Treasury identifies 8 regulations as burdensome

Rules on corporate debt vs. equity and valuation of family-owned businesses are among those deemed subject to a presidential order.
By Alistair Nevius, J.D.

After reviewing all 105 final, temporary, and proposed Treasury regulations issued from January 2016 through April 2017, the Treasury Department identified eight as burdensome, for which it planned to propose reforms as required by Executive Order 13789 (Notice 2017-38). The regulations identified as burdensome include proposed regulations under Sec. 2704 that would prevent taxpayers from taking certain estate valuation discounts and those under Sec. 385 implementing rules that would recharacterize certain transactions between related parties that are ostensibly debt as equity, curbing the practice of "earnings stripping."

Executive Order 13789, issued in April, directed Treasury to review significant regulations that were issued in 2016 and 2017 to determine if the regulations cost too much, are too complex, or exceed the IRS's statutory authority.

Treasury determined that 53 of the regulations issued during the review period were "minor or technical in nature" and not significant. It treated the remaining 52 regulations as potentially significant and reviewed them under the terms of the executive order. It determined that eight qualified as significant and met the criteria of the executive order.

Those eight regulations are:

  • Proposed regulations under Sec. 103 on the definition of political subdivision (REG-129067-15);
  • Temporary regulations under Sec. 337(d) on certain transfers of property to regulated investment companies and real estate investment trusts (T.D. 9770);
  • Final regulations under Sec. 7602 on the participation of a person described in Sec. 6103(n) in a summons interview (T.D. 9778);
  • Proposed regulations under Sec. 2704 on restrictions on liquidation of an interest for estate, gift, and generation-skipping transfer (GST) taxes (REG-163113-02);
  • Temporary regulations under Sec. 752 on liabilities recognized as recourse partnership liabilities (T.D. 9788);
  • Final and temporary regulations under Sec. 385 on the treatment of certain interests in corporations as stock or indebtedness (T.D. 9790);
  • Final regulations under Sec. 987 on income and currency gain or loss with respect to a Sec. 987 qualified business unit (T.D. 9794); and
  • Final regulations under Sec. 367 on the treatment of certain transfers of property to foreign corporations (T.D. 9803).

Under Executive Order 13789, Treasury was directed to submit a final report to President Donald Trump by Sept. 18, 2017, recommending specific actions to mitigate the burdens imposed by the identified regulations. Treasury asked the public for comments on whether these eight regulations should be rescinded or modified, and, if modified, how their burdens and complexity can be reduced.

In its comments submitted in response to the executive order on Aug. 2, the AICPA recommended Treasury and the IRS withdraw four of the eight regulations:

  • REG-163113-02, the Sec. 2704 proposed regulations on restrictions on liquidation of an interest for estate, gift, and GST taxes (the AICPA also made the same recommendation in specific comments on the proposed regulations submitted in January);
  • T.D. 9790, the Sec. 385 equity vs. debt final regulations;
  • T.D. 9794, the Sec. 987 regulations on income and currency gain or loss with respect to qualified business units; and
  • T.D. 9803, the Sec. 367 regulations on certain transfers of property to foreign corporations.

Notice 2017-38 and AICPA press release, "AICPA Urges Withdrawal of Half of Regulations"

—By Alistair Nevius, J.D., the JofA's editor-in-chief, tax.

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