This article examines the U.S. federal income tax treatment of securities “reopenings”—that is, issuances of new securities that are intended to be identical to (and fungible with) an existing class of securities. “Reopening” transactions have become increasingly common in recent years and are primarily motivated by non-tax considerations. However, as discussed in this article, reopened securities that are otherwise identical to original securities sometimes have different tax attributes, in which case the original securities and the reopened securities will not be fungible with each other, thereby defeating the purpose of the reopening.
The first section of this article provides an overview of reopening transactions and the non-tax considerations that motivate such transactions. The second section examines reopenings of debt obligations, including a discussion of when reopened notes are treated as part of the same “issue” as original notes. This section also includes a comprehensive discussion of the “qualified reopening regulations” and some of the uncertainties and ambiguities in such regulations. The third section addresses reopenings of preferred stock, including some of the unique issues applicable to reopenings of preferred stock at a premium. The fourth section addresses reopenings of certain types of structured notes—specifically reopenings of notes that are classified for tax purposes as forward or derivative contracts or as “reverse convertible” notes. Finally, the last section of this paper addresses reopenings of interests in entities that are classified as grantor trusts for tax purposes.