IRS Chief Counsel: Consent payments made to note holders

Consent payments made to note holders

The IRS today publicly released a redacted field advice memorandum* addressing whether a “consent payment” made by a company to the holders of a certain percentage of the aggregate outstanding principal amount of the company’s notes, in order to induce those holders to consent to changes to the notes’ indenture, was a capital expenditure subject to capitalization under Reg. sections 1.263(a)-4 or -5. 20151704F (dated November 21, 2014)

Related content

The field advice memo [PDF 104 KB] concluded that the consent payment was not subject to capitalization but instead was a payment on the notes for purposes of Reg. section 1.1275-2(a), which addresses payments on debt instruments with original issue discount (OID).

Accordingly, the IRS concluded that the consent payment was:

  • First, a payment of OID that had accrued on the notes but had not been allocated to prior payments
  • Second, a payment of principal

KPMG observation

Although the “Analysis” portion of the field advice memo is entirely redacted, the legal advice memo states elsewhere that Reg. sections 1.263(a)-4 and -5 do not change the treatment of any amount specifically provided for under any other provision of the Code and regulations (except for sections 162 and 212), and that Reg. section 1.1275-2(a) thus supersedes Reg. sections 1.263(a)-4 and -5 with respect to the treatment of the consent payment.

*Field advice memo documents are prepared by IRS field attorneys in the Office of Chief Counsel, are reviewed by an Associate Office, and are subsequently issued to IRS field or service center employees. The memo cannot be used or cited as precedent.

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal



KPMG's new digital platform

KPMG's new digital platform