The US IRS on October 11 released IRS guidance addressing the expiration of debt-equity documentation temporary regulations under code Section 385.
The IRS states in Notice 2019-58 that although the temporary regulations will expire on October 13, taxpayers may from that date rely on proposed regulations that were issued alongside the temporary regulations.
Finalized in 2016 during the last weeks of the Obama administration, the temporary and proposed regulations (T.D. 9790; 81 F.R. 72858) require multinationals that issue related-party debt to provide information to the IRS that establishes that the instrument should be treated as debt for tax purposes, rather than as equity. The documentation requirement is a minimum requirement for an instrument to be considered debt; the IRS can still reclassify an instrument as stock if the documentation shows such classification is appropriate.
In September 2018, Treasury added the controversial final and temporary debt-equity regulations to the list of problematic regulations that qualify for potential revision under President Trump’s executive order mandating a reduction in regulatory burdens.
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