Treasury report highlights several changes proposed to tax code

The Treasury Department released a report this week that outlined plans to change or eliminate portions of the tax code to reduce the regulatory burden.

Among them, the department announced plans to withdraw proposed regulations that limit valuation discounts. The regulations would have made it difficult and costly for a family to transfer their businesses to the next generation.

Further, it will withdraw 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.

In addition, the Treasury will propose revoking 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.

Among the proposed changes, the Treasury will change a rule that says attorneys who are private contractors would be prohibited from assisting the Internal Revenue Service 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.

The Treasury and IRS also believe that the temporary regulations relating to disguised sales should be proposed for revocation and the prior regulations reinstated. The Treasury and IRS will continue to study the issue and consider comments related to bottom-dollar guarantees.

Further, the Treasury is looking to develop exceptions to the rule, Treatment of Certain Transfers of Property to Foreign Corporations, which eliminates the ability to transfer certain property to foreign corporations without immediate or future U.S. tax.

The Treasury also plans substantial revisions to the regulation, 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. The Treasury plans to immediately announce relief allowing taxpayers to postpone the application of these rules.  The 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.

“This is only the beginning of our efforts to reduce the burden of tax regulations,” Treasury Secretary Steven Mnuchin said. “Our tax code has been broken for too long, and this retrospective review, along with our efforts on tax reform, will ensure that we have a tax system that fosters economic growth.”