Article URL –

http://www.mondaq.com/unitedstates/x/506226/tax+authorities/Treasury+And+IRS+Issue+Proposed+Regulations+Imposing+Documentation+Requirements+Under+Section+385

TITLE

United States: Treasury and IRS Issue Documentation Requirements for Debt-Equity Regulations

On April 4, 2016, the Treasury Department and IRS issued proposed regulations under Section 385 which includes specific Documentation Requirements for certain related-party debt instruments under Prop. Reg. § 1.385-2 (the “Proposed Regulations”). The Documentation Requirements prescribe the nature of the documentation and information that must be prepared and maintained for a purported debt instrument issued by a corporation to another member of the expanded group to be treated as such. The Documentation Requirements are intended to provide the IRS with sufficient information in order to permit it to determine whether an instrument should be respected as debt for US tax purposes. The documentation must be provided within prescribed time limits in order to be considered for debt treatment.

Summary

Section 385a of the constitution gives the authority to the treasury to prescribe appropriate and necessary regulations that determine if an interest is to be treated as indebtedness or equity. These proposed regulations apply only to those instruments cast in debt form and not those of indebtedness. These proposed regulations apply to merely to a large group of taxpayers making the compliance to be necessary on an expanded group member’s stock is publicly traded , or annual total revenue is more than $50million on any applicable financial statement on the instrument’s issuance date. The document is categorized in to unconditional obligation to repay, holder’s right to enforce the terms, reasonable expectation of issuer’s ability to repay and evidence of a debtor-creditor relationship.

References Grosshandle, E. (2016). United States: Treasury And IRS Issue Documentation Requirements For Debt-Equity Regulations. Mondaq Advice Center (Macs). Retrieved from http://www.mondaq.com/unitedstates/x/506226/tax+authorities/Treasury+And+IRS+Issue+Proposed+Regulations+Imposing+Documentation+Requirements+Under+Section+385