Summary
The recently released final regulations under Internal Revenue
Code Section 385, addressing the circumstances under which related
company debt will be classified as equity for federal income tax
purposes, will have a significant impact on state and local taxes.
Federal tax practitioners, as well as state and local tax
practitioners, must address their implications.
In Depth
The US Department of the Treasury has just released final
regulations under Section 385 of the Internal Revenue Code dealing
with the circumstances under which related company debt will be
classified as equity for income tax purposes. Regulations under
this provision had been proposed in April 2016. The proposed
regulations caused considerable consternation in the corporate
taxpayer community. Although Section 385, which was enacted in the
Tax Reform Act of 1969, arguably was intended merely to require
Treasury to list factors that would be taken into account in
determining when
