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6 Tax Regulations Face the Chopping Block by Edward N. Cooper, CPA

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Posted on August 15, 2017 by Edward Cooper

The Department of Treasury in July 2017 announced its intent to reform or repeal eight tax regulations enacted during the Obama administration that it deems to be financially burdensome or excessively complex for U.S. taxpayers. It is expected that Treasury will make its final recommendations on these rules by September 18, 2017.

The regulations at risk of potential modification or revocation include the following:

 

  1. Final and temporary Section 385 regulations (T.D. 9790) that intended to make it harder for businesses to engage in “earnings stripping” and avoid U.S. taxes on their worldwide income by loading their U.S. operations with debt and moving profits to foreign subsidiaries.  A possible repeal would allow businesses to remove the barriers preventing them from qualifying for preferential tax treatment when their foreign operations lend money to those in the U.S.
  2. Final regulations (T.D. 9803) under Internal Revenue Code Section 367, which aimed to prevent businesses from transferring foreign goodwill and going concern value to a foreign corporation without immediate or future U.S. income tax.
  3. Final regulations (T.D. 9794) under Section 987 that provided complex rules for 1) how businesses translate income from branches operating in different functional currency than that of the parent company, 2) how they calculate foreign currency gains or losses with respect to qualified business units (QBUs), and 3) how they recognize these foreign currency gains or losses when a branch makes a transfer of any property to its owner.
  4. Temporary regulations (T.D. 9770) under IRC Section 337(d), which were intended to prevent certain spin-off transactions involving transfers of property by C Corporations to REITs and RICs. More specifically, these rules were aimed at preventing these property transfers from qualifying for non-recognition tax treatment.
  5. Temporary regulations (T.D. 9788) under Section 752 that opponents say are restrictive rules  for purposes of determining whether “bottom-dollar” payment obligations provide the necessary “economic risk of loss” to be taken into account as recourse liabilities.
  6. Proposed regulations under Section 2704 that would potentially eliminate or restrict the availability of valuation discounts to apply to intra-family wealth transfers for estate, gift and generation-skipping transfer tax purpose.

In addition to the questionable future of these regulations, taxpayers should be on alert to the tax reform proposals that the current administration is expected to unveil later this year. In the interim, taxpayers should consider meeting with their accountants and advisors now to consider potential strategies to implement in the future in order to protect wealth while maintaining tax compliance and efficiency.

 

About the Author: Edward N. Cooper, CPA, is director-in-charge of Tax Services with Berkowitz Pollack Brant, where he provides business- and tax-consulting services to real estate entities, multi-national companies, investment funds and high-net-worth individuals. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.