By Katanga Johnson
WASHINGTON (Reuters) - The U.S. Treasury Department and Internal Revenue Service proposed guidance on Tuesday to help taxpayers avoid "negative consequences" as U.S. banks switch from the tainted London Interbank Offered Rate (Libor) to other benchmarks.
A host of debt, derivatives and other financial contracts are shifting away from Libor after widespread attempts by banks to rig the 50-year-old benchmark across several currencies prompted regulators to call for an end to using it by the end of 2021.
The shift could have tax implications that affect financial contracts worth more than $300 trillion globally, from complex derivatives to home loans and credit cards.
The guidance, which is subject to public consultation, clarifies that the change to other accepted benchmark rates, such as the Secured Overnight Financing Rate (Sofr), "could be a taxable transaction for Federal income tax purposes," the proposal said.
A group of regulators and banks, known as the Alternative Reference Rates Committee, has been pushing to ensure that all new financial contracts move to an alternative benchmark reference rate, most notably Sofr.
Other global bodies, including the International Accounting Standards Board and Financial Accounting Standards Board, have been issuing similar guidance.
"A smooth and successful transition away from Libor and towards an alternative rate, such as Sofr, is important for the stability of global financial markets," said Treasury Secretary Steven Mnuchin in a statement. "These proposed regulations provide certainty and clarity to taxpayers as they make the critical transition away from Libor."