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christophergill8 · 7 years

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Treasury cites 8 burdensome tax regs that might be axed

On the presidential campaign trail, Donald J. Trump promised to end many federal agency regulations. It's one pledge he's delivered.

The day he moved into the White House, Trump's chief of staff issued an memo to agency heads calling for a freeze on rules that Obama Administration officials finalized before leaving office, but that have not yet taken effect. The Jan. 20 document basically sets up the framework for the Administration's framework for his deregulation policy.

That was followed by Executive Order (EO) #13777 on Feb. 24 to reduce federal regulation and control regulatory costs.

It calls for agencies to identify two regulations to repeal for every new regulation proposed, per EO #13771. Agencies also were "directed that the total incremental cost of all new regulations, including repealed regulations, to be finalized [in 2017] shall be no greater than zero, unless otherwise required by law or consistent with advice provided in writing by … the Office of Management and Budget."

While there are concerns about just which regs Uncle Sam's agencies will ax — some point to political appointees with deep industry ties and potential conflicts — the process is underway. Including at the Internal Revenue Service.

Identifying tax burdens: In a subsequent executive order (#13789 issued on April 21), Trump instructed Treasury Secretary Steven Mnuchin to "immediately review all significant tax regulations issued by the Department of the Treasury on or after January 1, 2016, and, in consultation with the Administrator of the Office of Information and Regulatory Affairs, Office of Management and Budget, identify in an interim report to the President all such regulations that:

(i) impose an undue financial burden on United States taxpayers;

(ii) add undue complexity to the Federal tax laws; or

(iii) exceed the statutory authority of the Internal Revenue Service."

Mnuchin and crew have complied with the order's demand for an interim report identifying such regulations.

8 cited as burdensome: In an IRS notice issued July 10, Treasury said that 53 of the 105 regulations issued during the review period are minor or technical in nature and generated minimal public comment.

"To ensure a comprehensive review, Treasury treated the remaining 52 regulations as potentially significant and reexamined all of them for the purpose of formulating the interim report," according to the notice.

Based on that reexamination, Treasury identified eight regulations that meet the executive order's burden reduction criteria.

Here are the eight, which also are this week's By the Numbers figure.

1. Proposed Regulations on the Definition of Political Subdivision: These proposed regulations under Internal Revenue Code section 103 define a political subdivision that is eligible to issue tax-exempt bonds. Among comments on this reg was that the matter of sovereign powers is settled law that has been endorsed by Congress, making additional limitations were unnecessary. The proposed changes, say opponents, would disrupt the status of numerous existing entities and revision of organizational structures would be costly and burdensome.

2. Temporary Regulations on Certain Transfers of Property to RICs and REITs: These temporary regulations amend existing rules on transfers of property by C corporations to Real Estate Investment Trusts (REITs) and Regulated Investment Companies (RICs) generally. In addition, the regulations provide additional guidance relating to certain newly-enacted REIT provisions of the Protecting Americans from Tax Hikes (PATH) Act of 2015. At issue is whether the REIT spinoff rules could result in over-inclusion of gain in some cases.

3. Final Regulations on the Participation of a Person in a Summons Interview: These final regulations provide that persons described in Section 6103(n) of the tax code and Treasury regs with whom the IRS contracts for services (such as outside economists, engineers, consultants or attorneys) may receive books, papers, records or other data summoned by the IRS and participate in the interview of a person summoned by the IRS to testify under oath. Among the objections raised is whether the IRS has the ability to contract with outside attorneys and permit them to question witnesses under oath.

4. Proposed Regulations on Restrictions on Liquidation of an Interest for Estate, Gift and Generation-Skipping Transfer Taxes: The IRC says that certain noncommercial restrictions on the ability to dispose of or liquidate family-controlled entities should be disregarded in determining the fair market value (FMV) of an interest in that entity for estate and gift tax purposes. These proposed regulations would create additional category of restrictions, which commenters say would make valuations more difficult. In addition, there is concern that the proposed narrowing of existing regulatory exceptions is "arbitrary and capricious."

5. Temporary Regulations on Liabilities Recognized as Recourse Partnership Liabilities: These temporary regulations generally provide rules for how liabilities are allocated solely for purposes of disguised sales and rules for determining whether "bottom-dollar payment obligations" provide the necessary "economic risk of loss" to be taken into account as a recourse liability. Objections to the first rule include that it would unduly limit the amount of partners' bases in their partnership interests for disguised sale purposes, thereby negatively impacting ordinary partnership transactions. As for the bottom-dollar payment obligation rules, commenters say they would prevent many business transactions compared to the prior regulations.

6. Final and Temporary Regulations on the Treatment of Certain Interests in Corporations as Stock or Indebtedness: These final and temporary regulations address the classification of related-party debt as debt or equity for federal tax purposes. The regulations are primarily comprised of rules for minimum documentation requirements and transaction rules that treat as stock certain debt issued by a corporation to a controlling shareholder. The regs, say critics, impose compliance burdens, particularly with respect to more ordinary course transactions. Longer effective dates also were requested.

7. Final Regulations on Income and Currency Gain or Loss With Respect to a Section 987 Qualified Business Unit: These final regulations provide rules for translating income from branch operations conducted in a currency different from the branch owner's functional currency, as well as calculating foreign currency gain or loss. The regulations' method for calculating foreign currency gain or loss is, say critics, unduly complex and costly to comply with, particularly where the final regulations differ from financial accounting rules.

8. Final Regulations under Section 367 on the Treatment of Certain Transfers of Property to Foreign Corporations: Section 367 of the Internal Revenue Code generally imposes immediate or future U.S. tax on transfers of property, both tangible and intangible, to foreign corporations. These final regulations eliminate the ability of taxpayers under prior regulations to transfer foreign goodwill and going concern value to a foreign corporation without immediate or future U.S. income tax. Objections include concerns that these regulations would increase burdens by taxing transactions that were previously exempt.

You can find the complete regulation cites as well as additional objections and comments on each of these regs in the full IRS notice.

More regulatory public input requested: The notice also contains information on how to add your comments to these Treasury-identified burdensome regulations. The Department wants public thoughts by Aug. 7 on whether they should be rescinded or modified.

If you think these eight regs should be changed to reduce compliance burdens and complexity, Treasury and the IRS would like you to be specific as to how to do that .

Your comments will be used as Treasury prepares its EO-required final report, due on the president's desk by Sept. 18. That report, according to Treasury, will propose reforms that could range from streamlining problematic rule provisions to fully repealing them.

In addition, as required in Executive Order 13777, Presidential Executive Order on Enforcing the Regulatory Reform Agenda, Treasury is conducting a broader review of existing regulations beyond the eight addressed here.

Check out the comment details in the burdensome regs notice and let Treasury and the IRS know your thoughts on other tax rules and regs you think should be targeted under Trump's regulatory reform effort.