Even if the Section 385 regulations are repealed, companies may still need to focus on their documentation of intercompany debt given all of the attention that has been placed on these transactions.
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The Section 385 regulations, issued under a never-before-used section of the tax code that gives Treasury broad powers to classify debt and equity, aim to curb “earnings stripping” through excessive tax-deductible interest payments. The rules were included in a list of regulations to be considered for repeal under an executive order from President Trump to reduce regulatory burdens on U.S. companies. Treasury plans to accept comments on the regulations until Aug. 7 and submit a report to the White House Sept. 18.
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