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Abstract
This article analyzes the debt-equity question for intercompany debt from a planning perspective by identifying issues and highlighting best practices that support the treatment of such related-party financing as debt for US tax purposes. Most affiliated groups of corporations have at least some intercompany debt as part of their capital structure. Tax considerations almost always play a significant role in the structuring of such intercompany debt, at least in cases in which the lender/shareholder is a foreign corporation or an individual. The most obvious tax advantage of using debt as part of the capital structure is that interest is deductible for tax purposes while dividends ate not, so debt allows what would otherwise be taxable profit to be converted into a deductible expense. The question of whether debt between related parties will be respected as debt for US tax purposes generally follows the same multi-factor analysis as for debt between unrelated parties.