The Internal Revenue Service issued a notice late last week that allows U.S. corporations to get more tax-free loans from their foreign subsidiaries.
The program is intended to help companies cope better with the tightening credit market.
"Recently, circumstances affecting liquidity have made it difficult for taxpayers to fund their operations," said the notice. U.S. corporations that receive loans from foreign subsidiaries typically need to pay a 35 percent tax on the loans, according to The New York Times. However, under one older IRS program, they could receive tax-free loans if the loans were repaid in 30 days. Under the new notice, companies will get 60 days to repay the loan.
The exclusion will not apply if the subsidiary, known as a controlled foreign corporation, holds loan obligations for 180 or more calendar days during its taxable year that, without regard to the 60-day rule, would constitute an investment in U.S. property.
Notice 2008-91 will only apply for the first two taxable years ending after Oct. 3, 2008. If the foreign subsidiary has a calendar tax year, the notice will apply for the taxable years ending Dec. 31, 2008, and Dec. 31, 2009.
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