The IRS recently issued guidance relating to the transition from LIBOR and IBOR to alternative reference rates like SOFR.  The intent is to address the issue of whether modifying existing municipal bond documents results in a reissuance for federal tax purposes, and provide guidance for adjustments to a qualified hedge under Treas. Reg. Section 1.148-4.

In summary, the guidance provides that relief only applies to modifications to contracts that a) incorporate an ISDA fallback; 2) incorporate an ARRC fallback; and 3) incorporate either of the foregoing with certain specific deviations like those to confirm that the fallback is enforceable under local law.  The Revenue Procedure is effective for modifications to contracts on or after October 9, 2020 and before January 1, 2023.

Victoria S. Byerly is an attorney in KAV’s Public Finance Group. A specialist in Section 103 of the Internal Revenue Code, her practice is exclusively dedicated to state and federal tax matters related to the issuance of tax-exempt debt obligations.