Final §385 Regulations Apply to CFC Loans to Domestic Corporations



The Treasury and IRS recently issued final regulations under §385 that reclassify certain indebtedness as equity. While the final regulations have limited application to US-based multinationals, they do apply to obligations of domestic corporations to related controlled foreign corporations (‘‘CFCs’’). It is critical to avoid such debt being reclassified as stock under the regulations because of the significant adverse US tax consequences.

Originally published in Bloomberg BNA Tax Management International Journal, February 10, 2017.