TREATMENT OF CERTAIN CORPORATE INTERESTS AS STOCK OR INDEBTEDNESS.

SEC. 415. TREATMENT OF CERTAIN CORPORATE INTERESTS AS STOCK OR INDEBTEDNESS. (a) In General.—Subchapter C of Chapter 1 (relating to corporate distributions and adjustments) is amended by redesignating part VI (relating to effective date of subchapter C) as part VII and by inserting after part V the following new part: “Part VI—Treatment of Certain Corporate Interests as Stock or Indebtedness “Sec. 385. Treatment of certain interests in corporations as stock or indebtedness. “SEC. 385. TREATMENT OF CERTAIN INTERESTS IN CORPORATIONS AS STOCK OR INDEBTEDNESS. “(a) Authority To Prescribe Regulations.—The Secretary or his delegate is authorized to prescribe such regulations as may be necessary or appropriate to determine whether an interest in a corporation is to be treated for purposes of this title as stock or indebtedness. “(b) Factors.—The regulations prescribed under this section shall set forth factors which are to be taken into account in determining with respect to a particular factual situation whether a debtor-creditor relationship exists or a corporation-shareholder relationship exists. The factors so set forth in the regulations may include among other factors: “(1) whether there is a written unconditional promise to pay on demand or on a specified date a sum certain in money in return for an adequate consideration in money or money’s worth, and to pay a fixed rate of interest, 83 Stat. 614 “(2) whether there is subordination to or preference over a indebtedness of the corporation, “(3) the ratio of debt to equity of the corporation, “(4) whether there is convertibility into the stock of the corporation, and “(5) the relationship between holdings of stock in the corporation and holdings of the interest in question.” (b) Clerical Amendment.—The table of parts for subchapter C of chapter 1 is amended by striking out the last line and inserting in lieu thereof the following: “Part VI. Treatment of certain corporate interests as stock or indebtedness. “Part VII. Effective date of subchapter C.”