United States: Treasury Dept. Identifies 8 "Significant Tax Regulations" For Review To Reduce Burden

Erez Tucner is a Partner for Holland & Knight's New York office.

  • As instructed by President Donald Trump's Executive Order 13789 from April 21, 2017, the U.S. Department of the Treasury announced on July 7, 2017, that it has identified eight sets of U.S. federal tax regulations as "significant tax regulations" and will therefore review them and recommend specific actions to mitigate the burdens imposed by them.
  • The Treasury Department intends, in a report it will submit to the President by Sept. 18, 2017, to propose reforms – potentially ranging from streamlining problematic rule provisions to full repeal of regulations – to mitigate the burdens of these regulations.
  • Among the list of identified tax regulations under review are the controversial debt-equity characterization regulations under Internal Revenue Code Section 385, proposed regulations under Section 2704 regarding gift and estate tax valuations of family-controlled entities, and proposed regulations under Section 103 on definition of a "political subdivision" of a state that is eligible to issue tax-exempt bonds for governmental purposes.

The U.S. Department of the Treasury announced on July 7, 2017, in Notice 2017-38 (the Notice) that it has identified as "significant tax regulations" eight sets of U.S. federal tax regulations that were issued between Jan. 1, 2016, and April 21, 2017.

The Notice states that the Treasury Department will review these tax regulations and propose reforms – potentially ranging from streamlining problematic rule provisions to full repeal – to mitigate the burdens of these regulations.

The list of identified tax regulations to be reviewed (see below) includes several sets of tax regulations that were issued by the Obama Administration that are perceived as controversial by the business community and tax professionals.

The Notice was issued in response to Executive Order 13789, issued by President Donald Trump on April 21, 2017, instructing the Treasury Department to review all "significant tax regulations" issued on or after Jan. 1, 2016, and recommend "specific actions to mitigate the burden imposed by regulations identified."

List of Reviewed Tax Regulations

The Notice lists the following sets of tax regulations as "significant tax regulations" under review:

  1. Final and temporary debt-equity characterization regulations under Internal Revenue Code Section 385
    These final and temporary regulations allow the Internal Revenue Service (IRS) to broadly characterize debt instruments issued by U.S. corporations to U.S. or foreign affiliates as equity for U.S. federal income tax purposes. They also impose substantial documentation and filing obligations with respect to debt instruments issued by large U.S. corporations.
  2. Proposed regulations under Section 2704 regarding gift and estate tax valuations of family-controlled entities
    These proposed regulations would restrict the ability of taxpayers to apply certain valuation discounts to gifts of assets held through family-controlled entities
  3. Proposed regulations under Section 103 on definition of "political subdivision" of a state
    These proposed regulations would narrow the types of entities that qualify as "political subdivisions" of a state (e.g., a city or county) that are eligible to issue tax-exempt bonds for governmental purposes under Section 103.
  4. Final regulations under Section 987 addressing U.S. federal taxation of foreign currency operations through qualified business units
  5. Final regulations under Section 367 addressing U.S. federal income taxation of transfers of foreign goodwill and going concern value to foreign corporations
  6. Temporary regulations under Section 752 on U.S. federal income tax treatment of partnership liabilities
    These temporary regulations, among other things, limit the tax benefits of bottom-dollar guarantees.
  7. Temporary regulations under Section 337(d) on U.S. federal income taxation of transfers of property by C corporations to real estate investment trusts (REITs) and regulated investment companies (RICs)
    These temporary regulations, among other things, include rules preventing nonrecognition treatment for transfers of property by C corporations to REITs in certain spinoff transactions.
  8. Final regulations under Section 7602 allowing participation of third-party service contractors of the IRS (e.g., third-party attorneys hired by the IRS) in IRS summons proceedings

Not Included in the List of Reviewed Tax Regulations

Contrary to many observers' expectations, the list of regulations identified by the Notice does not include the final and proposed regulations under Sections 954 and 956 (issued on Nov. 3, 2016) regarding the treatment of U.S. property held by controlled foreign corporations (CFCs) in certain transactions involving partnerships (including loans from CFCs to related partnerships) and regarding the active rents and royalties exceptions from Subpart F income.

The Notice mentions that the Treasury Department is also responsible for conducting a broader review of existing regulations, including tax regulations beyond those addressed in the Notice, pursuant to the President's more general Executive Order 13777: Enforcing the Regulatory Reform Agenda. Public comments concerning this Executive Order were requested by the Treasury Department on June 14, 2017, and are due by July 31, 2017.

Next Steps

The Notice requests comments by Aug. 7, 2017, on whether the regulations described in the Notice should be rescinded or modified, and if modified, how. As instructed by the Executive Order, the Treasury Department will submit a final report of such proposals to the President by Sept. 18, 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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