Sen. Orrin Hatch (R-Utah), chairman of the Senate Finance Committee, and the majority members of the House Ways and Means Committee sent separate letters to U.S. Treasury Secretary Jacob Lew calling for some radical revisions to Treasury’s proposed Section 385 regulations, which would set stringent new documentation requirements on cross-border intercompany transactions in order for them to quality for tax-favored equity treatment. The proposal is meant to curb uses of corporate inversions to escape U.S. corporate tax rates, regarded as high compared with other countries.

The letters indicate members of Congress have been interacting with Treasury all summer looking for relief from the proposal, which tax experts say would scope in common corporate treasury transactions that multinational companies routinely use to manage liquidity across entities.

The House letter suggests Treasury officials agreed to some modifications during a July meeting, including relief on cash pooling arrangements, currency and interest-rate hedging, equity compensation, and adverse impacts for S corporations and real estate investment trusts. The letter suggests Treasury officials also agreed in concept to exceptions for certain regulated industries, including insurance.

 “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 House letter says. It continues to call for an “open and transparent process,” involving Congressional tax-writing committees.

In addition, the letter lists areas where the Committee has raised concerns but Treasury staff have not addressed, including the compliance burden imposed with the proposed documentation requirement. “It is critical that Treasury commit to addressing these areas before the regulations are finalized,” the House committee members wrote.

Hatch’s letter to Lew reiterates the concerns over the substance of the proposal, but also calls out the process by which it is being pushed through the rule-making machinery. Initially issuing the proposal in April, Treasury has said it intends to finalize the regulations this year, before the current presidential administration leaves office.

That would represent an “unprecedented pace” for a complex initiative, Hatch wrote, calling out the lack of advance notice, the length of comment period, the enormity of response that commands re-deliberation, cost-benefit analysis, and other common procedural steps. He called on Lew to re-propose the regulations, to assure any final regulatory change is enacted in a “thoughtful, prudent, and legal manner.”

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