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Tax Insights

July 28, 2017

IRS announces a one-year delay in Section 385 documentation requirements

Today, Treasury and the IRS issued Notice 2017-36, announcing a one-year delay in the application of the documentation requirements in final regulations under Section 385.  Section 385 authorizes Treasury to prescribe rules to determine whether certain instruments between related parties are treated as debt or equity (or as in part debt and in part equity). Treasury and IRS intend to amend the documentation regulations to apply only to interests issued or deemed issued on or after January 1, 2019.

This delay is in response to taxpayer concerns and the recently announced review of the final and temporary Section 385 regulations per Notice 2017-38. That Notice was in response to Executive Order 13789, which required additional review of significant tax regulations.

The Notice requests comments concerning whether this proposed delay will provide "...adequate time for taxpayers to develop any necessary systems or processes to comply with the Documentation Regulations."  Interested taxpayers should consider submitting comments, which are due to the IRS by September 1, 2017.

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