• Treasury Identifies Significant Regulations Subject to Modification or Repeal
  • July 13, 2017 | Authors: Taylor M. Kiessig; Robert S. Chase; Reginald J. Clark; Caroline R. Reaves; Nikola R. Djuric; H. Karl Zeswitz; David A. Roby; Daniel R.B. Nicholas; Wes Sheumaker; Stefanie Wood
  • Law Firms: Eversheds Sutherland (US) LLP - Washington Office; Eversheds Sutherland (US) LLP - Washington Office
  • On July 7, 2017, Treasury identified eight significant regulations, including regulations under sections 385 (treatment of certain debt as equity), 752 (partnership liabilities), 367 (outbound transfers of property) and 987 (currency gains and losses), for potential modification or repeal.

    • On April 21, 2017, President Trump issued Executive Order 13789, directing the Secretary of the Treasury to review all “significant tax regulations” issued on or after January 1, 2016, and identify regulations that (i) impose an undue financial burden on US taxpayers; (ii) add undue complexity to the federal tax laws; or (iii) exceed the statutory authority of the Internal Revenue Service. The Executive Order then instructs Treasury to submit a report by September 17, 2017, recommending specific actions to mitigate the burden imposed by such regulations.
    • On July 7, 2017, Treasury issued Notice 2017-38 in response to this directive. Treasury identified eight significant regulations (described below) that meet the Executive Order’s criteria, including recent regulations under sections 385, 752, 367 and 987. It is not clear whether Treasury will identify any additional regulations for purposes of this review.
    • While it is not clear what will result from this review, Treasury has requested comments by August 7, 2017. Taxpayers impacted by these regulations should consider commenting on whether such regulations should be modified or repealed.

    Regulations identified for review, modification and possible repeal:

    • Final and temporary regulations under section 385 on the treatment of certain interests in corporations as stock or indebtedness (T.D. 9790; 81 F.R. 72858).
      • These regulations (i) establish minimum documentation requirements in order for purported debt among certain related parties to be respected as debt for US federal tax purposes; and (ii) treat certain debt issued to related parties in connection with certain transactions, generally distributions, stock sales and asset reorganizations, as equity for US tax purposes.
    • Temporary regulations under section 752 on liabilities recognized as recourse partnership liabilities (T.D. 9788; 81 F.R. 69282).
      • These regulations generally provide rules (i) for how liabilities are allocated for purposes of disguised sales under section 707; and (ii) for determining whether “bottom-dollar payment obligations” provide the necessary “economic risk of loss” to be taken into account as recourse liabilities.
    • Final regulations under section 367 on the treatment of certain transfers of property to foreign corporations (T.D. 9803; 81 F.R. 91012).
      • These regulations eliminated the ability of taxpayers under prior regulations to transfer foreign goodwill and going concern value to a foreign corporation without immediate or future US income tax.
    • 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).
      • These regulations provide rules for (i) translating income from branch operations into its owner’s functional currency; (ii) calculating foreign currency gain or loss with respect to the branch’s assets and liabilities; and (iii) recognizing such gain or loss when the branch transfers property to its owner.
    • 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).
      • These regulations would disregard certain restrictions on the ability to dispose of property in determining the fair market value of the property for estate and gift tax purposes.
    • 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).
      • These regulations amend existing rules on transfers of property by C corporations to RICs and REITs.
    • Proposed regulations under section 103 on the definition of “political subdivision” (REG-129067-15; 81 F.R. 8870).
      • These regulations define a “political subdivision” of a state that is eligible to issue tax-exempt bonds under section 103.
    • 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).

    These regulations permit certain service providers the Internal Revenue Service (IRS) contracts with to receive records or data summoned by the IRS and to participate in interviews of persons summoned by the IRS as witnesses to provide testimony under oath.