Late last year, corporate treasury and finance professionals received some relief with the revelation that Section 385 regulations would exempt cash pooling. They obtained a little more relief last week in the form of a one-year delay for the 385 documentation requirements.
The final rule, which was released in October 2016, aims to crack down on corporate tax inversions. Beginning January 1, 2019, corporations would have been required to file documentation that showed whether certain instruments between related parties are considered debt or equity. However, given that some organizations have been forced to make big changes to comply with the requirements, the Internal Revenue Service (IRS) and the Treasury Department have amended the rules so that documentation only applies to interests issued or deemed issued on or after January 1, 2019.
“In response to the concern that taxpayers have continued to raise with the application of the Documentation Regulations to interests issued on or after January 1, 2018, and in light of further actions concerning the final and temporary regulations under section 385 in connection with the review of those regulations, the Treasury Department and the IRS have determined that these concerns warrant a delay in the application of the Documentation Regulations by 12 months,” Treasury and the IRS wrote in Notice 2017-36.
But while this reprieve is sure to make some treasurers happy, it also just throws another twist into the ongoing saga that is financial regulatory reform. “The one year delay in the implementation adds further uncertainty around true regulatory reform, as S385 has been one of the most cumbersome regulations for Treasurers to understand and implement,” said Tom Hunt, CTP, director of treasury services for AFP.
Adding to the uncertainty is the fact that this might not be the final change. The IRS is requesting comment on whether the delay provides adequate time for taxpayers to develop the necessary systems and processes to comply with the documentation requirements. Comments are due by September 1, 2017.