AICPA Expresses Concern over IRS Authority to Apply Section 385 to Partnership Debt

July 14, 2016

Washington, D.C. (July 14, 2016) – The American Institute of CPAs (AICPA) has submitted a comment letter that expresses its concerns that the United States Department of the Treasury and the Internal Revenue Service do not have the authority to extend the application of the proposed section 385 regulations to partnership equity or debt instruments issued by partnerships.   

The July 13 letter stated, “The language in section 385 relates directly to Treasury’s authority to prescribe regulations to determine whether an interest in a corporation is considered debt or equity for federal income tax purposes…It does not appear that any regulations issued under this authority apply to partnerships.”

The AICPA submitted recommendations and concerns related to the technical aspects of the proposed section 385 regulations in a July 7 comment letter.