On Oct. 2, the U.S. Department of the Treasury released its report on reducing tax regulatory burdens. The report, which was requested by the president in executive order 13789, identifies eight regulations for withdrawal, modification, or further study.
Proposed Regulations to Be Withdrawn Entirely
- Proposed regulations under Section 2704 on restrictions on liquidation of an interest for estate, gift, and generation-skipping transfer taxes. These highly criticized regulations would have required estate and gift tax valuations to ignore restrictions that reduce the economic value of an interest in a business entity.
- Proposed regulations under Section 103 on the definition of political subdivision. This regulation would have placed additional eligibility requirements for a political subdivision to be able to issue tax-exempt bonds.
Regulations Considered for Partial Revocation
- Section 385 debt versus equity regulations. Treasury is considering revoking the existing documentation rules and, instead, developing new, streamlined rules. The IRS also is considering modifying significantly the requirement to document a reasonable expectation of the issuer’s ability to satisfy the indebtedness. To account for potential revisions to rel="noopener noreferrer" the documentation rules, Notice 2017-36 announced that the effective date of the documentation rules would be delayed until Jan. 1, 2019. The remainder of the Section 385 regulations would not be changed.
- Regulations under Section 707 and Section 752 on treatment of partnership liabilities. These regulations include proposed and temporary regulations governing how liabilities are allocated for purposes of disguised sale treatment. While acknowledging the novel approach of the disguised sale regulations merited further study, Treasury is considering if the regulations should be revoked and the prior regulations reinstated.
- The regulations also include proposed and temporary regulations that limit the ability to create basis using bottom-dollar guarantees. Treasury recommended the retention of bottom-dollar guarantee regulations.
- Final regulations under Section 7602 on the participation of outside contractors in a summons interview. Treasury and the IRS are looking into proposing a prospectively effective amendment to narrow the scope of these regulations by prohibiting the IRS from enlisting outside attorneys to participate in an examination, including a summons interview. However, outside subject-matter experts with specialized knowledge still may be used by the IRS in the examination process.
Regulations to Consider for Substantial Revision
- Final regulations under Section 367 on the treatment of certain transfers of property to foreign corporations. Treasury will revise the regulations to expand the scope of the active trade or business exception.
- Temporary regulations under Section 337(d) on certain transfers of property to regulated investment companies and real estate investment trusts (REITs). Treasury and the IRS are considering revisions that would limit the potential taxable gain recognized in situations in which, because of the application of the predecessor and successor rule in Regulation Section 1.337(d)-7T(f )(2), gain recognition is required in excess of the amount that would have been recognized if a party to a spin-off had directly transferred assets to a REIT.
- Final regulations under Section 987 on income and currency gain or loss with respect to a rel="noopener noreferrer" Section 987 qualified business unit. Notice 2017-57 defers application of these rules until 2019. Treasury also intends to propose modifications to simplify the required calculations of gain and loss under the regulations. IRS and the Office of Tax Policy also are considering alternative loss recognition timing rules and alternatives to the transition rules in the proposed regulations.
