Treasury Department officials are considering rolling back a taxrule aimed at preventing American companies from moving moneyoffshore to avoid U.S. taxes, according to several people familiarwith the discussions.

The Treasury is looking at regulations intended to preventAmerican firms from lowering their U.S. tax bills by shifting income to their offshore branches thatthey can loan to their domestic branches and deduct the interestoff their IRS bills. The department is also contemplating repealingthem entirely to replace them with something morebusiness-friendly.

The move could make it easier for companies to use accountingtactics to minimize their U.S. earnings and inflate their foreignprofits, which are frequently taxed at rates lower than the current21 percent domestic corporate levy. The existing regulations wereaimed at stopping U.S. companies from moving their headquarters toa lower-tax country, known as a corporate inversions.

Modifying the regulations, commonly referred to as thedebt-equity rules, would also count as one of President DonaldTrump's favorite kinds of policy: Reversing a regulation introducedin the final days of President Barack Obama's administration.

Corporations resisted the original rules, published in 2016, arguingthat the IRS was overstepping its authority. The rules allowed theagency to re-characterize tax-advantaged intercompany loans asequity, removing one of the main incentives for U.S. companies tomove their headquarters to countries with corporate tax rates lowerthan the U.S. rate, then set at 35 percent.

Critics of the regulations say the rules are no longer necessarybecause the 2017 tax overhaul made corporate inversionsless attractive, thanks to lower tax rates and limits on how muchinterest companies can deduct. Businesses argue that theregulations, under tax code Section 385, apply too broadly tonon-abusive transactions and create onerous requirements by makingcompanies track every loan.

'Moving Target'

It's unlikely Treasury will repeal the rules entirely, eventhough some outside groups have pushed for that, the peoplefamiliar with the discussions said. IRS Chief Counsel MichaelDesmond said earlier this month that the regulations in questionare a "moving target" but that IRS and Treasury lawyers werelooking at addressing this issue in some format this fall.

Groups including the U.S. Chamber of Commerce and theOrganization for International Investment, which represents theU.S. operations of foreign-based companies, have lobbied to repealthe rules.

Treasury wants to tread cautiously because it knows it would beblamed if companies began using aggressive tax planning tactics tolower their bills, according to the people familiar with thediscussions, who asked not to be named when talking about internalconversations.

"One of the Trump administration's top priorities has beenmaking it as easy as possible for the wealthiest Americans andcorporations to cheat and avoid taxes," Senator Ron Wyden, the topDemocrat on the Senate Finance Committee, said in a statement."Rules preventing the offshoring of corporate profits should bestrengthened—not weakened."

Treasury, the IRS, and the Office of Management and Budget (OMB)didn't respond to requests for comment.

Treasury has to seriously consider whether the 2017 tax lawreally eliminates the need for the regulations, said Mark Mazur,who was the assistant secretary for tax policy at Treasury underthe Obama administration when the rules were issued.

"On the face, they do slightly different things and so it's hardto believe that the Tax Cuts and Jobs Act took care of every one ofthose dimensions," said Mazur, now director of the Urban-BrookingsTax Policy Center.

George Callas, who worked as senior tax counsel to former HouseSpeaker Paul Ryan during the passage of the 2017 law, said that thetax code overhaul would prevent much of what the regulations aredesigned to block.

"It's appropriate to analyze whether they're still necessary inwhole, in part, or not at all," Callas said.

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