President Donald Trump issued an executive order on April 21, requiring the Secretary of the Department of the Treasury to review all significant tax regulations issued on or after Jan. 1, 2016. The Department of the Treasury is required to issue by June 20, 2017, an interim report to Trump that identifies regulations that impose an undue financial burden on U.S. taxpayers, adds undue complexity to federal tax laws, or exceeds the statutory authority of the IRS. The Treasury and White House have not identified specific regulations to be targeted for review, but three sets of regulations issued in 2016 likely are candidates for additional scrutiny.
First, the IRS issued regulations in March 2016 aimed at limiting corporate inversions. The regulations eliminated one of three exceptions to a coordination rule that allowed certain foreign reorganizations to be nontaxable. The regulations also specified that companies qualifying for one of the two remaining exceptions to the coordination rule cannot end up with an asset basis greater than the original basis.
Second, the IRS issued final and temporary regulations under IRC Section 385 that address debt versus equity in an attempt to limit earnings-stripping transactions. Several items were affected by the regulations, but one in particular stands out for undue complexity. The regulations require members of large groups to create additional documentation so the IRS can conduct a debt-versus-equity analysis for related-party debt.
Third, the executive order did not differentiate between proposed and final regulations, so it is likely the review also will encompass proposed valuation discount regulations issued in August 2016. As proposed, the regulations severely limit many valuation discounts used in estate planning.
A final report that recommends specific actions to mitigate the burden imposed by the regulations is to be published no later than Sept. 18, 2017.