On April 21, 2017, President Trump issued Executive Order 13789, directing the Secretary of the Treasury to review all significant tax regulations issued on or after January 1, 2016, and determine which ones (1) impose an undue financial burden on U.S. taxpayers, (2) add undue complexity to the Federal Tax laws or (3) exceed the statutory authority of the IRS.
Today, IRS Notice 2017-38 identified eight (out of 105) regulations that meet this criteria:
- Proposed Regulations under Section 103 on Definition of Political Subdivision (REG-129067-15; 81 F.R. 8870)
- Temporary Regulations under Section 337(d) on Certain Transfers of Property to Regulated Investment Companies (RICs) and Real Estate Investment Trusts (REITs) (RD 9770; 81 F.R. 36793
- Final Regulations under Section 7602 on the Participation of a Person Described in Section 6103(n) in a Summons Interview (T.D. 9778; 81 F.R. 45409)
- Proposed Regulations under Section 2704 on Restrictions on Liquidation of an Interest for Estate, Gift and Generation-Skipping Transfer Taxes (REG-163113-02; 81 F.R. 51413)
- Temporary Regulations under Section 752 on Liabilities Recognized as Recourse Partnership Liabilities (T.D. 9788; 81 F.R. 69282)
- Final and Temporary Regulations under Section 385 on the Treatment of Certain Interests in Corporations as Stock or Indebtedness (T.D. 9790; 81 F.R. 72858)
- Final Regulations under Section 987 on Income and Currency Gain or Loss With Respect to a Section 987 Qualified Business Unit (T.D. 9794; 81 F.R. 88806)
- Final Regulations under Section 367 on the Treatment of Certain Transfers of Property to Foreign Corporations (T.D. 9803; 81 F.R. 91012)
The proposed regulations under IRC § 2704 (Restrictions on Liquidation of an Interest for Estate, Gift and Generation-Skipping Transfer Taxes (REG-163113-02)) were issued August 2, 2016. Immediately met with much criticism, these proposed regulations sought to restrict valuation discounts long employed by sophisticated closely-held family businesses to reduce or eliminate gift, estate, and generation skipping transfer taxes. At the time they were issued, a Treasury official stated that the proposed regulations “close a tax loophole that certain taxpayers have long used to understate the fair market value of their assets for estate and gift tax purposes.” Many critics of the proposed rules argued that the rules would do away with valuation discounts for family-owned businesses and that IRS had exceeded its statutory authority in issuing them.
Since the election, the future of the rules has been uncertain. At a nearly six-hour December 1 public hearing, Treasury officials provided little clear guidance as to the future of the regulations. Today’s notice signals that they will be either repealed or revised.
With respect to all eight regulations identified above, Treasury intends to propose reforms ranging from “streamlining problematic rule provisions to full repeal.” Treasury will receive public comments regarding whether the eight regulations should be rescinded or modified through August 7, 2017. A final report containing specific recommendations for actions that will mitigate the burdens imposed by these regulations is due to the President by September 18, 2017.