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Greenaway & Marion: A Simpler Debt-Equity Test

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January 4, 2012

Greenaway & Marion: A Simpler Debt-Equity Test

Thomas D. Greenaway & Michelle L. Marion (both of KPMG, Boston), A Simpler Debt-Equity Test:

It is usually a straightforward tax question: is an advance of capital to a business debt or equity? In some cases, however, the question gets harder to answer, mostly because of the tangled multifactor test we use. Long ago most tax practitioners gave up trying to clean up the process of answering hard debt-equity questions. But recent developments show that the IRS, practitioners, and courts moving towards a simpler way to decide these cases. Here it is, a simple question: did the parties to the transaction reasonably expect the funds would be repaid in full?

January 4, 2012 in Scholarship, Tax | Permalink

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