Letter to Secretary Mnuchin on Recent Tax Regulations of Concern

May 25, 2017

The Honorable Steven T. Mnuchin


U.S. Department of the Treasury

1500 Pennsylvania Avenue, NW

Washington, DC 20220


Dear Mr. Secretary:

On behalf of Business Roundtable, I am writing in response to Executive Order 13789 signed by the President on April 21, 2017 (EO 13789),[1] directing the Department of the Treasury (Treasury) to undertake immediately a review of “all significant tax regulations issued by the Department of the Treasury on or after January 1, 2016, and . . . [to] identify in an interim report to the President all such regulations that: (i) impose an undue financial burden on United States taxpayers; (ii) add undue complexity to the Federal tax laws; or (iii) exceed the statutory authority of the Internal Revenue Service.”[2] Business Roundtable strongly supports the President’s policy objectives described in EO 13789, which include that the “Federal tax system should be simple, fair, efficient, and pro-growth” and “[t]he purposes of tax regulations should be to bring clarity to the already complex Internal Revenue Code . . . and to provide useful guidance to taxpayers.”[3]

Business Roundtable has identified four particularly significant tax regulations issued during 2016 that we believe should be included under these criteria:

  • Final and Temporary Regulations under Section 385;[4]
  • Temporary and Proposed Regulations under Section 901(m);[5]
  • Final and Temporary Regulations under Section 987;[6] and
  • Final Regulations under Section 367.[7]

As discussed below, these regulations “effectively increase tax burdens, impede economic growth, and saddle American businesses with onerous fines, complicated forms, and frustration.”[1] Cumulatively, the impact of the four regulations will harm the U.S. economy by disrupting business activities, increasing uncertainty, creating disincentives for foreign direct investment, and hindering economic growth and job creation. Business Roundtable supports the withdrawal or substantial modification of these regulations to reduce complexity, compliance and financial burdens imposed on U.S. taxpayers, and adverse impacts on the U.S. economy. In addition, certain portions of the regulations exceed Treasury’s rulemaking authority and, for that reason alone, should be withdrawn or replaced with more tailored rules that comport with Treasury’s scope of authority. 

While the withdrawal or substantial modification of these regulations would align with the Administration’s goal of reducing regulatory burdens, Business Roundtable believes comprehensive tax reform is the ultimate solution for fixing an outdated tax system that hamstrings the U.S. economy and job creation. 

Final and Temporary Regulations under Section 385:  On April 8, 2016, Treasury issued proposed regulations under section 385 relating to whether related-party instruments should be characterized as debt or equity.[2] The proposed regulations would have limited the extent to which affiliated group members could use related-party debt by recharacterizing specific types of debt as equity in the event the arrangement either failed to satisfy detailed documentation requirements or ran afoul of one of the broad categories of proscribed transactions set forth in the proposed regulations. The impact of the proposed regulations, however, extended far beyond the stated purpose. Business Roundtable and several others submitted detailed comments urging Treasury to withdraw or at least substantially modify the regulations to limit the applicability of the rules, reduce the complexity of the provisions, and address significant technical issues. Some commentaries questioned Treasury’s authority to issue the regulations as drafted. As the comments highlighted, the proposed rules would have negatively affected U.S. businesses and the U.S. economy by discouraging foreign direct investment as well as by imposing significant administrative and compliance costs. 

The final and temporary regulations, issued on October 21, 2016, considerably narrowed the scope of the rules but remain highly complex, financially and administratively burdensome, questionable from an authority perspective, and susceptible to producing collateral consequences out of proportion to the government’s stated goals. The regulations compel U.S. companies to alter their business practices and incur significant costs to design and implement the systems and internal controls necessary to comply with the regulations’ documentation requirements. In addition, U.S. companies must expend significant resources to monitor compliance with aspects of the regulations to avoid inadvertently triggering the recharacterization of related-party debt instruments. 

The harsh financial burden and regulatory uncertainty created by the regulations contradicts the President’s policy objectives and damages the attractiveness of the United States as a global investment location, which in turn impedes economic growth, job creation, and innovation. For these (and many other) reasons, Business Roundtable supports the withdrawal of the final and temporary section 385 regulations. Business Roundtable believes that Treasury, at a minimum, must make significant modifications to the regulations to eliminate unnecessary complexities, unadministrable vagaries and unwarranted collateral consequences.

Temporary and Proposed Regulations under Section 901(m): On December 7, 2016, temporary and proposed regulations were issued under section 901(m). Section 901(m), enacted in 2011, disallows foreign tax credits (FTCs) in situations in which foreign taxes are considered attributable to different treatment for U.S. and foreign tax purposes of certain transactions (referred to as “covered asset acquisitions” or “CAAs”). The proposed regulations broaden the scope of the statute by including additional transactions that would be considered CAAs, resulting in the permanent denial of FTCs and more frequent double taxation of U.S. companies. This inhibits the ability of U.S. companies to compete with foreign companies who enjoy both lower tax rates than the U.S. rate and territorial tax systems. 

