Executive Order 13771 Archives - TAX CONTROVERSY 360

IRS Proposes to Withdraw Debt-Equity Documentation Regulations

by Kevin Spencer and McDermott Will & Emery | Sep 21, 2018 | IRS Guidance, Uncategorized

Over the years, the determination of whether an item constitutes debt or equity has generated significant litigation. Courts have developed multifactor tests and engaged in intensive fact finding to make this determination. Arguably, part of the reason for the numerous disputes was the lack of regulations under Internal Revenue Code (Code) Section 385, which explicitly authorizes the US Department of Treasury (Treasury) to issue regulations to determine whether an interest in a corporation is to be treated for purposes of the Code as stock or indebtedness.

Proposed regulations under Code Section 385 were issued on April 14, 2016, but did not receive a warm welcome from the tax bar. This was particularly so with respect to strict contemporaneous written documentation requirements in the proposed regulations. After receiving substantial comments, Treasury released final regulations effective as of October 21, 2016, which retained the strict documentation requirements. However, President Trump subsequently issued Executive Order 13771 and Executive Order 13789 calling for a reduction in regulatory burdens and costs. In late 2017, Treasury indicated that it might revoke the documentation requirements under the Code Section 385 regulations. That day has now come.

Treasury and the Internal Revenue Service (IRS) have now issued proposed regulations removing the strict documentation requirements. Written or electronic comments and requests for a public hearing must be received by the IRS by late December.

Prior coverage of the Code Section 385 regulations can be found in our previously posted articles.

Practice Point: Although the strict requirements for documenting may be just a memory at this point, the need to document your lending transactions, especially intercompany transactions, is still present. At the very least, the old rules may have instilled more discipline into lending transactions, which may help support positions (e.g., Code Section 165 deductions) on your return.

A Look at Treasury’s Recent Efforts to Reform Regulation

by McDermott Will & Emery | Jun 7, 2018 | IRS Guidance, Tax Reform, Uncategorized

Just 10 days after his inauguration, President Trump signed Executive Order 13771, establishing the tenet of deregulation to be adopted by the Trump administration. Executive Order 13771 outlined the Trump administration’s vision for reducing regulation and controlling regulatory costs, and established a principle that for every one new regulation issued at least two prior regulations be identified for elimination — the “one in, two out” principle. President Trump’s Call for Reducing Tax Regulatory Burdens.

Access the full article.

Originally published in Law360, June 2018.

Busy Start to Trump Administration Bodes Major Changes Are on the Way

by Kevin Spencer and McDermott Will & Emery | Feb 14, 2017 | IRS Guidance, Tax Reform, Uncategorized

In the first few weeks of the Trump administration, we have seen several indications that tax lawyers are going to be busy keeping up with the shifting sands of tax reform.

We learned from an Executive Order released on January 30, 2017 that for every new regulation that will be issued, two regulations must be eliminated In a release on February 2, 2017, the Office of Management and Budget (OMB) clarified the edict explaining that it applies only to significant regulatory actions issued between January 20 and September 30, 2017. This would apply to any regulation that: (1) has annual effect on the economy of $100 million or more or adversely affects the economy; (2) created serious inconsistencies or otherwise interferes with action taken or planned by another agency; or (3) raises a novel legal or policy issue.

Officials at the Internal Revenue Service (IRS) have stated that the IRS will not issue much guidance in the near future, but will be focusing its limited resources on comprehensive tax reform. Accordingly, other than necessary releases (for example, monthly interest rates), we expect based on comments from the IRS that there will be a substantial slow-down in the issuance of revenue rulings, revenue procedures and other types of published guidance. However, the IRS will continue to release private guidance, such as private letter rulings and chief counsel advice memoranda. Indeed, the IRS has indicated that it will look to open up the process for private letter rulings, and is seeking input from practitioners regarding important subjects.

In other news, the Senate last night confirmed Steven Mnuchin as the Secretary of the Treasury by a narrow margin of 53-47. With a new captain at the helm, and the Trump Administration’s stated desire for major tax reform, we expect a new direction for Treasury and substantial resources devoted to what our tax system may look like in the future.

Practice Point: It remains to be seen how the recent Executive Order will impact guidance from the Treasury and IRS, but all signs point to a slow-down in the issuance of published guidance. We expect that with less guidance, there is a potential for more controversy. For the foreseeable future, taxpayers and their advisors should to continue to monitor these new developments and how it may impact their operations.