By Allyson Versprille
At least four of the eight regulatory projects that the Treasury Department has identified as imposing undue burdens or adding complexity to federal tax laws should be withdrawn, the American Institute of CPAs said.
The group in an Aug. 2 letter to the Internal Revenue Service identified controversial proposed estate tax valuation rules under tax code Section 2704 and final debt-equity rules under Section 385 as regulations that should be pulled. The American College of Trust and Estate Counsel in an Aug. 1 letter also asked for the estate tax rules to be withdrawn “without further delay.” Both regulatory projects have drawn harsh criticism from Republican lawmakers and industry groups.
The proposed estate tax rules “would place an undue financial burden on certain family businesses and treat family-owned businesses differently than similarly situated businesses without family ownership,” the AICPA said. And the complexity of the Section 385 rules coupled with the potential for “draconian outcomes in terms of tax liability” dramatically increases the financial and administrative burdens on companies, the group said.
The Section 2704 rules would change the valuation of interests in family-owned businesses for estate, gift, and generation-skipping transfer tax purposes. The Section 385 rules are aimed at trying to stop foreign multinationals from moving cash out of the U.S. through inbound loans to U.S. subsidiaries, by treating that debt as equity.
Both the AICPA and ACTEC letters came in response to IRS Notice 2017-38. The comment period for the notice—which listed the projects Treasury and the IRS intend to review under Executive Order 13789 on reducing tax regulatory burdens—closes Aug. 7. Treasury is to report by Sept. 18 with recommendations for mitigating the burdens. Measures might be withdrawal or modification of rules.
In addition to the Sections 2704 and 385 rules, the accounting group asked that the government withdraw final currency regulations under Section 987. The rules call for companies to compute foreign currency exchange gains and losses item by item, which opponents have said would force multinational companies to completely redo their accounting systems.
The AICPA also recommended that the government withdraw final regulations under Section 367, regarding certain transfers of property to foreign corporations. In the final rules, the IRS eliminated exemptions for “foreign goodwill"—a business operation's value beyond its definable legal assets—and “going concern"—the value provided by an up-and-running business—on the transfer of intangible assets abroad.
“These regulations may result in immediate gain recognition or annual inclusions over the useful life of the transferred property,” the AICPA said.
The group said it hasn't taken a position on the four remaining regulations listed in Notice 2017-38 and that silence on them doesn't indicate support or opposition to their modification or repeal.
SOURCE: Bloomberg BNA – August 3, 2017
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