Treasury Examines Burdensome Tax Regulations with Eye to Repeal

Filed in Codes and Regulations by on July 21, 2017 0 Comments

The Treasury Department has identified eight tax regulations issued since Jan. 1, 2016 that it intends to modify or fully repeal.

Among the eight regulations, NAHB plans to recommend that Treasury rescind and significantly modify the following:

The definition of “political subdivision.” A political subdivision of a state is eligible to issue tax-exempt bonds for government purposes. The proceeds provide for the construction of sewer systems, water lines and other infrastructure necessary to incorporate a new development into a city.

As NAHB stated in comments submitted to Treasury, the new rule would overly restrict which developments are eligible for tax-exempt bond financing and add to already burdensome compliance costs.

Estate tax rules on how family businesses are valued. When a business owner passes away and his or her financial interest in the business is given to multiple heirs, the total value of these interests is less than what the value was to the decedent. This is because, unlike the former owner, the new owners of the business cannot unilaterally make decisions that affect the company’s bottom line—including selling the company outright.

Without this ability, the business interest held by any one person is less attractive to potential investors. As a result, an investor is not willing to pay as much for a stake in the business.

The new regulations seek to end this practice entirely, adding to estate taxes owed by those who inherit ownership of a business.

The ability of the IRS to label a business’ financial interests as debt or equity. This regulation seeks to change what items on a company’s balance sheet are classified as debt or equity for federal tax purposes.

As the rules would have required businesses to track financial holdings among each of its affiliates, they would add to tax complexity and compliance costs. In their original form, the rules would have potentially classified certain holdings of S-corps as debt, effectively disallowing S-corp business structures.

The Treasury notice comes in response to Executive Order 13789, in which President Trump directed Treasury to “review all significant tax regulations issued by [the department] on or after January 2016” and deliver a report identifying tax regulations that impose an undue financial burden on taxpayers, add undue complexity to the tax code or exceed IRS authority.

For additional information, contact David Logan at 800-368-5242 x8448.

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