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Section 385 Regulations on Related-Party Debt

Avoiding Reclassification of Debt to Equity, Structuring Intercompany Debt Instruments to Withstand IRS Challenges

Recording of a 90-minute premium CLE/CPE video webinar with Q&A

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Conducted on Thursday, June 3, 2021

Recorded event now available

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This CLE/CPE course will provide critical analysis of the IRS regulations under Section 385 to reclassify certain related-party debt as equity for U.S. tax purposes. The panel will discuss the regulations' scope, examine what types of structures and transactions are subject to reclassification as equity, and offer practical guidance on ensuring an existing debt instrument is respected for U.S. income tax purposes.

Description

The Section 385 regulations represent the IRS' approach to related-party debt. The regulations apply to indebtedness owed by domestic corporations to certain related parties that are members of the same expanded group. The regulations also include specific rules relating to (among other things) controlled partnerships and debt among members of the same U.S. consolidated group.

These rules apply to recharacterize certain covered debt instruments from debt to equity for U.S. tax purposes which may result in a number of potentially detrimental tax consequences. In particular, these regulations could result in the disallowance of interest deductions on the recharacterized "debt" instrument and could subject to interest payments or repayments of principal on debt to dividend withholding tax.

Listen as our experienced panel of expert advisers provides a critical analysis of the Section 385 regulations, offering detailed and practical tools to avoid serious tax consequences arising from the debt-to-equity reclassification rules.

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Outline

  1. Overview of Section 385 related-party rules
  2. Entities and structures subject to recharacterization and potential tax consequences
  3. Miscellaneous provisions and issues
    1. Impact of US consolidated groups
    2. Rules relating to controlled partnerships

Benefits

The panel will review these and other critical questions:

  • What is the purpose of the final regulations?
  • What entities are subject to the regulations?
  • What common transactions and instruments are subject to possible recharacterization?
  • What structuring steps must tax counsel take to ensure a related-party debt instrument will be respected as such for U.S. tax purposes?

Faculty

Featherman, Greg
Greg W. Featherman
Partner
Weil Gotshal & Manges

Mr. Featherman advises KPMG partners, employees and clients on corporate tax matters including domestic and...  |  Read More

Gelernter, Josh
Josh Gelernter
International Tax Senior Manager
Withum Smith+Brown

Mr. Gelernter's specialties are international tax services, primarily reorganizations and restructurings.

 |  Read More

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Strafford will process CLE credit for one person on each recording. CPE credit is not available on recordings. All formats include course handouts.

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