Understanding Debt-Equity Classification and Factors: Impact and Implications of the New Debt-Equity Regulations
On October 13, 2016, the IRS issued regulations under Internal Revenue Code sec. 385 that impose documentary requirements for related-party debt to be treated as debt for U.S. federal income tax purposes. These controversial provisions automatically recharacterized as equity certain instruments used to fund such transactions as distribution or acquisition of stock within an “expanded group,” namely, a chain of corporations with a common parent connected by ownership at a set minimum level. Critics fear that the change could disrupt normal business operations, since the regulations look to the identities of the parties involved to determine debt vs. equity classification. The regulations may have implications for state and local authorities, which generally base their tax schemes on federal definitions.
In this LIVE Webcast, a panel of thought leaders assembled by The Knowledge Group will discuss the background of the regulations, the problems they address and how they may change procedures for indebtedness between closely related corporate entities. The speakers will also address the principal criticisms raised against the regulations when proposed and the exemptions adopted in response, such as exceptions for certain foreign affiliates.
Key topics include:
- Debt-Equity Classification
- General Factors Considered
- Inter-corporate Debt
- IRC Section 385 Overview
- Recharacterization Rules
- Documentary Requirements
- General Rule vs. Funding Rule
- Multinational Corporations
- Exemptions for Certain Entities
Kaplin Stewart Meloff Reiter & Stein, P.C.
Debt v. Equity Tax Classification
- Issuers generally prefer debt classification: tax deduction for interest
- Individual U.S. holders may prefer equity classification: preferential tax rates for dividends
- Corporate U.S. holders allowed dividend received deductions
IRC Section 385 Overview
- Authorizes IRS to prescribe regulations
- Because no final regulations were in effect case law developed and evolved
- Final and temporary regulations only apply to related-party interests.
- Facts and circumstances analysis in case law create uncertainty
- IRS Has its own debt-equity factors
The Brattle Group, Inc.
Who Should Attend:
- Corporate Lawyers
- Securities Lawyers
- Tax Lawyers
- In-house Counsel
- Tax Professionals
- Private Equity Attorneys, Advisors, and Consultants
- Other Related/Interested professionals
Barry A. Furman is a principal of Kaplin Stewart with over 30 years’ experience representing a wide range of business clients in individual, corporate, and estates and trusts tax matters. These matters include corporate, healthcare, employment, and real estate law, as well as estate planning and administration. Prior to entering private practice, Barry served as law clerk to a United States District Court Judge and was Senior Trial Attorney with the Office of Chief Counsel for the IRS. Barry was awarded several merit awards by the Chief Counsel’s Office and has received accolades in private practice. He is especially fond of representing clients in tax controversies before the IRS Appeals Office and in the United States Tax Court, United States District Courts, and United States Claims Court.
Barry A. Furman is a principal of Kaplin Stewart with over 30 years’ experience representing a wide range of business …
Dr. Aharonian has extensive consulting and research experience with financial issues involving securities pricing, business valuation, risk management, capital markets, and corporate finance. During his tenure at Brattle, he has led teams providing economic analysis in high profile domestic and international disputes stemming from the financial crisis, in complex tax transactions on behalf of both taxpayers and the government, and has supported settlement negotiations and testimony in securities class actions and other commercial litigations.
Matthew advised industry groups and corporations as to the impacts of the proposed regulations on their operations, investment activities, and the management of their capital structure.
Dr. Aharonian has extensive consulting and research experience with financial issues involving securities pricing, business valuation, risk management, capital markets, …
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Method of Presentation:
Experience in taxation law
NASBA Field of Study:
Business Law - Technical
NY Category of CLE Credit:
Areas of Professional Practice
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About Kaplin Stewart Meloff Reiter & Stein, P.C.
Kaplin Stewart is a full service business law firm with a passion for the law, where creative thinking is the norm. We combine the depth and sophistication of a large business law firm with the agility and entrepreneurial spirit of a small firm. Our attorneys have a business acumen and background that are as diverse as the clients we serve. With offices in Blue Bell, PA, Philadelphia, PA, and Cherry Hill, NJ, we provide the business and legal savvy that our business clients need to compete and thrive. Website: http://www.kaplaw.com
About The Brattle Group, Inc.
The Brattle Group provides consulting and expert testimony in economics, finance, and regulation to corporations, law firms, and governments around the world. Our principals and a broad network of academic and industry experts have been retained by taxpayers and tax authorities worldwide to provide expert testimony and consulting services for the last 25 years.
Brattle has assisted clients at all stages of tax disputes including audit, appeals, settlements, and trial. We supply financial and economic analyses applicable to key judicial doctrines, such as the economic substance, step transaction, and business purpose doctrines, and the arm’s-length principle. In addition, we assist our clients with tax planning, including advance pricing agreements analysis and documentation. We have also advised clients on tax policy issues that have been presented to the White House, the Joint Committee on Taxation, and various governmental agencies. Learn more at brattle.com.