On April 4, 2016, the IRS and U.S. Treasury Department, in connection with a package of anti-inversion regulations prompted by news of the recent spate of corporate inversions (particularly the $160 billion Pfizer-Allergan merger), issued proposed regulations which are designed to attack corporate "earnings stripping" practices.

While the inversion portion of the package will have a limited application, the proposed earnings stripping regulations will have implications for any large company issuing "internal" debt for several reasons:

- Documentation regarding the terms of the instrument and the reasons why the instrument qualifies as debt for federal income tax purposes will need to be maintained from inception, throughout the term of the instrument and at least 3 years following.

- Failure to produce the documentation will result in the debt instrument being treated as equity. The adverse tax consequences are both numerous and expansive, but most strikingly include the immediate loss of interest deductions and foreign tax credits.

- Even if the instrument is properly documented, if the debt instrument is issued during the 72 month period before and after a distribution or certain stock acquisitions, the debt will be recharacterized as stock.

- Finally, assuming all these hurdles are met, the debt instrument will need to meet the requirements of a traditional debt-equity analysis.