The Treasury Department has delayed for one year the effective date of the documentation requirements under the Section 385 regulations, with more changes to the regulations likely under an ongoing Treasury review of burdensome regulations.
The controversial final and temporary regulations on the determination of debt versus equity were issued last October ( T.D. 9790). Ostensibly meant to combat "earnings stripping" after an tax-inversion transaction, the rules can affect many other types of related-party debt. The documentation requirements under Treas. Reg. Sec. 1.385-2 were considered among the most controversial and burdensome aspects of the new rules and were scheduled to take effect at the start of 2018. New Notice 2017-36 delays the requirements for one year so that they are applicable to interests issued or deemed issued on or after Jan. 1, 2019.
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