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- Title
What Looks the Same May Not Be the Same: The Tax Treatment of Securities Reopenings.
- Authors
HOCHBERG, JEFFREY D.; ORCHOWSKI, MICHAEL
- Abstract
This Article examines the U.S. federal income tax treatment of securities "reopenings" -- that is, issuances of new securities that are intended to be identical to (and fungible with) an existing class of securities. Reopening transactions have become increasingly common in recent years and are primarily motivated by nontax considerations. However, as discussed in this Article, reopened securities that are otherwise identical to original securities sometimes have different tax attributes, in which case the original securities and the reopened securities will not be fungible with each other, thereby defeating the purpose of the reopening. The first Part of this Article provides an overview of reopening transactions and the nontax considerations that motivate such transactions. The second Part examines reopenings of debt obligations, including a discussion of when reopened notes are treated as part of the same "issue" as original notes. This Part also includes a comprehensive discussion of the "qualified reopening regulations" and some of the uncertainties and ambiguities in such regulations. The third Part addresses reopenings of preferred stock, including some of the unique issues applicable to reopenings of preferred stock at a premium. The fourth Part addresses reopenings of certain types of structured notes -- specifically reopenings of notes that are classified for tax purposes as forward or derivative contracts or as "reverse convertible" notes. Finally, the last Part of this Article addresses reopenings of interests in entities that are classified as grantor trusts for tax purposes.
- Subjects
UNITED States; INCOME tax laws; TAXATION of securities; PREFERRED stocks; FORWARD contracts; STRUCTURED notes (Securities); DERIVATIVE securities; GRANTOR trusts; TAXATION
- Publication
Tax Lawyer, 2013, Vol 67, Issue 1, p143
- ISSN
0040-005X
- Publication type
Article