House Ways and Means Committee Democrats on February 8 sent a letter to colleagues urging against a GOP lawmaker’s effort to undo controversial Code Sec. 385 debt-equity regulations. The letter, authored by Ways and Means ranking member Richard E. Neal, D-Mass., and Tax Policy Subcommittee ranking member Lloyd Doggett, D-Tex., was also signed by 14 other Democratic members.

HJRes 54, introduced on January 31 by Rep. Todd Rokita, R-Ind., and referred to the Ways and Means Committee, would invoke the Congressional Review Act to “disapprove” (to effectively repeal) the documentation requirements under the Code Sec. 385 regulations for certain related-party interests in a corporation to be treated as indebtedness. If approved, the Treasury regulation “shall have no force or effect,” according to the joint resolution. Currently, there is no vote scheduled on the measure.

In a February 9 statement provided to Wolters Kluwer, Rokita said the joint resolution has already received positive feedback from the business community. “There has been strong support from the business community to deal with this misguided and harmful regulation. The resolution I wrote to roll back this red tape has garnered positive attention, including from the National Association of Manufacturers (NAM),” Rokita said. “My resolution will reduce the tax burden on Indiana firms and all American companies so they can grow our economy and create jobs,” he added.

“These regulations are intended to combat aggressive corporate tax planning techniques that, rather than serving an economic purpose, are used by some corporations to avoid taxes,” the Democratic lawmakers wrote in the “Dear Colleague” letter, while urging members to vote note on the joint resolution. “By invoking the Congressional Review Act, Republicans will block Treasury from crafting any more regulations to tackle this type of tax avoidance.”

Further, Doggett believes the Treasury rule has already successfully curtailed some corporate tax avoidance. “Repealing this modest Treasury rule would be an invitation for more corporations to head abroad,” Doggett said in a February 9 statement.