Menu
Tax Notes logo
HOMETax Notes ResearchFederalOther Documentsirs tax correspondence

KPMG Seeks Repeal of Some Regs Targeted as Burdensome

AUG. 7, 2017

KPMG Seeks Repeal of Some Regs Targeted as Burdensome

DATED AUG. 7, 2017
DOCUMENT ATTRIBUTES

August 7, 2017

CC:PA:LPD:PR (Notice 2017-38)
Internal Revenue Service
Room 5205
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044

Re: Notice 2017-38 Relating to Treasury’s Review of Tax Regulations Pursuant to Executive Order 13789

Sir or Madam:

KPMG LLP (“KPMG”) appreciates the opportunity to comment on Notice 2017-38, released on July 7, 2017.

KPMG, the audit, tax and advisory firm, is the U.S. member firm of KPMG International Cooperative (“KPMG International”), which is a global network of professional firms providing audit, tax and advisory services. KPMG International operates in 152 countries and has 189,000 people working in member firms around the world. On a daily basis, KPMG assists numerous clients by providing financial accounting audit and attestation services, business advisory services, general U.S. federal, state, local and international tax advice, and domestic and cross-border transactional planning.

While we anticipate that the regulatory review pursuant to Executive Order 13789 and Notice 2017-38 may materially affect many of our clients, our comments in this letter reflect only the views of KPMG, and the concerns of many of the tax professionals who practice within our organization. We have not been engaged by a client to make these comments, and we are not submitting these comments on behalf of any client.

I. Introduction

Notice 2017-38 identified eight significant tax regulations issued by the Department of the Treasury (“Treasury Department”) and the Internal Revenue Service (“IRS”) since January 1, 2016, that the Treasury Department identified as either 1) imposing undue financial burden on U.S. taxpayers or 2) adding undue complexity to the Federal tax laws. Our comments focus on the three significant regulatory packages under sections 385, 367(a), and 987. Our comments are not intended to express or imply any view on the other five regulations identified in Notice 2017-38 or on any other regulations.

KPMG has provided direct comments to the Treasury Department and the IRS, and KPMG professionals have written articles in various publications, on the proposed versions of the section 385, 367(a), and 987 regulatory packages.1 Our writings have identified areas of legal complexity and administrative burden that we believe remain unresolved in the respective final and temporary regulations. We therefore agree with the Treasury Department’s identification of these regulations under the criteria identified in Executive Order 13789.

Our comments below do not focus on particular changes to these regulations. Rather, we write to request that the Treasury Department and the IRS provide legal certainty in implementing Executive Order 13789’s review process.

II. Request for Either Repeal or Indefinite Suspension of the Regulations under Sections 385, 367(a), and 987.

The regulations under sections 385, 367(a), and 987 all reflect dramatic changes to prior law and policy. This has been fully documented in our writings and in the comments of other interested parties.2 Further, the regulations under section 385 and section 987 require data collection and technological enhancements, which in our experience would involve significant costs for U.S. taxpayers.

While we applaud the decision to carefully consider the appropriateness of existing guidance, doing so during the transition period for these regulations is creating significant uncertainty in the taxpayer community regarding how to respond to these rules.3 In addition, the section 385 regulations, in part, and the 367(a) regulations were both proposed and ultimately implemented with retroactive effect.4 The legal uncertainty created by these effective dates has, in our experience, affected U.S. and non-U.S. companies’ investment decisions and business planning by making it difficult or even impossible for companies to reliably estimate the future tax costs associated with a given course of action.

We recommend that the Treasury Department prioritize providing legal certainty in this regulatory review process. The regulations under sections 385, 367(a), and 987 all raise complex legal and administrative issues. Piecemeal fixes to these rules to reduce financial burden and complexity are unlikely to be effective and may exacerbate the financial burden of compliance for U.S. taxpayers. Much of the criticism leveled at these rules is that reasonable, less burdensome, and less complex alternatives were not fully developed and could not have been adequately considered. In addition, the announcement that the regulations are subject to review, without a clear indication of what rules will ultimately govern business transactions currently under consideration leads to the same kind of legal uncertainty, which stifles investment and business decisions for taxpayers, and can create deadlines and inherent priorities for the government that do not align with sound tax administration and resource allocation.

