IRS vs. corporate inversions – Final regulations target related-party debt
Abstract: In October 2016, the IRS issued the final and temporary Section 385 regulations providing for the recharacterization of certain corporate debt as equity for federal tax purposes. Although the regulations remain controversial — and could change under the new presidential administration — they significantly narrow the scope of earlier proposed regulations. This article examines both the proposed and final regulations. A sidebar discusses how earnings stripping saves taxes.