Insights & News

Tax Insights, October 19, 2016
Tracking Tax News You Need to Know

October 19, 2016

IRS and Treasury Release Final and Temporary Debt-Equity Regulations
The IRS and the Treasury Department on Oct. 13 issued final and temporary (T.D. 9790) Section 385 debt-equity regulations, removing the bifurcation rule that was in the proposed regulations but largely preserving the remaining rules, with exemptions for cash pools, short-term loans, foreign-to-foreign transactions, regulated financial entities and pass-throughs, and providing documentation relief for debt issued by U.S. corporations. (Section references are to the Internal Revenue Code of 1986, as amended.)

The final and temporary regulations total 518 pages. The proposed regulations (REG-108060-15) released in April were a mere 136 pages (see our prior coverage here). The temporary regulations also serve as the text of simultaneously released proposed regulations (REG-130314-16). Generally, the portions of the rules that address cash pooling and instruments issued by financial institutions are temporary and will expire in three years if not finalized. The final and temporary regulations apply, in general, to tax years ending after Jan. 18, 2017.

According to the IRS, in response to the comments received, the final and temporary regulations revise the prior proposed regulations to minimize the burdens imposed on taxpayers and narrowly target the transactions of greatest concern while still being administrable. The final and temporary regulations do not include the bifurcation rule of Proposed Regulations Section 1.385-1, which would have allowed the IRS to bifurcate a single financial instrument between related parties into components of debt and equity. The IRS continues to study the potential issues raised by such a rule. Also, the final and temporary regulations do not apply to foreign issuers. The IRS notes that the final regulations “reserve on all aspects of … [the regulation’s] application to foreign issuers.”

IRS Can Require Pass-Through to File Form 3468 for Rehab Credit
The IRS determined in Chief Counsel Advice 201641022 that for purposes of the rehabilitation credit, if a pass-through entity is not an owner of a qualified rehabilitated building and certified historic structure, but is merely a conduit passing through the qualified rehabilitated expenditures of another entity, the IRS may require the pass-through entity to file Form 3468, Investment Credit.

IRS Rules on Status of Entity as an Instrumentality
The IRS rules in Private Letter Ruling 201641021 that an organization formed to defend its member cities against state intrusions on their home rule authority and advocate on behalf of those governments before a state’s legislature is a wholly owned instrumentality of political subdivisions of a state, and contributions to the organization may constitute charitable contributions under Section 170(c)(1) for use of political subdivisions of a state which were deductible under Section 170(a), subject to applicable limitations.

IRS Releases Practice Unit on Income Sourcing for Nonresidents
The IRS made available international practice units on the following topics:

NYSBA Tax Section Submits Report on “May Company” Regulations
The New York State Bar Association Tax Section submitted a report on temporary and proposed regulations (T.D. 9722, REG-149518-03) under Section 337(d) and proposed regulations (REG-138759-14) under Section 732 aimed at preventing a corporate partner from avoiding corporate-level gain on appreciated property through partnership transactions involving the distribution of stock to a corporate partner.

AICPA Offers Suggestions on New Partnership Audit Regime
The American Institute of CPAs has submitted a series of recommendations on the new partnership audit regime, focusing on the procedures that will be implemented before the commencement of an examination and on the determination of which individuals and entities are ultimately responsible for paying the appropriate share of an assessment.

Information contained in this publication should not be construed as legal advice or opinion or as a substitute for the advice of counsel. The articles by these authors may have first appeared in other publications. The content provided is for educational and informational purposes for the use of clients and others who may be interested in the subject matter. We recommend that readers seek specific advice from counsel about particular matters of interest. 

Copyright © 2016 Stradley Ronon Stevens & Young, LLP. All rights reserved.

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