TEI Submits Comments to the IRS in Response to Notice 2017-36 on the Final Documentation Regulations Under Section 385.

• Position: Tax Executives Institute

On July 28, 2017, the Department of the Treasury ("Treasury") and the Internal Revenue Service ("IRS") issued Notice 2017-36, One-Year Delay in the Application of [section] 1.385-2 (the "Notice"). (1) The Notice announces Treasury's and the IRS' intention to delay by 12 months the application of the intercompany debt documentation requirements in Treas. Reg. [section] 1.385-2. (2) This welcomed announcement was made in response to concerns that taxpayers have continued to raise with the application of those requirements to interests issued on or after January 1, 2018, and in light of further actions concerning the final and temporary regulations under Section 385 in connection with Treasury's regulatory review efforts pursuant to Executive Order 13789. (3)

Treasury and the IRS intend to amend Treas. Reg. [section] 1.385-2 to apply only to interests issued or deemed issued on or after January 1, 2019. To that end, the Notice invites comments on whether the proposed amendment and delay will afford adequate time for taxpayers to develop the necessary systems and processes to comply with the regulations. On behalf of Tax Executives Institute, Inc. ("TEI"), I am pleased to accept the government's invitation to comment on this important matter.

About TEI

TEI is the preeminent association of in-house tax professionals worldwide. Our more than 7,000 members represent 2,800 of the leading companies in North and South America, Europe, and Asia. TEI represents a cross-section of the business community, and is dedicated to developing and effectively implementing sound tax policy, promoting the uniform and equitable enforcement of the tax laws, and reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that works--one that is administrable and with which taxpayers can comply in a cost-efficient manner.

TEI members are responsible for administering the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises, including complex regulations regarding the treatment of interests in corporations as stock or indebtedness--such as those under Section 385. We believe the diversity and professional experience of our members enables TEI to bring a balanced and practical perspective to the issues raised by Treas. Reg. [section] 1.385-2, and we are eager to assist Treasury and the IRS in their important efforts to mitigate the financial burden and administrative complexity of these regulations.

Comments

Section 385 authorizes the Secretary of the Treasury to prescribe regulations to determine whether an interest in a corporation is to be treated, for purposes of the Code, as stock or indebtedness by setting forth factors to be taken into account with respect to particular factual situations. On April 4, 2016, Treasury and the IRS issued proposed regulations under Section 385 concerning the treatment of certain interests in corporations as stock or indebtedness, along with a request for public comments. (4) In response to this request, TEI submitted detailed comments on July 6, 2016. (5)

On October 13, 2016, Treasury and the IRS issued final and temporary regulations under section 385, primarily comprising: (i) rules establishing threshold documentation requirements that ordinarily must be satisfied for purported debt among related parties to be treated as indebtedness for federal tax purposes (the "Documentation Requirements" in...