AICPA Urges Treasury and IRS to Delay Effective Date of Section 385 Proposed Regulations

The AICPA drafted a new comment letter to the U.S. Department of the Treasury and the IRS today, calling for a delay in the effective date of Internal Revenue Code Section 385 proposed regulations (REG-108060-15), which relates to the treatment of certain interests in corporations as stock or debt for federal tax purposes. The AICPA also urged that exceptions to the proposed regulations be provided as part of its numerous technical comments and recommendations.

There are currently no regulations in effect under Section 385, which was authorized by Congress in 1969 to determine whether an interest in a corporation would be treated as stock or indebtedness under the Internal Revenue Code. Rather, the case law that has been used since the enactment of section 385 has continued to evolve over time. 

AICPA Tax Executive Committee Chairman Troy Lewis wrote in the AICPA’s comment letter that the effective date of the regulations should be postponed until after the proposed regulations are finalized, to allow companies an appropriate amount of time to modify their internal controls to comply with the new rules.

Lewis added that the effective date provision could also provide that the provisions apply to any expanded group instrument issued in taxable years beginning one year after the first day of the first taxable year following a final adoption of the regulation.

Lewis wrote that there are a number of concerns among taxpayers and tax practitioners about the proposed regulations, that they “would have a significant and disruptive impact on normal and critical operations of a large number of United States business entities."

"The proposed regulations would also dramatically impact U.S. corporate tax planning and compliance," he added.

For the full comment letter, head to the AICPA's site here.