In 2016, the IRS issued regulations under Section 385 that, among other things, imposed various documentary requirements that would need to be met before certain related party indebtedness would be respected as debt and not equity. These regulations caused much consternation regarding costs and burdens of compliance.
The IRS postponed the effective date until 2019. However, under President Trump’s initiative to reduce regulatory burdens, these reporting requirements were targeted for review.
In welcome news to taxpayers, the IRS has now acted to revoke the documentation requirements by eliminating Treas.Reg. Section 1.382-2. It also announced that such documentation requirements may return in the future, albeit with streamlining and simplification.
In a separate announcement, the IRS indicating that future proposed regulations will be forthcoming that will address other aspects of the proposed Section 382 regulations, including the distribution requirements included in those regulations.
Treasury Decision 9880; Preamble to Prop Reg REG-123112-19