United States

President Trump's executive order requires review of tax regulations

Debt-equity and inversion regulations likely under review

TAX ALERT  | 

On April 21, 2017, President Trump signed an executive order requiring the Treasury Department to review tax regulations issued in 2016 and 2017. Treasury Secretary Mnuchin has said, “We are going to go through and look at every single significant regulation and the Treasury will recommend modifying or repealing rules that are too burdensome or complex.”  

One complex regulation package issued in 2016 is the section 385 regulations, relating to whether certain loan instruments are treated as debt or equity for federal income tax purposes (as discussed in our article, Final debt-equity regulations released, and our white paper, US Treasury's much-anticipated debt-equity regulations). Another addresses corporate inversions (as discussed in our articles, IRS issues guidance on inversions and earnings stripping and Treasury issues inversion regulations). The debt-equity and anti-inversion regulations were intended to address the perceived erosion of the U.S. corporate tax base.

These and other regulations are expected to come under Treasury Department review. Treasury is required to issue an interim report within 60 days of the executive order and a report recommending action within 150 days. The future of these regulations, and some others, should be clearer once the Treasury reports are available.   

If Treasury decides to withdraw tax regulations, the process could take months to complete. Treasury would initiate a rescission process that would include a comment period. It is unclear whether Treasury’s review of tax regulations will coincide with consideration of a larger tax reform plan in Congress.

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