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SALT Advisors Need to Understand New Proposed Section 385 Regulations  


Author:  John P. Barrie.


Source: Volume 29, Number 06, July/August 2016 , pp.37-40(4)




Journal of Taxation and Regulation of Financial Institutions

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Abstract: 

Recently issued proposed regulations under Section 385, setting out new rules for determining whether a related-party instrument is debt or equity for federal tax purposes, are the latest weapons in the federal government’s attack on inversion transactions. However, the proposed rules are very expansive and can apply to related party debt instruments in situations having nothing to do with inversions. Although issued under the federal tax code, these rules could affect financial institutions that are required to file separately in certain states—even those institutions that are part of an exempt consolidated group for federal tax purposes.

Keywords: IRC Section 385, debt-equity regulations, related party debt, state tax implications of IRC Section 385, earnings stripping

Affiliations:  1: Bryan Cave LLP.

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