Treasury Issues Final & Temporary Section 385 Regulations


On October 13, the Treasury released highly anticipated final and temporary regulations (T.D. 9790) under Section 385,

which authorizes the Treasury to devise regulations to determine when an interest in a corporation is treated for federal

tax purposes as debt, stock, or part debt and part stock. In early April, the Treasury had issued proposed regulations,

which generally were not well-received by taxpayers and practitioners. Some questioned the Treasury’s authority to

issue rules that included per se grounds for recharacterizing purported debt, rather than employing the factor-based

approach in the Code. Others complained of overbreadth, citing the proposed rules’ potential coverage of routine

transactions like cash-pooling arrangements.

Please see full advisory below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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