS ON PROPOSED REGULATIONS CONCERNING
CONTINGENT DEBT INSTRUMENTS
______________________________________________________________________________
As you know, in December the Internal Revenue Service published proposed
regulations governing the tax treatment of debt instruments with one or more contingent
payments.* The new proposed regulations provide rules for determining the tax treatment of
many structured notes, as well as rules for integrating contingent or variable rate debt with
related hedges.
Attached is a draft comment letter on the proposed regulations. The letter identifies
problems funds may have making minimum distributions required by section 4982 if they hold
bonds subject to the contingent debt rules. To prevent those problems the letter suggests
adopting rules similar to those governing foreign currency gains and losses under section 988
for purposes of determining the timing of certain income or loss on contingent debt. In
addition, the comments propose modifying the harsh treatment the regulations would impose
on tax-exempt obligations treated as contingent debt.
Written comments on the proposed regulations are due March 16, 1995. Please provide
any comments regarding the draft letter to the undersigned by 12:00 Noon on March 14, 1995.
(Phone: 202-326-5937; Fax: 202-326-5841)
We will keep you informed of further developments.
Peter J. Cinquegrani
Assistant Counsel - Tax
Attachment