§ 385. Treatment of certain interests in corporations as stock or indebtedness

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(a)Authority to prescribe regulations The Secretary is authorized to prescribe such regulations as may be necessary or appropriate to determine whether an interest in a corporation is to be treated for purposes of this title as stock or indebtedness (or as in part stock and in part indebtedness).

(b)Factors The regulations prescribed under this section shall set forth factors which are to be taken into account in determining with respect to a particular factual situation whether a debtor-creditor relationship exists or a corporation-shareholder relationship exists. The factors so set forth in the regulations may include among other factors:

(1)whether there is a written unconditional promise to pay on demand or on a specified date a sum certain in money in return for an adequate consideration in money or money’s worth, and to pay a fixed rate of interest,

(2)whether there is subordination to or preference over any indebtedness of the corporation,

(3)the ratio of debt to equity of the corporation,

(4)whether there is convertibility into the stock of the corporation, and

(5)the relationship between holdings of stock in the corporation and holdings of the interest in question.

(c)Effect of classification by issuer

(1)In general The characterization (as of the time of issuance) by the issuer as to whether an interest in a corporation is stock or indebtedness shall be binding on such issuer and on all holders of such interest (but shall not be binding on the Secretary).

(2)Notification of inconsistent treatment Except as provided in regulations, paragraph

(1)shall not apply to any holder of an interest if such holder on his return discloses that he is treating such interest in a manner inconsistent with the characterization referred to in paragraph (1).

(3)Regulations The Secretary is authorized to require such information as the Secretary determines to be necessary to carry out the provisions of this subsection.

(Added Pub. L. 91–172, title IV, § 415(a), Dec. 30, 1969, 83 Stat. 613; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 101–239, title VII, § 7208(a)(1), Dec. 19, 1989, 103 Stat. 2337; Pub. L. 102–486, title XIX, § 1936(a), Oct. 24, 1992, 106 Stat. 3032.)

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Pub. L. 91–172, title IV, § 415(a)
83 Stat. 613
Pub. L. 94–455, title XIX, § 1906(b)(13)(A)
90 Stat. 1834
Pub. L. 101–239, title VII, § 7208(a)(1)
103 Stat. 2337
Pub. L. 102–486, title XIX, § 1936(a)
106 Stat. 3032
Pub. L. 102–486
Pub. L. 101–239
Pub. L. 94–455
Pub. L. 102–486, title XIX, § 1936(b)
Pub. L. 101–239, title VII, § 7208(a)(2)

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§ 385

Treatment of certain interests in corporations as stock or indebtedness

Fed. Reg.×7

C.F.R.×2

Stat.×2

Pub. L.Pub. L. 91–172, title IV, § 415(a)

Stat.83 Stat. 613

Pub. L.Pub. L. 94–455, title XIX, § 1906(b)(13)(A)

Stat.90 Stat. 1834

Pub. L.Pub. L. 101–239, title VII, § 7208(a)(1)

Cites 13 · showing 5Cited by 11 across 3 sources