On October 13th, the Internal Revenue Service (“IRS”) followed through on its promise to issue final regulations and temporary regulations under Section1 385 (the “Final Regulations” and “Temporary Regulations,” respectively) a little over six months after they were proposed. The Final Regulations generally follow the same structure as the regulations proposed by the IRS on April 4, 2016 (the “Proposed Regulations”), but contain significant exceptions that would exempt many types of instruments, some domestic issuers, and all foreign issuers from their application.

The Proposed Regulations have been the subject of significant controversy and provoked an outcry from practitioners, congressional hearings, and over 29,600 comments. Many commenters warned that, if finalized in a similar form, the Proposed Regulations would severely impair normal business conduct.