On July 7, 2017, the US Department of Treasury (Treasury) identified eight significant regulations, including regulations under sections 385 (treatment of certain debt as equity), 752 (partnership liabilities), 367 (outbound transfers of property) and 987 (currency gains and losses), for review, modification and possible repeal.
These regulations were identified in response to an Executive Order, issued April 21, 2017, by President Trump, directing Treasury to review all "significant tax regulations" issued on or after January 1, 2016, and identify regulations that (i) impose an undue financial burden on US taxpayers; (ii) add undue complexity to the federal tax laws; or (iii) exceed the statutory authority of the US Internal Revenue Service. The Executive Order also instructed Treasury to submit a report by September 17, 2017, recommending specific actions to mitigate the burden imposed by the regulations identified.
In response to the Executive Order, Treasury issued Notice 2017-38, which identified eight significant regulations for review, modification and possible repeal, including:
Final and temporary regulations under section 385 on the treatment of certain interests in corporations as stock or indebtedness.
These regulations (i) establish minimum documentation requirements in order for purported debt among certain related parties to be respected as debt for US federal tax purposes; and (ii) treat certain debt issued to related parties in connection with certain transactions, generally distributions, stock sales and asset reorganizations, as equity for US tax purposes.
- Final regulations under section 367 on the treatment of certain transfers of property to foreign corporations.
-- These regulations eliminated the ability of US taxpayers under prior regulations to transfer foreign goodwill and going concern value to a foreign corporation without immediate or future US income tax.
- Final regulations under section 987 on income and currency gain or loss with respect to a section 987 qualified business unit.
-- These regulations provide rules for (i) translating income from branch operations into its owner's functional currency; (ii) calculating foreign currency gain or loss with respect to the branch's assets and liabilities; and (iii) recognizing such gain or loss when the branch transfers property to its owner.
- Temporary regulations under section 752 on liabilities recognized as recourse partnership liabilities.
-- These regulations generally provide rules (i) for how liabilities are allocated for purposes of disguised sales under section 707; and (ii) for determining whether "bottom-dollar payment obligations" provide the necessary "economic risk of loss" to be taken into account as recourse liabilities.
It is not clear whether Treasury will identify any additional regulations or what will result from this review. However, Treasury has requested comments by August 7, 2017. Taxpayers impacted by these regulations should consider commenting on whether the regulations should be modified or repealed.