Brady, Boustany voice concerns about proposed section 385 regulations

U.S. Reps. Kevin Brady (R-TX) and Charles Boustany (R-LA) renewed concerns on Monday about how proposed section 385 regulations would impact businesses, jobs and the economy.

Brady, the chairman of the House Ways and Means Committee, and Boustany, the chairman of the Subcommittee on Tax Policy, called for a complete overhaul of the proposed regulations in a letter to Treasury Secretary Jack Lew.

The IRS and Treasury released regulations in April that would address whether a direct or indirect interest in a corporation is treated as stock, debt or a combination of both for federal tax purposes.

Brady, Boustany and other committee members met with Treasury policy staff in July and raised a number of concerns with the far-reaching proposal. The lawmakers argued that exclusions and exceptions needed to be made for cash pooling arrangements, broader cash management practices, S corporation and REIT status, and equity compensation packages.

“These areas are all complex and it is not clear that your tax policy team has identified specific solutions that would appropriately and fully resolve these fundamental problems with the proposed regulations,” the letter states. “We urge you to adopt an open and transparent process, with engagement with stakeholders and the congressional tax-writing committees. Obtaining and incorporating input from affected stakeholders in order to have confidence that the rules as re-crafted would operate properly is too important to risk acting in haste.”

The Treasury also failed entirely to address a few areas of concerns raised in the July meeting, the lawmakers wrote. Those concerns include treatment of longer-term cash and financial management arrangements and transactions, implications for foreign-to-foreign transactions, and the impact on transactions involving partnerships.

“In closing, we reiterate that the proposed regulations as crafted would interfere inappropriately with businesses’ investment and financing decisions,” the letter states. “The proposal would have the effect of blocking the ability of businesses to operate effectively and efficiently and to grow and hire new workers. Ultimately, if the proposed regulations are not completely overhauled, they would damage our economy, increase the barriers to investment for American businesses and innovators, and interfere with the growth of the good-paying jobs American workers need and deserve. We cannot allow this to happen.”