Treasury to review debt reclassification, international, partnership regulations

The Treasury Department has identified eight regulations that it states will be modified or repealed to implement an Executive Order (EO) issued by President Trump that calls for reducing tax regulatory burdens. The April 21, 2017 EO had set a 60-day deadline for Treasury to issue an interim report on regulations deemed to (1) impose an undue financial burden; (2) add undue complexity; or (3) exceed the statutory authority of the IRS.

According to Notice 2017-38 (released July 7), Treasury determined that of the 105 regulations issued between January 1, 2016 and April 21, 2017, 52 regulations were potentially “significant tax regulations” subject to review for purposes of the EO. After examining those regulations, Treasury concluded that the following six regulations (discussed below) either “impose an undue financial burden” and/or “add undue complexity”:

  • Treatment of certain interests in corporations as stock or indebtedness (Section 385)
  • Income and currency gain or loss (Section 987)
  • Treatment of certain transfers of property to foreign corporations (Section 367)
  • Liabilities recognized as recourse partnership liabilities (Section 752)
  • Certain transfers of property to RICs and REITs (Section 337(d))
  • Restrictions on liquidation of an interest for estate, gift, and generation-skipping transfer taxes (Section 2704)

In addition, Treasury identified regulations for action relating to (1) the definition of political subdivision (Section 103) and (2) participation of certain persons in a summons interview (Section 7602).

Treasury stated that it will propose reforms ranging from streamlining problematic provisions to fully repealing the regulations. Comments are requested by August 7 on whether and how the identified regulations should be rescinded or modified. A final Treasury report recommending specific actions to mitigate the regulatory burden is due September 18.

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Bernard Moens
Principal and US Inbound International Tax Services Leader
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