Business Groups Urge Treasury to Withdraw Sec. 385 Tax Regulations

Closeup of tax wooden blocks on mallet at table in courtroom

The American Council for Capital Formation joined the Business Roundtable and other business groups this week in urging Treasury Secretary Steven Mnuchin to withdraw the Section 385 tax regulations. The full text of the letter is below.

The Honorable Steven Mnuchin
Secretary of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
As part of your efforts pursuant to Executive Order 13789, issued on April 21, 2017, to “review significant tax regulations issued in 2016” to see if they “impose an undue financial burden on United States taxpayers, add undue complexity…, or exceed statutory authority,” the undersigned associations urge the Treasury Department to withdraw the final Section 385 regulations issued in October 2016. These regulations will impose excessive and unwarranted compliance and financial burdens on businesses operating in the United States, distorting investment and other business decisions, to the detriment of U.S. jobs.
We appreciate the efforts of the Administration to review and address the significant regulatory burden faced by businesses operating in the United States. Indeed, in its explanation of the Section 385 regulations last year, Treasury officials conceded that the new rules could damage U.S. competitiveness as an investment location saying, “The regulations do to some extent make the U.S. a less attractive location for foreign investment.” Further, if the regulations are left on the books and enter into full effect, they will increase the complexity of doing business in the United States and we believe they will frustrate this administration’s goals of improving the U.S. business climate, enhancing America’s global competitiveness, and driving economic growth and job creation—for all multinational businesses operating in the United States.
Because of the negative impact of these regulations on businesses in the United States, we urge Treasury to act quickly to ease the burden of the Sec. 385 regulations. Indeed companies already have begun to set up the new systems and procedures needed to comply with the complex reporting requirements ordered under these regulations. With each passing day, businesses continue to expend their limited resources—resources that could go to more productive activities to innovate, grow and create jobs. If Treasury waits until later this year to roll back the regulations, many companies will be unable to recapture those resources.
In addition to the immediate compliance costs imposed by the regulations, the regulations create other, complex compliance challenges for businesses. For example, businesses will have to monitor a six-year testing window and create new cash management strategies. In addition, they will have to deal with substantial uncertainty surrounding issues left open in the regulations, such as the fate of temporary exceptions for certain types of instruments and cash pooling. They will have to continue to comply with the retroactive aspects of the new rules that for certain businesses, already impede capital flows and create substantial uncertainty about the United States as location for investment now and in the future.
We strongly urge the Treasury Department to rescind the regulations or, alternatively, to delay them in their entirety, until the Treasury can determine whether the regulations comport with current administration priorities. It would be particularly important for Treasury to quickly roll back or delay the onerous documentation requirements; while those requirements have yet to take effect, companies need to spend money today for new systems and procedures to be able to meet the regulatory deadline for compliance. Again, we believe the regulations are out of line with President Trump’s goal of reducing the cost of onerous compliance rules so that companies can invest in stimulating economic growth and job creation in America.


Advanced Medical Technology Association American Bankers Association
American Chemistry Council
American Council for Capital Formation American Council of Life Insurers American Insurance Association American Petroleum Institute Association of Global Automakers
Beer Institute
Biotechnology Innovation Organization Business Roundtable
Information Technology Industry Council Insured Retirement Institute
Motor & Equipment Manufacturers Association National Association of Manufacturers National Foreign Trade Council
National Retail Federation
Organization for International Investment Plastics Industry Association Reinsurance Association of America Retail Industry Leaders Association
Securities Industry and Financial Markets Association Semiconductor Industry Association
Software Finance and Tax Executives Council US Council for International Business