The Fate of the Debt-Equity Regulations and State Taxes

Overview


Alysse McLoughlin told the Tax Executives Institute that the Section 385 rules are “a new game plan to follow” for state tax ideas about debt versus equity, with auditors in separate filing states using them as an audit checklist. Diann Smith agreed at the TEI that states may be looking at the rules for more legislative authority to recharacterize debt. At the International Fiscal Association USA, Peter Faber predicted that the differences between state combined filing and the group concept of Section 385 will mean negative state tax consequences of debt recharacterization.