Increased IRS Litigation of Debt-Equity Cases Prompted by Aggressive Issuers, Official Says

LOS ANGELES—Stepped-up Internal Revenue Service litigation of questionable debt instruments used in transactions between affiliated entities, after a long period when the Service did not contest such instruments in court, was likely prompted by issuers coming up with increasingly aggressive—and ambiguous—products, an IRS official said Dec. 7.

Speaking at a Practising Law Institute conference, Stephen R. Larson, IRS associate chief counsel (financial institutions & products), said he was offering a personal opinion on the matter, rather than an official IRS position.

Nevertheless, after IRS pulled back on litigating the so-called debt-equity cases, issuers became aggressive in designing instruments, probably because ...