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Treasury Department, IRS Release Report on Tax Regulations Under Consideration for Repeal or Modification

Includes AGC-Opposed 2704 and 385 Regulations
On April 21st, President Trump signed an Executive Order requiring the Department of the Treasury and the Internal Revenue Service (IRS) to evaluate all tax regulations issued since Jan. 1, 2016, and identify any regulations that 1) impose an undue financial burden on United States taxpayers; 2) add undue complexity to the Federal tax laws; or 3) exceed the statutory authority of the Internal Revenue Service. In response, last Friday the agencies released an interim report identifying a number of regulations that warranted further review.  Included in the list were both the proposed regulations under section 2704 on “Restrictions on Liquidation of an Interest for Estate, Gift and Generation-Skipping Transfer Taxes” – also known as the “2704 regulations” – and the final regulations under Section 385 on the “Treatment of Certain Interests in Corporations as Stock or Indebtedness” – also known as the “385 regulations”.
AGC commented on both of these regulations as being problematic for the construction industry.  Regarding the proposed 2704 regulations, on October 5, 2016, over 730 family-owned AGC member companies signed a letter to Treasury Secretary Jacob Lew requesting a complete withdrawal of the regulations, and on November 1, 2016, AGC submitted formal comments on the proposed regulations, also calling for their withdrawal.  While the proposed rule is not final – and we do not expect it to become final under the Trump Administration – until it is formally withdrawn, it remains “pending.”
Regarding the 385 regulations, on July 8, 2016 AGC submittedcomments to the IRS offering recommendations that would curtail the proposed regulation’s effects on domestic construction companies. Fortunately, Treasury listened to AGC members’ concerns and exempted domestic construction firms from key parts of the final rule.  That said, Treasury and IRS are reviewing this regulation to see if it can be further improved to reduce the regulatory impact on businesses.  If the Agencies propose any changes to the 385 regulations, the rule will have to go through the formal notice and comment process because it became final last year.
Treasury is requesting comments on whether the regulations described in this notice should be rescinded or modified, and in the latter case, how the regulations should be modified in order to reduce burdens and complexity. Comments from the public are due by August 7, 2017.
For more information, contact Matthew Turkstra at 202-547-4733 or


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