New Section 385 regulations significantly limit scope

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October 2016

Overview

US Treasury and the IRS yesterday released final and temporary Section 385 regulations, which address whether certain instruments between related parties are treated as debt or equity.

The regulations were announced in a press conference by Treasury Secretary Jack Lew, who stated that “we sought comments to help narrow the rule and avoid unintended consequences.”

The government made significant changes in the final regulations in response to taxpayer comments, dramatically narrowing the application of the rules to better focus on related party financings that have potential to erode the US tax base.

Below, we provide a high-level summary of some of the major changes from the proposed regulations.

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Pam Olson

Pam Olson

Consultant, Tax Policy Services, PwC US

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