Report Required by EO 13789 Identifying Tax Regulatory Burdens Released (Notice 2017-38)

The Treasury Department has released an interim report identifying tax regulations that impose undue burdens on U.S. taxpayers. The report was prompted by Executive Order (EO) 13789, which was issued on April 21, 2017. Of the 105 temporary, proposed and final regulations issued between January 1, 2016, and April 27, 2017, the Treasury found that eight met with at least one of the criteria in EO 13789. The Treasury Department intends to propose reforms, ranging from streamlining problematic rule provisions to full repeal, to mitigate the burdens of these regulations in a final report submitted to the President. The eight regulations are:

NRPM REG-129067-15, proposed regulations under Code Sec. 103, which define a “political subdivision” eligible to issue tax-exempt bonds. Commentators stated that the proposed regulations would disrupt the status of numerous existing entities and it would be burdensome and costly for issuers to revise their organizational structures to meet the new requirements of the proposed requirements.

T.D. 9770, temporary regulations under Code Sec. 337 that amend existing rules for transfers of property by C corporation to REITs and RICs. Commentators expressed concern that the REIT spinoff rules could result in over-inclusion of gain in some cases, particularly where a large corporation acquires a small corporation that engaged in a Code Sec. 355 spinoff and the large corporation subsequently makes a REIT election.

T.D. 9778, final regulations under Code Sec. 7602 that provide for outside contractors of the IRS to receive books, papers, records or other data summoned by the IRS and to participate in an interview of a summoned person. Treasury will review these regulations as they concern the outside attorneys under contract with the IRS to participate in the taking of compulsory testimony under oath.

NPRM REG-163113-02, proposed regulations under Code Sec. 2704, providing that certain noncommercial restrictions on the ability to dispose of or liquidate family-controlled entities should be disregarded in determining the fair market value of an interest in that entity for estate and gift tax purposes. Commentators were concerned that the proposals would make valuations more difficult and that the proposed narrowing of existing regulatory exceptions were arbitrary and capricious.

T.D. 9788, temporary regulations under Code Sec. 752 that provide rules for allocating liabilities solely for purposes of disguised sales and for determining whether “bottom-dollar” payment obligations provide the necessary “economic risk of loss” to be taken into account as a recourse liability. Commentators were concerned that the bottom-dollar payment obligation rules would prevent many business transactions compared to the prior regulations and suggested their removal or the development of more permissive rules.

T.D. 9790, final and temporary regulations under Code Sec. 385 address the classification of related-party debt for federal tax purposes. Commentators criticized the complexity associated with tracking multiple transactions through a group of companies and the increased tax burden imposed on inbound investments.

T.D. 9794, final regulations under Code Sec. 987 that provide rules for translating income from branch operations and calculating currency gain or loss with respect to a qualified business unit. Commentators stated that the method prescribed by the final regulations for calculating foreign currency gain or loss was unduly complex and costly to comply with, particularly where the final regulations differ from financial accounting rules.

T.D. 9803, final regulations under Code Sec. 367, which eliminate the ability of taxpayers to transfer foreign goodwill and going concern value to a foreign corporation without immediate or future U.S. income tax. Some commentators stated that the final regulations would increase burdens by taxing transactions that were previously exempt, noting in particular that the legislative history to Code Sec. 367 contemplated an exception for outbound transfers of foreign goodwill and going concern value.

Comments Requested

The Treasury Department is requesting comments on whether the regulations described above should be rescinded or modified, and in the latter case, how the regulations should be modified in order to reduce burdens and complexity. Comments from the public are due by August 7, 2017. Comments should be submitted to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2017-38), Room 5205, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20224. Alternatively, comments may be hand-delivered Monday through Friday between the hours of 8:00 a.m. to 4:00 p.m. to: CC:PA:LPD:PR (Notice 2017-38), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, D.C. Comments may also be submitted electronically to Notice.Comments@irscounsel.treas.gov; include Notice 2017-38 in the subject line of any electronic submissions.

Notice 2017-38, 2017FED ¶46,311

Notice 2017-38, FINH ¶30,859

Other References:

Code Sec. 103

CCH Reference – 2017FED ¶6602.398

Code Sec. 337

CCH Reference – 2017FED ¶16,242.03

CCH Reference – 2017FED ¶16,466.055

Code Sec. 367

CCH Reference – 2017FED ¶16,667.002

CCH Reference – 2017FED ¶16,667.03

CCH Reference – 2017FED ¶16,667.04

Code Sec. 385

CCH Reference – 2017FED ¶17,351.12

Code Sec. 752

CCH Reference – 2017FED ¶25,526.025

CCH Reference – 2017FED ¶25,526.08

Code Sec. 987

CCH Reference – 2017FED ¶28,848.021

CCH Reference – 2017FED ¶28,848.028

Code Sec. 2704

CCH Reference – FINH ¶14,790.01

CCH Reference – FINH ¶14,790.10

CCH Reference – FINH ¶14,790.20

Code Sec. 7602

CCH Reference – 2017FED ¶42,827.01

Tax Research Consultant

CCH Reference – TRC SALES: 51,056.05

CCH Reference – TRC RIC: 3,550

CCH Reference – TRC RIC: 6,124

CCH Reference – TRC INTL: 30,102

CCH Reference – TRC INTL: 30,352.05

CCH Reference – TRC CCORP: 3,302.15

CCH Reference – TRC INTLOUT: 21,102

CCH Reference – TRC PART: 15,254.15

CCH Reference – TRC VALUE: 9,200

CCH Reference – TRC ESTGIFT: 18,608.10

CCH Reference – TRC IRS: 21,056

AUTHOR

CCHTaxGroup

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