Publications

On April 4, 2016, the Internal Revenue Service (the “IRS”) and Treasury Department issued proposed regulations under Section 385 of the Internal Revenue Code of 1986, as amended, addressing the federal income tax treatment of debt between certain related parties.  The proposed regulations, if finalized, would treat debt between members of an “expanded group” as equity for U.S. tax purposes if the debt is issued in connection with certain specified transactions and would impose threshold documentation requirements with respect to debt between members of an expanded group that must be satisfied in order for the debt to be respected as debt for federal income tax purposes.  In addition, the proposed regulations would allow the IRS to treat debt between members of a “modified expanded group” as equity in part and debt in part if warranted under general U.S. tax principles.  Although the rules are motivated in part by the perceived over-leveraging of U.S. entities in the cross-border context and were issued in connection with regulations addressing “inversion” transactions in which a foreign parent company acquires a U.S. group, the rules are not limited to inverted corporate groups and may apply even if the debt is between U.S. entities.