Recent IRS Guidance on Repeal of Bearer Bond Exception: Notice 2012-20
March 13, 2012
As a result of the repeal of the foreign targeted bearer bond exception by the “Hiring Incentives to Restore Employment Act” (the “HIRE Act”), U.S. bonds issued after March 18, 2012 generally must be in registered form in order for the issuer to benefit from deductibility of interest payments and for foreign holders to obtain “portfolio interest” payments exempt from U.S. withholding tax. On Wednesday, March 7, 2012, the Internal Revenue Service (the “IRS”) released Notice 2012-20 (the “Notice”) which provided guidance (i) clarifying when an obligation will be treated as being in registered form under U.S. tax principles, particularly with respect to dematerialized book entry systems, (ii) creating a transition period that temporarily extends a foreign-targeted registered obligation exception to the withholding certification requirements of the portfolio interest exemption and (iii) addressing the application of the foreign targeted exception to the issuer excise tax.
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