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A Simpler Debt-Equity Test

Thomas Greenaway

KPMG International, LLP - Boston, MA Office

Michelle L. Marion


April 6, 2012

Greenaway & Marion, A Simpler Debt-Equity Test, 66 TAX LAW. 73 (2013)

It is usually a straightforward tax question: is an advance of capital to a business debt or equity? But in some cases the question gets harder to answer, mostly because of the tangled multi-factor 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 the Internal Revenue Service (IRS), practitioners, and courts moving towards a simpler way to decide these cases in the form of a single question: Did the parties to the transaction reasonably expect the funds would be repaid in full? The article discusses the development of recent debt-equity caselaw on structured financing arrangements including Pritired, Castle Harbour, Hewlett-Packard, Schering-Plough, PepsiCo, and the Scottish Power cases.

Number of Pages in PDF File: 40

Keywords: tax, debt-equity, leverage, debt, equity, corporate finance

JEL Classification: H25, G32, K34

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Date posted: January 2, 2012 ; Last revised: March 12, 2013

Suggested Citation

Greenaway, Thomas and Marion, Michelle L., A Simpler Debt-Equity Test (April 6, 2012). Greenaway & Marion, A Simpler Debt-Equity Test, 66 TAX LAW. 73 (2013). Available at SSRN: https://ssrn.com/abstract=1978476 or http://dx.doi.org/10.2139/ssrn.1978476

Contact Information

Thomas Greenaway (Contact Author)
KPMG International, LLP - Boston, MA Office ( email )
60 South Street
Boston, MA 02111
United States
6179881221 (Phone)
Michelle L. Marion
KPMG LLP ( email )
United States
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