On Oct. 13, the IRS issued a 518-page final rule under Section 385 of the U.S. tax code aimed at curtailing corporate inversions. Inversions occur when domestic companies move their headquarters overseas to take advantage of lower corporate tax rates.
Partisan gridlock between the Obama administration and Congress has made tax reform impossible given Democrats favor tax increases and Republicans strongly oppose them. So instead of working with Congress to make the tax code more competitive for domestic and multinational companies so they can invest and grow, the Department of Treasury took it upon itself to try to inhibit businesses headquartered in the U.S. from leaving.
Under the proposed regulations, the IRS would have been authorized to reclassify certain related-party debt as equity (stock), in whole or in part, for federal income tax purposes to stop earnings-stripping transactions. After analyzing the proposed regulations earlier this year, NRCA found U.S. businesses structured as S corporations would have been negatively affected.