Ways and Means concerns about section 385 proposed regulations

Ways and Means concerns about section 385 regulations

Within the last week, two letters expressing the concerns of a bipartisan majority of the House Ways and Means Committee regarding various aspects of the proposed section 385 regulations have been delivered to Treasury Secretary Lew.

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The public comment period for the proposal regulations is scheduled to end July 7, 2016.

Republicans’ letter

A letter [PDF 1.37 MB] sent today by Ways and Means Committee Chairman Kevin Brady (R-TX), Tax Policy Subcommittee Chairman Charles Boustany (R-LA), and the Republican members of the House Ways and Means Committee to Treasury Secretary Jack Lew outlines the potential negative economic consequences of the proposed regulations under section 385. 

In their letter, the Ways and Means Committee Republican members expressed concerns about the proposed regulations and called for Treasury and the IRS to extend the public comment period and to conduct a thorough economic analysis to measure completely the potential impact these regulations would have on the U.S. economy. The letter states, in part: 


We believe any finalization of the proposed regulations in present form will have a profound and detrimental impact on business operations nationwide. If not significantly altered, they will undoubtedly reduce overall investment and economic activity to the detriment of the United States and its business community. Since the release of these proposed 385 regulations, strong concerns have been raised with our offices by constituent companies and business groups representing every economic sector and industry in the United States. …

Furthermore, the proposed regulations represent a dramatic departure from current policy and practice, overturning more than a half century of well-established jurisprudence based upon analysis of an instrument’s actual substance …  the proposed regulations are broadly applicable to a wide array of ordinary business transactions, creating unacceptably high levels of uncertainty and adverse collateral consequences for non-tax motivated business activity. [Emphasis in committee release.]

Democrats’ letter

A June 22 letter [PDF 302 KB] signed by nine of the 15 Democrats who sit on the Ways and Means Committee, including ranking member Sander Levin (D-MI), expresses support for guidance combating aggressive tax planning while also expressing concern about possible “…unforeseen circumstances in which the [proposed 385] regulations could adversely affect ordinary course business transactions between related parties.”

As the Treasury Department seeks to finalize the proposed regulations, the letter asks the Treasury Department to “…give careful consideration to whether exceptions or special rules, including transition rules, are appropriate.” The signers further requested an opportunity to meet with Secretary Lew prior to the close of the comment period on July 7, to discuss their concerns with the proposed regulations.


Read KPMG’s initial analysis of the proposed regulations under section 385: TaxNewsFlash-United States

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