Treasury and the IRS have published in the Federal Register final regulations (the Final Regulations) that remove the documentation rules under Treas. Reg. sec. 1.385-2, and an advance notice of proposed rulemaking (the ANPR) announcing a plan to streamline the rules under Treas. Reg. sec. 1.385-3. This agency action, released November 4, was taken on the heels of Executive Order 13789, which instructs Treasury to review all significant tax regulations issued on or after January 1, 2016, and take action with respect to regulations that impose undue financial burden on taxpayers, add undue complexity to the federal tax laws, or exceed the IRS’s statutory authority.
The Final Regulations remove the Documentation Regulations under Treas. Reg. sec. 1.385-2, but Treasury and the IRS announced that they continue to study the issue and may propose a modified version of the Documentation Regulations. In addition, although Treasury and the IRS announced in the ANPR that they intend to make the Distribution Regulations more streamlined and targeted, future regulations only would apply prospectively. As a result, the ANPR is effectively a request for comments on how best to streamline and target the Distribution Regulations. Until such regulations are released, the Distribution Regulations under Treas. Reg. sec. 1.385-3 (including the per se Funding Rule) continue to apply, and taxpayers should continue to evaluate how those regulations apply to their debt instruments.