NRCA issues a statement about proposed tax regulations designed to curtail corporate inversions
Oct. 20, 2016
On Oct. 13, the Department of Treasury released final regulations under Section 385 of the tax code. The department had
issued proposed regulations on April 4, and the proposed regulations designed to curtail corporate inversions were of
great concern to NRCA.
NRCA strongly opposed the proposed regulations and undertook numerous efforts to have its members' concerns addressed
in the final regulations. NRCA's efforts included working with allied organizations to file detailed comments outlining
how the proposed regulations would harm employers; sending a grassroots action alert to all members; and meeting with
numerous members of Congress to develop bipartisan opposition within Congress to the proposed regulations.
NRCA is pleased to report the final regulations include nearly all the changes requested and virtually no NRCA members
will be affected by the final regulations.
The proposed regulations targeted corporate inversions (where U.S. companies move their headquarters overseas), but
many NRCA members organized as pass-through businesses would also have been adversely affected. The proposed
regulations would have allowed the IRS to reclassify certain related-party debt as equity (stock) for federal income
tax purposes, possibly increasing tax burdens on many businesses now classified as S corporations.
NRCA's major concern was that by reclassifying certain debt as equity, a second class of stock would be created. S
corporations only are allowed to have one class of stock and, therefore, would lose their "S" status and be forced to
be taxed as C corporations. The final rule exempts transactions between pass-through businesses.
Another concern was the proposed rule restricted the use of cash-pooling arrangements and short-term intercompany loans
that many NRCA members use to finance their businesses. The final rule provides a broad exemption for cash pools and
There was concern regarding the effects on stock acquisitions associated with employee compensation plans. The final
rule provides an exemption for acquisitions of such stock.
NRCA also was concerned about the paperwork burden associated with disclosing loans to the government within 30 days as
required by the proposed rule. That has been pushed back to the date when a company files its tax returns, and the
documentation rules don't take effect until January 2018. The rule calls for companies to report any qualifying
transactions as of April 4. NRCA had asked the effective date be prospective of when the final rule was issued, but the
Treasury Department will retroactively capture some transactions of those taxpayers who are affected by the
Again, the final regulation addresses virtually all NRCA member concerns and, therefore, this is a significant victory
for NRCA. NRCA is pleased the Treasury Departmenmt listened to NRCA's concerns and greatly appreciates the support of
numerous members of Congress from both parties who sent letters requesting the appropriate changes to the proposed
More information, including a copy of the final regulations, may be found at the following links: