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IRS Asserts Variable Prepaid Forward Contract with Share Lending is a Present Sale



by Mark P. Howe
Cadwalader, Wickersham & Taft LLP - Washington Office

David S. Miller
Cadwalader, Wickersham & Taft LLP - New York Office

Daniel J. Mulcahy
Cadwalader, Wickersham & Taft LLP - Washington Office

Shlomo M. Boehm
Cadwalader, Wickersham & Taft LLP - New York Office

Dashiell C. Shapiro
Cadwalader, Wickersham & Taft LLP - Washington Office

April 4, 2008

Previously published on February 21, 2008

On February 6, 2008, the IRS published Coordinated Issue Paper LMSB-04-1207-077 (the "Issue Paper"). The Issue Paper reiterates the position (taken in a prior Technical Advice Memorandum and Generic Legal Advice Memorandum) that a variable prepaid forward contract ("VPFC") that includes or involves a share lending agreement or other similar arrangement and which allows the counterparty to borrow the pledged shares ("Share Lending VPFCs") results in a current taxable sale of the underlying shares, and that a taxpayer that fails to pay the resulting tax could be subject to penalties. This position is now binding on all IRS examiners.1


 

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