Treasury finalizes and significantly modifies debt-equity regulations under Section 385

New final and temporary regulations under Section 385, addressing the treatment of related-party debt, significantly narrow parts of the controversial proposed regulations released in April.  

The proposed regulations were widely perceived as interfering with various ordinary business transactions that involve related parties as well as common treasury management techniques, such as cash pooling.

The new guidance, released on Oct. 13, includes final and temporary regulations (T.D. 9790) intended to deter certain “earnings stripping transactions” that are often used as domestic, international, or state and local tax planning strategies. The regulations are part of the IRS and Treasury’s continued assault on inversion transactions, but also have a broader impact on many transactions both domestic and cross-border.

For more information, see Tax Flash 2016-12.

Contact Andy Cordonnier
Partner, Washington National Tax Office
+1 202 521 1502

David Sites
Partner, Washington National Tax Office
+1 202 861 4104

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