SFIG Testifies on Section 385 Regulations of Internal Revenue Code

On Thursday, July 14th, SFIG Director of Mortgage Policy, Daniel Goodwin, testified before the Treasury Department and Internal Revenue Service regarding proposed regulations under Section 385 of the Internal Revenue Code and their impact on securitization markets. Mr. Goodwin specifically cited the potential consequences of the proposed regulations’ “Funding Rule,” which could cause certain notes to be recharacterized as stock, among other adverse consequences, when holders are simply providing ordinary market stabilizing activity.

In addition to his remarks on the proposed regulations’ Funding Rule, Mr. Goodwin observed that the proposed regulations are overly broad and could create unintended consequences for the real economy. He argued that “among other concerns, the risk of adverse tax consequences would significantly reduce liquidity, erode investor confidence, and disrupt the capital markets, inevitably reducing liquidity in the market place.” The proposed section 385 regulations are part of a large package of proposed tax regulations meant to combat so-called “inversion transactions.”

SFIG's Tax Policy Committee submitted a comment letter on July 6th to the IRS regarding the proposed income tax regulations under Section 385. For questions about the letter or testimony, please contact Daniel.Goodwin@sfindustry.org. To join SFIG’s Tax Policy, please contact William.Innes@SFindustry.org.

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