The proposed regulations set forth highly complex rules for calculating the disallowed amount and overly broad carryover provisions that encumber U.S. taxpayers. The proposed rules, overall, represent an expansion of the reach and complexity of section 901(m) that exceeds the original legislative intent. Business Roundtable supports Treasury’s review and modification of these regulations to eliminate any overly broad inclusions of CAAs, burdensome tracking requirements and complex calculations. Business Roundtable further supports an expansion of de minimis rules and the inclusion of a related-party exception that would apply to CAAs occurring after the effective date of the proposed regulations as well as any FTC disallowances associated with CAAs preceding the effective date.

Final and Temporary Regulations under Section 987: On December 8, 2016, Treasury issued final and temporary regulations under section 987, providing long-awaited tax accounting rules for determining foreign currency gains and losses that arise in situations in which a branch or “qualified business unit” (QBU) uses a functional currency different from that used by its owner. The regulations are extremely complex, imposing excessive compliance burdens on U.S. taxpayers by requiring that taxpayers create (retroactively, in some instances) and maintain onerous tax reporting records with respect to detailed information relating to each QBU, gather information for transitioning into a prescribed method, and assess the financial accounting impact due to potential tax-book disparities embedded in the prescribed method. 

The financial impact of the regulations may be more dramatic for some taxpayers than others, but in some instances, the transition to the methods set forth in the regulations from one or more permitted approaches, which have been used for nearly 30 years, could result in the permanent denial of large amounts of economic losses. When combined with the recent resurgence of the U.S. dollar, which is near historic highs against many other currencies, these provisions would significantly increase U.S.-based multinationals’ tax liability, impede financial growth, and harm global competitiveness. In light of the foregoing, Business Roundtable supports Treasury’s review of the final and temporary regulations under section 987 and believes the regulations should be withdrawn or otherwise modified to alleviate the compliance burdens imposed on U.S. taxpayers and the denial of true economic losses. If modified or withdrawn, however, the regulations as issued should be treated as an acceptable method for the benefit of any taxpayer that has begun implementation and wishes to rely on them.

Final Regulations under Section 367: On December 15, 2016, Treasury and the IRS issued final regulations under section 367 relating to the treatment of outbound transfers of property. The regulations finalized proposed regulations issued in 2015[1] without any material changes despite pervasive comments challenging Treasury’s authority to issue the regulations. The final regulations apply retroactively to transfers occurring on or after September 14, 2015, the date on which the rules were first issued in proposed form, and deny the tax-free treatment of outbound transfers of goodwill and going concern value that had existed under prior law for over 30 years.

Business Roundtable believes the final regulations represent a usurpation of Congressional authority to alter a statutory regime and that the changes should only be effectuated through legislation. The regulations disregard clear Congressional intent as expressed in the statute and legislative history, fail to address the Treasury’s concern that led to the regulations, and violate the requirement under the Administrative Procedure Act (APA)[2] for a 30-day delay in effective date. Moreover, the regulations fail to provide clarity regarding definitions and the applicable framework for the treatment of outbound transfers of goodwill and going concern value, and instead subject the transfers to strict taxation under alternative mechanisms. The regulations’ approach is arbitrary and creates uncertainty with respect to the treatment of goodwill and going concern value under the Federal tax law. For these reasons, as well as the considerable financial burden imposed on U.S. taxpayers, the final section 367 regulations should be withdrawn and/or replaced with rules that comport with Treasury’s permissible scope of authority and that are tailored to address Treasury’s concern.

In addition, Business Roundtable supports the withdrawal of Notice 2016-73, released by Treasury and the IRS on December 2, 2016, announcing the intention to issue new regulations under section 367 that would be effective retroactively to the date of the Notice. The regulatory approach outlined in the Notice would impose a significant administrative burden on taxpayers and is an overly broad exercise of discretion.

On behalf of Business Roundtable, I appreciate your consideration of these regulations of concern and would be pleased to provide any information that might further assist you.




Mark A. Weinberger

Global Chairman and CEO


Chair, Tax and Fiscal Policy Committee

Business Roundtable 

[1]       The final section 367 regulations also finalize, amend, or remove certain temporary regulations issued in 1986.

[2]       Administrative Procedure Act of 1946 (P.L. 79-404), 60 Stat. 237.

[1]       EO 13789. 

[2]       81 Fed. Reg. 20912 (Apr. 8, 2016). The proposed section 385 regulations were first available for public inspection on April 4, 2016 before publication in the Federal Register on April 8, 2016.

[1]       Presidential Executive Order 13789 on Identifying and Reducing Tax Regulatory Burdens (“EO 13789”), 82 Fed. Reg. 19317 (Apr. 21, 2017).

[2]        Id.

[3]        Id.

[4]       T.D. 9790, 81 Fed. Reg. 72858 (Oct. 21, 2016), corrected by 82 Fed. Reg. 8165 (Jan. 24, 2017).

[5]       T.D. 9800, 81 Fed. Reg. 88103 (Dec. 7, 2016), REG-129128-14 (Dec. 7, 2016).

[6]       T.D. 9794, 81 Fed. Reg. 88806 (Dec. 8, 2016), T.D. 9795, 81 Fed. Reg. 88854 (Dec. 8, 2016).

[7]       T.D. 9803, 81 Fed. Reg. 91022 (Dec. 16, 2016).