Deloitte Tax comments on proposed regulations issued under IRC section 385

Including some state tax-related issues

​Deloitte Tax recently submitted comments on the proposed regulations issued by the US Department of Treasury and the Internal Revenue Service (IRS) on April 4, 2016, under IRC section 385.


In general, these proposed regulations:
  • Authorize the IRS to treat certain related-party interests as in part indebtedness and in part equity;
  • Establish minimum documentation requirements to treat certain related-party interests as debt; and
  • Treat certain related-party interests as equity that otherwise would be treated as debt.

The recently submitted comment letter includes some state tax-related remarks such as how the currently proposed regulations may have significant unintended state tax consequences in conforming states, as many states may not follow the federal consolidated filing method or the federal consolidated return regulations.

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