The Internal Revenue Service (IRS) is starting the formal process of removing direct references to credit rating agencies from the regulations implementing the Internal Revenue Code (IRC).
The IRS, an arm of the U.S. Treasury Department, is making the changes to implement Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which requires federal financial services regulators to remove references to, or requirements for reliance on, credit ratings, from agency regulations.
Congress included the provision in Dodd-Frank Act because of concerns that excessive reliance on ratings had contributed to the severity of the credit market crisis that started in 2007 and the recession that started in 2008.
The IRS is making the changes by publishing final and temporary rating reference removal regulations and a notice announcing that the IRS will be developing additional final rating reference removal regulations.
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The temporary regulations, final regulations and notice of proposed rule making appear today in the Federal Register.
The final regulations and temporary regulations, which take effect today, affect many different sections of the Internal Revenue Code regulations, IRS officials say in a preamble to the regulations.
“Some changes involve simple word deletions or substitutions,” officials say. “Others reflect the revision of a sentence to remove the credit rating references. In some cases, multiple sentences have been modified. Where appropriate, substitute standards of credit-worthiness replace the prior references to credit ratings, credit agencies or functionally similar terms.”
The IRS has made the changes solely to eliminate prohibited references, and “no additional changes are intended,” officials say.