US to repeal or revise debt-equity regulations, other tax guidance, under Trump order

by Julie Martin

US Treasury has identified eight tax regulations — including the section 385 debt-equity regulations, the section 367 regulations affecting foreign goodwill and going concern value, and the section 987 foreign currency regulations — as qualifying for revision under President Trump’s executive order mandating a reduction in regulatory burdens.

In Notice 2017-38, released July 7, Treasury said it will propose reforms to mitigate the burdens of the eight tax regulations identified. The revisions could range from streamlining problematic provisions to outright repeal, Treasury said.

The notice responds to President Donald Trump’s April 21 executive order instructing the Secretary of the Treasury to take action to alleviate the burdens of “significant tax regulations” that were issued on or after January 1, 2016.

The regulations identified either impose an undue financial burden on US taxpayers, add undue complexity to the tax laws. or exceed IRS statutory authority, Treasury said.

Debt-equity regulations

Treasury added the controversial final and temporary debt-equity regulations under section 385 (T.D. 9790; 81 F.R. 72858) to the list of problematic regulations, noting that commentators have criticized the regs’ documentation rules. These rules are said to impose financial burdens of compliance, particularly for ordinary course transactions, Treasury said.

Commentators have also requested a longer delay in the effective date of the documentation rules, have criticized the complexity associated with tracking multiple transactions through a group of companies, and have disputed the increased tax burden imposed on inbound investments, Treasury said.

Foreign goodwill & going concern value

Treasury said that commentators have argued that the final regulations under Section 367 on the treatment of certain transfers of property to foreign corporations (T.D. 9803; 81 F.R. 91012) increase burdens by taxing outbound transfers of foreign goodwill and going concern value contrary to the legislative history to section 367.

Commentators also argue that an exception should be provided for transfers of foreign goodwill and going concern value in circumstances that would not lead to an abuse of the exception, Treasury said.

Foreign currency regs

Treasury said that commentators have also criticized the final regulations under section 987 on income and currency gain or loss with respect to a section 987 qualified business unit (T.D. 9794; 81 F.R. 88806).

The transition rules of the regulations are said to impose an undue financial burden as they disregard losses calculated by the taxpayer for years prior to the transition but not previously recognized, Treasury noted.

Commentators also state that the final regulations’ method for calculating foreign currency gain or loss is unduly complex and costly to comply with, particularly where the final regulations differ from financial accounting rules, Treasury said.

Other guidance to be modified

Other tax regulations identified for revision are: proposed regulations under section 103 on definition of political subdivision (REG-129067-15; 81 F.R. 8870); temporary regulations under Section 337(d) on certain transfers of property to regulated investment companies (RICs) and real estate investment trusts (REITs) (T.D. 9770; 81 F.R. 36793); final regulations under section 7602 on the participation of a person described in section 6103(n) in a summons interview (T.D. 9778; 81 F.R. 45409); and proposed regulations under section 2704 on restrictions on liquidation of an interest for estate, gift and generation-skipping transfer taxes (REG-163113-02; 81 F.R. 51413).

Treasury has requested comments by August 7 on whether the regulations identified in the notice should be rescinded or modified.

Treasury also invites public comment concerning other regulations that should be modified or eliminated to reduce unnecessary burdens. These comments are due July 31.

Julie Martin

Julie Martin

Founder & Editor at MNE Tax

Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.

Martin has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.

Julie Martin

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