The IRS issued final regulations defining “publicly traded property” to determine the issue price of a debt instrument (T.D. 9599). The final regulations adopt the rules proposed in January 2011 but with a few significant changes (REG-131947-10).
Under the previous regulations (Regs. Sec. 1.1273-2), property was publicly traded (i.e., traded on an established market) if it was exchange-listed property, market-traded property, property appearing on a quotation medium, or readily quotable property in the 60-day period ending 30 days after the debt instrument’s issue date. These definitions were adopted in the days when there was a concern about the availability of reliable information on sales and pricing of debt instruments. But according to the IRS, “[t]he increased liquidity and transparency of the debt markets in recent years has largely eliminated concerns about reliable information on sales and pricing being unavailable” (preamble to T.D. 9599).
To modernize the outdated definitions, the 2011 proposed regulations provided that (1) property that is listed on an exchange continues to be publicly traded property; (2) property is treated as publicly traded when a sales price for the property is reasonably available; (3) property is considered to be traded on an established market if a firm price quote to buy or sell the property is available; and (4) property is publicly traded if a price quote (other than a firm quote) that is provided by a dealer, broker, or pricing service (an indicative quote) is available.
In response to comments it received, the IRS adopted the proposed regulations with the following significant changes:
- The regulations eliminate property listed on an exchange ((1), above) as publicly traded property because the small amount of debt listed on an exchange is rarely traded.
- The regulations also eliminate the de minimis trading exception because that was intended to exclude property that was listed on an exchange but traded in negligible amounts.
- The exception from publicly traded property for small debt issues is increased from issues not exceeding $50 million in the proposed regulations to $100 million in the final regulations.
- The final regulations add a requirement that issue prices be reported consistently by issuers and holders, and they obligate the issuer to determine the issue price and to make it available in a commercially reasonable fashion, such as posting it on a website.
The regulations apply to debt instruments issued on or after Nov. 12, 2012.
—Sally P. Schreiber (
) is a JofA senior editor.