Partner Kristen Garry (Washington, DC-Tax) recently authored an article for the Journal of Taxation of Financial Productstitled “Are the Proposed Code Sec. 385 Regulations, Which Represent Significant Changes in Law, in Part, Impermissibly Retroactive?”
On April 4, 2016, the Treasury and the IRS released proposed regulations under Code Sec. 385 addressing whether purported indebtedness issued to certain related parties will be treated as stock or indebtedness, or as in part stock and in part indebtedness. These proposed regulations include far-reaching rules that would recharacterize many related-party debt instruments without regard to whether the parties are foreign or domestic.
In this article, Garry summarizes these regulations and considers whether they are impermissibly retroactive, at least in part. She provides an overview on the limitations regarding retroactivity of legislative regulations and considers how those limits may apply to Proposed Reg. § 1.385-3, since it has been proposed to apply to certain debt instruments issued before the regulations are finalized.