Current Regulatory Developments

On Oct 13, 2016, the IRS and the Treasury released final and temporary regulations under Code Sec. 385 relating to the classification of certain related party loans as debt or equity for federal income tax purposes (the "Final Regulations"). The Final Regulations significantly narrowed the...

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Bibliographic Details
Published inJournal of Taxation of Financial Products Vol. 14; no. 4; p. 5
Main Authors Pomierski, William R, Wilder, Michael J
Format Trade Publication Article
LanguageEnglish
Published Riverwoods CCH INCORPORATED 01.01.2017
Subjects
Affiliates
Borrowing
Documentation
Equity
Financial institutions
Financial services
Foreign business
Income taxes
Loan workouts
Tax exemptions
Tax regulations
Third party
United States > US
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Summary:On Oct 13, 2016, the IRS and the Treasury released final and temporary regulations under Code Sec. 385 relating to the classification of certain related party loans as debt or equity for federal income tax purposes (the "Final Regulations"). The Final Regulations significantly narrowed the scope of proposed Code Sec. 385 regulations issued on Apr 4, 2016, primarily by providing exemptions for debt issued by foreign corporations and for certain other types of corporate issuers. Nonetheless, the Final Regulations may still apply to a large number of debt instruments issued by affiliated corporations within multi-national groups, including domestic corporations that borrow from US or foreign affiliates outside of the borrower's US consolidated group. Even routine or daily intercompany advances made through a "cash pooling" arrangement can be subject to the Final Regulations. Under the Final Regulations, an "expanded group debt instrument" is subject to certain documentation requirements set forth in Reg. §1.385-2 that, if not satisfied, can result in the instrument being automatically recharacterized as equity.
ISSN:1529-9287