Final Code Sec. 385 Regulations Do Not Apply to Debt of Foreign Corporations

Overview


The final §385 regulations were a great relief for US-based multinationals. They limit the scope of the regulations such that they do not apply to reclassify debt issued by foreign corporations. The attached article describes how the §385 regulations do not apply to loans between CFCs (e.g., offshore cash pooling arrangements) and loans from a domestic related corporation to a CFC (e.g., integration and repatriation planning). While the regulatory documentation rules do not apply to such loans, the standards set forth in the regulations provide guidelines for memorializing such loans in a manner that should satisfy the IRS concerning debt classification.