IRS Intercompany Loan Cases Grow as Taxpayers Mull Challenges

Taxpayers are considering challenges to an IRS position on intercompany lending detailed in a recent legal memo, as cases build and criticism grows.

The IRS said in a memo last December that when making loans between affiliates, companies had to factor in implicit support—or the beneficial credit impact of being part of the larger group—when setting the loan rate. For example, if a subsidiary has a credit rating meriting a high interest rate for a loan but its parent merits a low rate, the intercompany loan rate should land somewhere in between.

The memo—called a Generic Legal Advice Memorandum, or ...