Much uncertainty surrounds the tax health of U.S. businesses under President Trump, in particular, related to the fate of Section 987 regulations.
As discussed in this recent A&M publication by my colleague and partner Al Liguori, the final regulations may benefit taxpayers in specific transactions.
Within 150 days, the Treasury Secretary is directed to prepare a report to the President with recommendations, including advice on whether to delay or suspend Section 987.
Now is the time for tax directors to be re-examining what action they’ve already taken to comply with the final regulations, what gain or loss- triggering events could occur over the next year, and how their conclusions may change if the regulations are eliminated.
A great start is to model the impact of contemplated transactions under the various scenarios the executive order has created.
Despite the confusion, the imminent transition has also generated an opportunity for taxpayers, especially those that have not yet adopted the 2006 regulations. Identifying where historical Sec. 987 gain or loss pools reside may allow taxpayers to identify transactions that take advantage of the transition rules. For example, taxpayers with significant unrecognized losses that may be eliminated under the finalized regulations may be inclined to accelerate remittances in order to utilize those losses. Contrarily, transactions that would otherwise trigger gains may be deferred until such pools are reduced under the transition rules.