Part 1 of this blog post (available here), summarized eight tax regulations identified by Treasury Secretary Mnuchin as needing simplification or being particularly burdensome to the taxpayer.

On October 2, 2017, Secretary Mnuchin issued a follow-up report (available here) recommending how those eight regulations should be simplified or revised to reduce taxpayer burden.  This post summarizes the recommendations of that report.

Regulations to be Withdrawn in Whole

Perhaps most significantly for business owners, the proposed Section 2704 regulations intended to limit the availability of valuation discounts are to be withdrawn entirely.  Notice of withdrawal in the Federal Register should be appearing shortly.

Section 103 regulations regarding the definition of a political subdivision for tax-exempt municipal bonds are also to be wholly withdrawn.

Section 385 regulations regarding documentation rules for certain interests in corporations as stock or indebtedness are to be replaced by  streamlined requirements.

Regulations to be Partially Withdrawn

Regulations under Section 752 regarding liabilities recognized as recourse partnership liabilities would be revoked and replaced with the prior regulations on disguised sales.

Section 7602 are to be withdrawn to prohibit private attorney contractors from assisting the IRS in the audit of taxpayers, but will continue to allow subject-matter experts to be retained to participate in audits.

Regulations to be Substantially Revised

Regulations under Section 337(d) regarding transfers of property by C corporations to REITs and RICs to prevent spinoff transactions by C corporations from qualifying for nonrecognition treatment are to be narrowed.

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  will include exceptions to the proposed regulations to limit their applicability to their intended purpose.

Regulations under Section 987 on income and currency gain or loss with respect to a Qualfied Business Unit are to be revised to postpone application of the regulations until simplified regulations are drafted.

This post was written by Matthew Rak.

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