Accordingly, we believe the three regulation packages should be either repealed entirely or suspended indefinitely.5 Indefinite suspension should be coupled with a commitment to apply any regulations in these areas only prospectively after any amendments to the existing regulations have been proposed and vetted through an appropriate notice and comment process.6

We welcome the opportunity to discuss our comments further with any interested personnel at the Treasury Department and the IRS. Please feel free to contact any of: Joe Pari at 202-533-4444, Devon Bodoh at 202-533-5681, Ron Dabrowski at 202-533-4274, Seth Green at 202-533-3022, Mark Hoffenberg at 202-533-4058, Howard Wiener at 202-533-6170, or Thomas Zollo at 312-665-8387.

Very truly yours,

KPMG LLP

cc:
The Honorable David J. Kautter
Assistant Secretary (Tax Policy)
Department of the Treasury

The Honorable John Koskinen
Commissioner
Internal Revenue Service

William M. Paul
Acting Chief Counsel
Deputy Chief Counsel (Technical)
Internal Revenue Service

Dana Trier
Deputy Assistant Secretary (Tax Policy)
Department of the Treasury

Thomas C. West
Tax Legislative Counsel
Department of the Treasury

Douglas Poms
Acting International Tax Counsel
Department of the Treasury

Robert H. Wellen
Associate Chief Counsel (Corporate)
Internal Revenue Service

Marjorie A. Rollinson
Associate Chief Counsel (International)
Internal Revenue Service

FOOTNOTES

1See, e.g., Bodoh, Featherman, Massed, Simmons, and Dulcey, “The Final Debt-Equity Regulations: The Sky is Not Falling,” 154 Tax Notes 979 (February 20, 2017); Kaufman, “Partnerships and the Proposed Debt Equity Regulations,” 75 Tax Prac. 677 (October 3, 2016); “KPMG LLP Suggests Alternative to Computation Method in Proposed Branch Currency Transaction Regs” 2007 TNT 115-23 (Release Date: June 07, 2007); Wiener and Cunningham, “The New Proposed Section 987 Regulations,” The Tax Executive (November-December 2006 p. 457).

2See, e.g., comments submitted to the Treasury Department and Internal Revenue Service on the section 385 regulations: New York State Bar Association (June 29, 2016), U.S. Chamber of Commerce (July 6, 2016), and Tax Executives Institute (July 6, 2016); on the section 367(a) regulations: United States Council for International Business (December 14, 2015) and New York State Bar Association (February 23, 2016); on the section 987 regulations: Tax Executives Institute (March 7, 2017),

3The delay in the effective date of the section 385 documentation rules contained in Notice 2017-36 (July 28, 2017) is helpful only with respect to the regulatory review under Executive Order 13789. Leaving a fixed, future effective date during the section 385 amendment process will raise the same issues we discuss in this letter.

4The section 385 regulations were retroactively effective to April 4, 2016, and the section 367(a) regulations were retroactively effective to September 14, 2015.

5We note that the section 367(a) regulations were proposed in conjunction with proposed and temporary regulations under section 482. T.D. 9738 (filed Sept. 15, 2015). While these section 482 regulations are outside the scope of Executive Order 13789, they demonstrate an interconnected approach to the application of sections 482. and sections 367(a) and (d). Any review of the section 367(a) regulations should be accompanied by the suspension and review of the section 482 regulations issued in T.D. 9738.

6As precedent for this approach, when the Treasury Department removed and re-proposed the controversial “hybrid branch” Subpart F regulations, the second proposed rules included a transition period under which they would not apply for five years after finalization. See REG-113909-98, 1999-2 CB 125.

END FOOTNOTES

DOCUMENT ATTRIBUTES
Copy RID