The Application of the Anti-Conduit and Anti-Hybrid Regulations to Hybrid Entities and Hybrid Instruments 

The Application of the Anti-Conduit and Anti-Hybrid Regulations to Hybrid Entities and Hybrid Instruments 

Tax Law
By Anthony Diosdi The Internal Revenue Service (“IRS”) has issued final regulations (T.D. 8611) relating to conduit financing arrangements under authority granted by Section 7701(l). These regulations were effective September 10, 1995. Under the anti-conduit regulations, the IRS may disregard the participation of a conduit entity and recharacterize separate financing transactions to which a conduit is a party as a direct financing between the ultimate provider and ultimate recipient of the financing. For such an intermediate entity to be a conduit: 1) there must be two or more “financing” transactions linked by the common “immediate entity” or group of related entities (i.e., “financing arrangement”), 2) the participation of the intermediate entity must have the effect of reducing U.S. tax, and 3) the participation of the intermediate entity must be pursuant…
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