Tax News

CCH (cch.taxgroup.com) reports:

  The IRS has provided guidance regarding the application of
Code Sec. 1058(a) to situations involving securities loan agreements where the borrower subsequently defaults under the agreement as a result of its bankruptcy (or that of an affiliate) and, as soon as it is commercially practicable (but in no event more than 30 days following the default), the lender uses collateral provided pursuant to the agreement to purchase identical securities. Pursuant to the guidance, the purchase of the identical securities will not result in the loss of tax-free treatment under Code Sec. 1058(a) for the lender, so long as the following conditions are met:

  (1) the securities loan agreement meets the requirements of Code Sec. 1058(b);

  (2) the agreement requires that the borrower transfer collateral as security for its obligations under the agreement;

  (3) the borrower defaults under the agreement as a direct or indirect result of its bankruptcy or that of an affiliate; and

  (4) as soon as it is commercially practicable (but in no event more than 30 days following the default), the lender applies collateral transferred under the agreement (or cash generated by the sale of the collateral) to the purchase of identical securities.

  The guidance is effective for tax years ending on or after January 1, 2008. No inference should be drawn as to whether similar consequences will result if a securities loan falls outside the scope of this guidance.

Rev. Proc. 2008-63, 2008FED ¶46,588

Other References:

 
Code Sec. 1058

  CCH Reference - 2008FED ¶30,003.01

  Tax Research Consultant

  CCH Reference - TRC SALES: 3,302.35