The Final §385 Regulations (Part II) - Classifying Interests in a Corporation

On October 13, 2016, the Treasury Department issued much anticipated regulations under Internal Revenue Code §385. These regulations, which consist of both temporary and final regulations (the ‘‘Final’’ or ‘‘Temporary’’ Regulations), are organized into four sections: (1) general provisions, (2) documentation requirements, (3) transactional rules, and (4) consolidated return provisions. The Temporary Regulations provide rules pertaining to debt issued by certain partnerships (Reg. §1.385-3T) as well as additional rules explaining how the rules of Reg. §1.385-3 and the partnership rules of Reg. §1.385-3T apply in the consolidated returns context (Reg. §1.385-4T). The Proposed Regulations provisions had appeared in Prop. Reg. §1.385-1 to §1.385-4. The final package consists of Final Regulations §1.385-1, §1.385-2 and §1.385-3 and Temporary Regulations §1.385-3T and §1.385-4T.

Part I of this article, published in the January 2017 Tax Management International Journal, described the operation of the general provisions and the documentation requirements.

Part II discusses the transactional rules and consolidated return provisions. Click below to download this latest article.