Editor's Note
When the smoke cleared after the US Senate's failure to advance the Build Back Better Act (the "BBBA"), it finally dawned on CMTQ that the US might be in for a prolonged period of stable capital gain tax rates. As we previously reported, after Joe Biden was elected President and with a narrow Democratic majority in the Senate, US taxpayers were apparently worried enough about a significant increase in capital gain rates to consider accelerating their plans to sell capital assets, including private businesses.1 The rate increase initially proposed in April 2021 (which would have been effective as of the date it was proposed) would have taken individual capital gain rates to 39.6% from the current 20% for taxpayers with more than $1 million in income. That was enough to scare some people into acting (or not acting), although we will never know exactly how many.
Now, in February 2022, the picture looks quite different. Barring radical new 2022 ideas for raising revenue, the only tax rate increase that survived the 2021 legislative gauntlet was a high income BBBA surcharge of 5 or 8 percent, generally for taxpayers earning more than $10 or $25 million per year, respectively. Even that may not become law in 2022 unless Congressional Democrats are able to resurrect parts of BBBA. Looking forward, in nine months we have the Congressional midterm elections on November 8, 2022. The only chance of a new rate initiative in 2023 after the midterms seems to be if the Democrats add to their majorities in the House and Senate. We'll leave that prognostication to others but we could enter 2023 and 2024 with a still divided government; usually that bodes well for those who like tax rate stability. The outcome of the 2024 Presidential and Congressional elections is anyone's guess but by that time, the US will have had a 20% long-term capital gain rate for 26 years. In 1998, when the rate was lowered to the current 20%, few would have predicted that kind of long-term, so to speak, rate stability.
Of course, many things may change between now and 2024 so take what we say here with a grain of salt. All the answers will be in a future edition of CMTQ.
We cover a number of topics in this edition of CMTQ, including the further extension of relief for public REITs and RICs paying dividends in stock, tax reporting for crypto, and more.
Final Regulations on IBOR Transition Released
The big IBOR transition news for Q4 2021 came just before the ball dropped in Times Square. On December 30, 2021, the Internal Revenue Service ("IRS") published final regulations for the IBOR transition (the "Final Regulations").2 This coincided with the end of the publication of one-week or two-month LIBOR on December 31, 2021 (the remaining dollar LIBORs are schedules to end on June 30, 2023). The last major guidance from the IRS on the LIBOR transition came on October 8, 2019 in the form of proposed regulations under section 1001 of the Code3 (the "Proposed Regulations"). Most importantly, as discussed in more detail below, the Final Regulations no longer contain the requirement in the Proposed Regulations that the fair market value of the instrument after the replacement or addition must be substantially equivalent to the fair market value of the instrument before the replacement or addition, replacing that standard with a list of modifications that fall outside the relief provided by the Final Regulations. The Final Regulations follow a simple structure that blesses all modifications to any instruments that fit the definition of "covered modifications," other than modifications that fit the definition of "noncovered modifications."
For a detailed summary of the Final Regulations, see our Legal Update, available at
Footnotes
1 See Bob Carlson, How to Avoid the Higher Capital Gains Taxes That Are Likely Coming, Forbes (June 23, 2021).
2 The Final Regulations are available at https://public-inspection.federalregister.gov/2021-28452.pdf. The IRS released Rev. Proc. 2020-44 since the issuance of the Proposed Regulations, but that guidance only applied to limited and specific circumstances (as discussed in more detail below).
3 Unless otherwise stated, all section references herein are to the Internal Revenue Code of 1986, as amended (the "Code").
To read the full article click here
Visit us at mayerbrown.com
Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
© Copyright 2020. The Mayer Brown Practices. All rights reserved.
This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.
