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During the meeting, held May 20 in Washington, D.C., the committee discussed the Treasury Department and IRS’s proposed regulations under section 385. Committee members expressed concerns with the proposed debt-equity recharacterization rules and agreed to send a comment letter to Treasury this summer.
On April 4, Treasury proposed a new set of rules that gives the IRS latitude to treat a company’s related-party debt as equity for U.S. federal income tax purposes, giving rise to concerns of new taxes on businesses and threats to well-established business practices, from corporate reorganizations to day-to-day cash management. Further complicating companies’ analyses and business planning is the retroactive April 4, 2016 proposed effective date for the proposed rule.
FEI joined 22 other organizations in a letter to Treasury Secretary Jacob Lew on May 12 to express the business community’s concern that the proposed regulations would have broad impact and “affect all aspects of both a company’s capital structure and the funding of its ordinary operations and fundamentally alter the U.S. tax rules on intercompany debt by overturning the well-established facts and circumstances analysis used by the courts and the Internal Revenue Service (IRS) to determine whether an instrument is debt or equity.” Given the magnitude of the proposed changes and retroactive effective date, the letter requests that Treasury instead apply the rule to debt instruments that are issued on or after the date that is 90 days after the proposed regulations are finalized and extend the public comment period from July 7, 2016, to October 5, 2016.
Treasury has not yet responded to the business community’s request to extend the comment period or to make other changes. As a result, COT is preparing a draft comment letter to be sent by the current deadline and will work with other FEI technical committees to capture the broad impact of the proposed rule on FEI member companies. In addition, FEI will continue working with business community in its efforts to raise awareness and address concerns with the proposed rules.
For more information, contact Karen Lapsevic at 202-626-7809 or [email protected].