Here’s a bit of good news for the S corporation community – Treasury has exempted them from the newly published rules under Section 385.

This is a huge relief to the S corporation community.  The rules would have hit S corporations the hardest, despite them having no skin in the “base erosion” game.  S corporations would have suffered through the new reporting requirements and limitations on cash pooling and related party loans just like their C corporation counterparts, but they also would have faced the prospect of losing their S corporation status, together with the multitude of tax and penalty …

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It looks like the IRS and Treasury have made their revisions to the proposed 385 regulations and are just waiting for sign-off from the White House.  According to our friends at Politico:

Tax lawyers just held a big confab in Boston, and, not surprisingly, it was rife with speculation about just what the Treasury Department’s final Section 385 rules might contain. Tax Analysts sifted through some of the unanswered questions and predictions now that Treasury has sent final rules to the White House, including whether the department would only finalize part of the extensive anti-inversion rules it rolled out …

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The debate over Section 385 continues.  The comment period ends today, and we sent in our comment letter along with the rest of the business community.

As we noted in our submission, the 385 regulations were advertised as a response to base erosion practices, but the rule itself is not limited to international transactions.  Nor is it limited to businesses of a certain size.  Instead, it targets the related party debt of domestic businesses of all sizes.   As our comments state:

Since their release, the broader business community has raised numerous concerns regarding scope of the Proposed Regulations, including the statutory authority …

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