U.S. Treasury regulations to reduce tax burden | KPMG | GLOBAL

Final report: Treasury regulations, executive order to reduce tax burden

U.S. Treasury regulations to reduce tax burden

The U.S. Treasury Department today publicly released a final report with recommendations for specific actions to mitigate the burden imposed by regulations previously identified as either imposing an undue financial burden on taxpayers, or adding excessive complexity to the tax system.

1000

Related content

The purpose of this release is to provide text of Treasury's final report. Read the Treasury report [PDF 176 KB]

 

Update: Read also the report [PDF 249 KB] as released for publication on October 13, 2017, in the Federal Register. 

Treasury's plan for changes to regulations

A related Treasury release states:

  • Treasury plans to withdraw proposed regulations under section 2704 that would have hurt family-owned and operated businesses by limiting valuation discounts. The regulations would have made it difficult and costly for families to transfer their businesses to the next generation. Commenters warned that the valuation requirements of the proposed regulations were unclear and could not be meaningfully applied. 
  • Treasury also plans to withdraw proposed section 103 regulations on the definition of political subdivision. The proposed regulations would have added new requirements to be considered a “political subdivision” for purposes of issuing tax-exempt municipal bonds. The new requirements would have imposed enhanced standards to show a governmental purpose and governmental control. The changes proposed by the regulations would have been costly and burdensome. 
  • Treasury also plans to propose revoking the section 385 documentation regulations and replacing them with streamlined documentation rules. The proposed rule should include an effective date that would allow sufficient time for comments and compliance. The proposed streamlined documentation rules are expected to modify the requirements related to a reasonable expectation of ability to pay indebtedness and treatment of ordinary trade payables.

 

 

Today's release also identifies the following regulations to consider for partial revocation:

  • Final regulations under section 7602 on the participation of a person described in section 6103(n) in a summons interview. Under the proposed changes to this regulation that Treasury is considering, attorneys who are private contractors would be prohibited from assisting the IRS in the auditing of taxpayers, including in the interview process. A revised regulation would continue to allow outside subject-matter experts to participate in summons proceedings.  
  • Regulations under section 752 on liabilities recognized as recourse partnership liabilities. Treasury and the IRS currently believe that the temporary regulations relating to disguised sales need to be proposed for revocation and the prior regulations reinstated. Treasury and IRS will continue to study the issue and consider comments related to bottom-dollar guarantees. 

 

The Treasury report identifies the following regulations to consider for substantial revision:  

  • Temporary regulations under section 337(d) on certain transfers of property to regulated investment companies and real estate investment trusts. Treasury and the IRS plan to propose to replace the temporary regulations with revised regulations designed to narrow their application.  
  • Final regulations under section 367 on the treatment of certain transfers of property to foreign corporations. These regulations, which eliminate the ability to transfer certain property to foreign corporations without immediate or future U.S. tax, address issues that could also be addressed as Treasury continues to work with Congress on fundamental tax reform. In order to protect the U.S. tax base in the meantime, Treasury plans to continue to implement these regulations. However, Treasury and the IRS also plan to develop exceptions to the regulations.  
  • Final regulations under section 987 on income and currency gain or loss with respect to a section 987 qualified business unit. These regulations pertain to foreign currency translations and other foreign currency transactions, and Treasury plans to propose substantial revisions. Treasury plans to immediately announce relief allowing taxpayers to postpone the application of these rules.  Treasury plans to propose changes to further simplify the regulation, and also plans to consider more fundamental changes that might be implemented to address taxpayer concerns.  

 

Some action has already been taken with respect to the regulations.

The IRS on October 2, 2017, released Notice 2017-57 announcing that, pursuant to an executive order, the IRS and Treasury Department intend to amend final and temporary regulations (issued in late 2016) under section 987, which governs currency gains and losses with respect to the operations of a “qualified business unit” (QBU) with a different functional currency than the taxpayer. The effective date would be deferred under the amended regulations by one year. Read TaxNewsFlash-United States

Background

President Trump in April 2017, signed an executive order (Executive Order 13789) directing the U.S. Treasury to examine recent tax regulations to determine whether any of the regulatory projects: (1) imposed an undue financial burden on U.S. taxpayers; (2) added undue complexity to the federal tax laws; or (3) exceeded the statutory authority of the IRS. According to the executive order, Treasury was to take “appropriate steps” to delay or suspend the effective date of the identified regulations, and to modify or rescind the regulations, through notice and comment rulemaking.

The executive order directed Treasury to review “significant tax regulations” issued on or after January 1, 2016; to issue an interim report no later than 60 days after April 21; and to submit a final report to the president by September 18, 2017.

The IRS on July 7, 2017, released Notice 2017-38 [PDF 38 KB] providing an interim list of the eight tax regulations identified as either imposing an undue financial burden on taxpayers, or adding excessive complexity to the tax system (none of the regulations was identified as exceeding statutory authority).

The eight regulatory projects identified in Notice 2017-38 are:

  • Proposed regulations (REG-129067-15) on the definition of a political subdivision that is eligible to issue tax-exempt bonds for governmental purposes under section 103.
  • Temporary regulations (T.D. 9770) under section 337(d) on transfers of property by C corporations to real estate investment trusts (REITs) and regulated investment companies (RICs); the regulations provide guidance relating to measures enacted in 2015, intended to prevent certain spinoff transactions involving transfers of property by C corporations to REITs from qualifying for nonrecognition treatment.
  • Final regulations (T.D. 9778) concerning IRS summons under section 7602, allowing outside economists, engineers, consultants, or attorneys to receive books, papers, records, or other data summoned by the IRS and participate fully in the interview of a person who the IRS has summoned as a witness to provide testimony under oath.
  • Proposed regulations (REG-163113-02) concerning estate and gift tax under section 2704, and specifically concerning restrictions on the ability to dispose of or liquidate family-controlled entities, by creating an additional category of restrictions that also would be disregarded in assessing the fair market value of an interest.
  • Temporary regulations (T.D. 9788) on liabilities recognized as recourse partnership liabilities, to provide rules for how liabilities are allocated under section 752 solely for purposes of disguised sales under section 707, 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. 
  • Final and temporary regulations (T.D. 9790) under section 385 on the treatment of certain interests in corporations as stock or indebtedness. These regulations address the classification of related-party debt as debt or equity for federal tax purposes, and are comprised of: (1) rules establishing minimum documentation requirements that ordinarily must be satisfied in order for purported debt among related parties to be treated as debt for federal tax purposes; and (2) transaction rules that treat as stock certain debt that is issued by a corporation to a controlling shareholder in a distribution or in another related-party transaction that achieves an economically similar result.
  • Final regulations (T.D. 9794) under section 987 on income and currency gain or loss with respect to a section 987 qualified business unit. These final regulations provide rules for: (1) translating income from branch operations conducted in a currency different from the branch owner’s functional currency into the owner’s functional currency; (2) calculating foreign currency gain or loss with respect to the branch’s financial assets and liabilities; and (3) recognizing such foreign currency gain or loss when the branch makes a transfer of any property to its owner.
  • Final regulations (T.D. 9803) under section 367 on the treatment of certain transfers of property to foreign corporations; the 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.

Read more about the interim report (including initial KPMG observations) in TaxNewsFlash-United States 

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Request for proposal

 

Submit