This post was written by Matthew Rak.
President Trump issued Executive Order 13789 on April 21, 2017 (the “EO,” available here) directing the Secretary of the Treasury to review all “significant” tax regulations issued after December 31, 2015. The EO ordered the Secretary to issue an interim report within 60 days (June 20, 2017) identifying those regulations which impose an undue burden on the taxpayer, add undue complexity to the tax laws, or exceed the IRS’s authority.
Secretary Mnuchin issued IRS Notice 2017-38 on July 7, 2017 (available here). The Notice identified 105 regulations, but found that 53 of those regulations were minor or technical in nature. The remaining 52 regulations were potentially “significant” regulations which were reviewed more thoroughly. Of these, eight regulations were targeted for simplification or reducing compliance burden. The Treasury is seeking comments on whether to modify or rescind these regulations. The eight regulations are:
- Proposed regulations defining a political subdivision of a state under Section 103.
- Temporary regulations on transfers of property by C corporations to REITs and RICs, which are intended to prevent spinoff transactions by C corporations from qualifying for nonrecognition treatment under Section 337(d).
- Regulations under Section 7602, potentially allowing the IRS to hire outside counsel to interview witnesses
- Proposed regulations under Section 2704(b) that would disregard commonly recognized discounts for gift, estate, and generation skipping tax valuation purposes. The discounts include those for minority interests and lack of marketability.
- Temporary regulations under Section 752 on liabilities recognized as recourse partnership liabilities.
- Final and temporary regulations under Section 385 on the treatment of certain interests in corporations as stock or indebtedness for tax purposes.
- Final regulations under Section 987 on income and currency gain or loss with respect to a Qualfied Business Unit which disregards losses for prior years which had not been recognized.
- Final regulations under Section 367 eliminating the ability of taxpayers to transfer foreign goodwill to a foreign corporation without immediate or future U.S. income tax.
The EO also required that the Secretary issue a second report within 150 days proposing how to revise the identified regulations to minimize the compliance burden of the taxpayer and the complexity added to the tax laws. This report is due to be issued September 18, 2017.
Affected taxpayers are hoping to have concrete guidance prior to year-end as to whether the regulations will be rolled back in their entirety or revised to be more permissive and straightforward. Of particular interest to business owners performing estate planning are the revisions to the proposed regulations under Section 2704 which would have disregarded commonplace discounts in business valuation, creating a disconnect between the value for tax purposes and fair market value.
If you have tax planning underway affected by these regulations, you may want to delay implementation until further guidance is released as it will almost certainly be more favorable. Part 2 of this blog post will review the second report issued by the Secretary.