Publicly Traded Debt - Maybe Simple, but Not So Easy

The question whether debt is “‘publicly traded’” is important in several contexts, and with the recent turmoil in the capital markets, it has often become critical. However, the development of the capital markets and the relevant information systems have made the application of the rules unclear in many circumstances. Their application can be so ambiguous that a taxpayer may be able to argue reasonably that a debt instrument is -- or is not -- publicly traded. The statute was not drafted with this intent, and it is not likely the regulations were either. This report examines the rules and their possible application in today’s markets, and provides some guidance on how they could and should be improved.