Notional Principal Contracts; Swaps With Nonperiodic Payments, 61308 [2015-25921]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 80, Number 197 (Tuesday, October 13, 2015)]
[Rules and Regulations]
[Page 61308]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-25921]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9719]
RIN 1545-BM62


Notional Principal Contracts; Swaps With Nonperiodic Payments

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations; correcting amendments.

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SUMMARY: This document contains amendments to temporary regulations 
relating to guidance for the treatment of nonperiodic payments made or 
received pursuant to certain notional principal contracts. These 
amendments change the applicability date of the embedded loan rule for 
the treatment of nonperiodic payments from November 4, 2015, to the 
later of January 1, 2017, or six months after the date of publication 
of the Treasury decision adopting these rules as final regulations in 
the Federal Register. The amendments to the temporary regulations 
provide guidance to taxpayers who are parties making and receiving 
nonperiodic payments under notional principal contracts.

DATES: Effective Date: These amendments are effective on October 13, 
2015.
    Applicability Date: For the date of applicability, see Sec.  1.446-
3T(j)(2), as corrected.

FOR FURTHER INFORMATION CONTACT: Alexa Dubert at (202) 317-6945 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    The temporary regulations that are the subject of these amendments 
are under section 446(b) of the Internal Revenue Code (Code). The 
temporary regulations (TD 9719) were published in the Federal Register 
on Friday, May 8, 2015 (80 FR 26437).

Need for Amendments

    Section 1.446-3T(g)(4)(i) of the temporary regulations provides 
that, subject to certain exceptions set forth in Sec.  1.446-
3T(g)(4)(ii), a notional principal contract with one or more 
nonperiodic payments is treated as two separate transactions consisting 
of an on-market, level payment swap and one or more loans (the embedded 
loan rule). Section 1.446-3T(g)(4)(i) eliminated the exception to the 
embedded loan rule for non-significant, nonperiodic payments set forth 
in the final regulations (TD 8491) published in the Federal Register on 
October 14, 1993 (58 FR 53125) (the 1993 Regulations). See Sec.  1.446-
3. Section 1.446-3T(g)(4)(i) applies to notional principal contracts 
entered into on or after November 4, 2015. After publication of the 
temporary regulations, the Treasury Department and the IRS received 
comments requesting the delay of the applicability date of the embedded 
loan rule set forth in the temporary regulations. In response to those 
comments, this document amends the applicability date to make Sec.  
1.446-3T(g)(4)(i) and Sec.  1.446-3T(g)(6) Example 2 apply to notional 
principal contracts entered into on or after the later of January 1, 
2017, or 180 days after the date of publication of the Treasury 
decision adopting these rules as final regulations in the Federal 
Register. Prior to the date of applicability of Sec.  1.446-
3T(g)(4)(i), as corrected, taxpayers may continue to apply the 1993 
Regulations that (except for purposes of section 956) limit the 
application of the embedded loan rule to nonperiodic payments that are 
significant.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, 26 CFR part 1 is corrected by making the following 
correcting amendments:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 1.446-3T is amended by revising paragraph (j)(2) to 
read as follows:


Sec.  1.446-3T  Notional principal contracts (temporary).

* * * * *
    (j) * * *
    (2) Application of Sec.  1.446-3T(g)(4). Paragraph (g)(4)(i) of 
this section and paragraph (g)(6) Example 2 of this section apply to 
notional principal contracts entered into on or after the later of 
January 1, 2017, or 180 days after the date of publication of the 
Treasury decision adopting these rules as final regulations in the 
Federal Register. Paragraph (g)(4)(ii) of this section applies to 
notional principal contracts entered into on or after May 8, 2015. 
However, before the later of January 1, 2017, or 180 days after the 
date of publication of the Treasury decision adopting paragraph 
(g)(4)(i) of this section as final regulations in the Federal Register, 
taxpayers may rely on the provision in Sec.  1.446-3(g)(4), as 
contained in 26 CFR part 1, revised April 1, 2015, which (except for 
purposes of section 956) limits the application of the embedded loan 
rule to nonperiodic payments that are significant, even if the 
requirements for the exceptions in paragraph (g)(4)(ii) of this section 
are not met. Taxpayers may apply paragraph (g)(4)(i) of this section, 
paragraph (g)(4)(ii) of this section, or both to notional principal 
contracts entered into before the dates set forth in this paragraph 
(j)(2).
* * * * *

Martin Franks,
Branch Chief, Publications & Regulations Branch, Legal Processing 
Division, Associate Chief Counsel (Procedure & Administration).
[FR Doc. 2015-25921 Filed 10-9-15; 8:45 am]
 BILLING CODE 4830-01-P