IRS Proposes Removal Of Final Regulations About Forth Minimum Documentation Requirements

; posted on
September 27th, 2018

The Internal Revenue Service (IRS) proposed to remove the final regulations which were published by the Treasury Department and the IRS under section 385 of the Internal Revenue Code (Code) on October 21, 2016.

Documentation Regulations Difficult to Implement

The Documentation Regulations are part of the final regulations, which set forth minimum documentation requirements that ordinarily must be satisfied in order for certain related-party interests in a corporation to be treated as indebtedness for federal tax purposes. It authorizes the Secretary of the Treasury (Secretary) to prescribe rules to determine whether an interest in a corporation is treated for purposes of the Code as stock or indebtedness (or as in part stock and in part indebtedness).

In the final regulations, the Documentation Regulations were delayed to be applicable with respect to interests issued or deemed issued on or after January 1, 2018 considering the inadequate time for taxpayers to be compliant with the regulations.

Moreover, the Executive Order 13789 (E.O. 13789), issued on April 21, 2017, instructed the Secretary to review all significant tax regulations and to take concrete action to alleviate the burden of regulations with respect to certain criteria. The Section 385 Regulations was in a list of eight regulations identified by the Secretary as meeting at least one of the first two criteria specified in E.O. 13789. Accordingly, the Treasury Department and the IRS announced to delay the applicability of the regulations for another 12 months, making the regulations applicable only to interests issued or deemed issued on or after January 1, 2019.

Removal of Documentation Regulations

The notice of proposed rulemaking suggests removing the Documentation Regulations, together with conforming amendments to other final regulations to reflect such proposed removal. The final regulations to be amended and removed generally affect corporations that issue purported indebtedness to related corporations or partnerships. Before these proposed regulations are adopted as final regulations, consideration will be given to any comments that are submitted no later than December 24, 2018 to the IRS.

Source: US Federal Register

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