SIFMA and Other Associations Submit Comments to Treasury and IRS Requesting Guidance Relating to Upfront Payments on Swaps

SIFMA, CME Group, Inc., the North American Tax Committee of ISDA, and the Futures Industry Association (the "Associations") submitted comments to the U.S. Treasury Department and the IRS requesting guidance on the application of existing rules treating swap upfront payments that constitute "significant" non-periodic payments, as loans for federal income tax purposes.

According to the letter, in the context of cleared and many uncleared swaps, a party receiving an upfront payment is not entitled to retain the payment, but rather must remit the payment as variation margin back to the payor of the upfront payment. This is quite different from a loan where the issuer may have discretion as to the use of the payment.

While some helpful guidance carving out upfront payments on certain swaps from the application of tax rules has been issued in limited contexts, the Associations state that it does not address other potential issues, such as the application of potentially burdensome tax information and withholding rules, the unrelated business taxable income rules, or the application of Section 956 outside of specific situations addressed in existing guidance.

See: Associations' Comments to Treasury and IRS.