A report released Wednesday by the Treasury Department reveals that it plans to soon pull “burdensome" regulations in accordance with President Trump’s April executive order to deregulate business, as well as undertake a comprehensive review of all regulations -- with potential modification or repeal of them as early as fourth quarter this year. Citing a “broken” tax code, Treasury Secretary Steven Mnuchin said in a statement that the retrospective review will “ensure that we have a tax system that fosters economic growth.”
In its report, Treasury divides its recommendations into three sections: 1) Proposed Regulations to be Withdrawn Entirely, 2) Regulations to Consider Revoking in Part, and 3) Regulations to Consider Substantially Revising. Here are its findings.
Regulations for Full Withdrawal:
Section 2704, proposed regulations
Section 2704 regulations would have imposed far-reaching limitations on valuation discounts for transfers of interest in family-controlled businesses. These limitations would have increased the cost and level of difficulty in transferring a family business to the next generation. Wednesday’s report indicates that Treasury will withdraw these proposed regulations in full.
Section 103, proposed regulations
Section 103 regulations would have added new requirements to be a “political subdivision” for purposes of issuing tax-exempt municipal bonds and would have imposed enhanced standards to show a governmental purpose and governmental control. Treasury states these would have been costly and burdensome and recommends full withdrawal.
Section 385, final and proposed regulations
Section 385 regulations aimed to (i) establish threshold documentation requirements that ordinarily must be satisfied in order for certain related-party interests in a corporation to be treated as indebtedness for US federal income tax purposes; and (ii) treat as stock certain related-party interests that otherwise would be treated as indebtedness for US federal income tax purposes. Treasury seeks to revoke these regulations and replace them with streamlined documentation rules that modify the requirements related to a reasonable expectation of ability to pay indebtedness and treatment of ordinary trade payables.(Treasury explained that it presently plans to keep the rest of the Sec. 385 rules while Congress works on tax reform that would address the earnings-stripping and other problems that the Sec. 385 regulations are intended to remedy.)
Regulations for Partial Revocation:
Section 7602, final regulations
Attorneys who are private contractors would be prohibited from assisting the IRS in the auditing of taxpayers, including in conducting interviews.
Section 752, temporary regulations
Treasury believes these regulations related to disguised sales should be revoked and the prior regulations reinstated, but it will consider comments on the treatment of bottom-dollar guarantees.
Regulations to Consider for Substantial Revision
Section 337(d), temporary regulations
Regarding Certain Transfers of Property to Regulated Investment Companies and Real Estate Investment Trusts, Treasury will propose to replace the temporary regulations with revised regulations and narrow their application.
Sec. 367, final regulations
These rules, which get rid of the ability to transfer certain property to foreign corporations without immediate or future U.S. tax, address issues that could also be addressed as the Treasury keeps working with Congress on fundamental tax reform. To protect the tax base in the meantime, the Treasury intends to keep implementing these regulations, but the Treasury and the IRS also plan to develop exceptions to the rules.
Sec. 987, final regulations
These regulations deal with foreign currency translations and other foreign currency transactions, and Treasury intends to propose substantial revisions to them. The Treasury plans to immediately announce relief permitting taxpayers to postpone the application of these rules. Treasury also wishes to propose changes to further simplify the regulation and plans to consider more substantial changes that may be put in place to address taxpayer concerns.
Treasury says this is only the beginning, and businesses should look forward to a further reduction in regulations. As things change, and tax reform moves through Congress, keep abreast of the changes that impact your business. It appears there will be many.
