Groups weigh in on Obama-era tax rules targeted for changes

Groups weigh in on Obama-era tax rules targeted for changes
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Groups are weighing in on Obama administration-era tax regulations that the Treasury Department has identified for possible modifications or elimination, including rules that were designed to curb offshore tax deals known as inversions.

Business groups want the inversion rules withdrawn, arguing that they are overly burdensome and impact transactions conducted in the ordinary course of business. But some groups argue that they’re an important tool in combating tax avoidance.

The rules are being targeted for changes as a result of an executive order from President Trump. Public comments were due on Monday.

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Trump issued an executive order in April instructing the Treasury to review significant tax rules released after Jan. 1, 2016. As a result of that executive order, the department in July identified eight rules that impose an “undue financial burden” on taxpayers or add “undue complexity” to tax laws.

The executive order directs the Treasury to submit a report to Trump by Sept. 18 with recommendations about how to ease the burdens posed by the regulations it identified.

One of the most high profile of the regulations the Treasury identified for possible changes or withdrawal were regulations that the Obama administration issued in 2016 to help limit the tax benefits of inversions. In an inversion, a U.S. company merges with a foreign company and reincorporates overseas to lower its tax burden.

The rules, which fall under section 385 of the tax code, would treat certain related-party debt as equity. The Treasury already delayed the effective date documentation requirements in the rule by one year.

But business groups say the regulations should be repealed because they impact business transactions that have nothing to do with inversions and have burdensome documentation requirements.

The U.S. Chamber of Commerce said in its comments that the rules “disrupt certain normal business practices unrelated to any impression of tax avoidance or tax mismeasurement.” The group urged the Trump administration to withdraw the rules or at a minimum make changes that include modifying the documentation requirements and the effective date.

The National Association of Manufacturers said that the debt-equity rules are unnecessary and “add another layer of complexity and bureaucracy to transactions that should be motivated by business considerations, not tax concerns.”

Similarly, the American Institute of CPAs said in its comments that “the complexity of the regulations, coupled with the potential for draconian outcomes in terms of tax liability and complexity, dramatically increases the financial and administrative burdens placed on taxpayer resources.”

But other groups defended the inversion rules, arguing that they are needed to help limit tax avoidance.

“We believe that a robust implementation of this rule will help curb abusive corporate tax avoidance practices, including the incentive for companies to engage in corporate inversions,” the Financial Accountability & Corporate Transparency (FACT) Coalition wrote Monday.

The FACT Coalition also joined a number of liberal groups — including Americans for Tax Fairness, Daily Kos, Credo and Public Citizen — in sending another letter recommending that Treasury keep the debt-equity rule “in its entirety.”

“Reversing course on the … rule could mean the return of frequent and sizable corporate inversions,” the groups wrote.

Additionally, Americans for Tax Fairness and Daily Kos spearheaded an effort that resulted in more than 63,000 people submitting comments in support of the regulations.