ua14no94 DEPARTMENT OF VETERANS AFFAIRS (VA)...

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DEPARTMENT OF THE TREASURY (TREAS)
Regulatory Plan for Fiscal Year 1995
Background
The Department of the Treasury is composed of, in addition to 
Departmental Offices, a number of offices and bureaus which have 
responsibility for a wide range of regulations. The primary missions of 
the Department include:

<bullet> Protecting and collecting the revenue under the Internal 
            Revenue Code and customs laws;
<bullet> Supervising national banks and thrift institutions;
<bullet> Managing the fiscal operations of the Federal Government;
<bullet> Enforcing laws relating to counterfeiting, Federal Government 
            securities, firearms and explosives, foreign commerce in 
            goods and financial instruments, and smuggling and 
            trafficking in contraband;
<bullet> Protecting the President, Vice President, and certain foreign 
            diplomatic personnel;
<bullet> Training Federal, State, and local law enforcement officers; 
            and
<bullet> Producing coins and currency.
While implementing its wide-ranging regulatory responsibilities, 
Treasury has aggressively pursued opportunities to reduce regulatory 
burdens, to reach out to the public for input when it promulgates 
regulations, and to provide clear, concise guidance for the many 
complicated statutes the Department administers. For example, shortly 
after the Administration took office, Treasury consulted with other 
banking regulators, the banking industry, the business community, and 
consumer groups to assemble a regulatory relief package to address the 
credit crunch. And the Department's efforts did not stop there: The 
Department's Office of the Comptroller of the Currency began a project 
to review, simplify, and reduce the number of regulations it 
administers regarding national banks.
Themes and Priorities for Fiscal Year 1995
To fulfill the regulatory principles announced by the President in 
Executive Order (E.O.) 12866, the Treasury Department has the following 
themes and priorities for fiscal year 1995:

<bullet> We will continue to improve the efficiency of collection 
            operations under the tax code through additional automation 
            of taxpayer filing, and we will seek to improve taxpayer 
            compliance with complex tax statutes by providing 
            additional guidance in a number of areas.
<bullet> In banking and finance, we will continue to reduce the 
            regulatory burden, where possible, by deleting regulatory 
            requirements, and we will continue to coordinate with other 
            banking regulators to ensure that we implement common 
            statutory schemes through uniform regulatory requirements.
<bullet> In the law enforcement arena, we will continue to reach out to 
            law-abiding citizens to get their input when we use 
            regulations to enforce statutory mandates so that law-
            enforcement compliance costs for businesses are kept to a 
            minimum.
<bullet> To improve the ability of U.S. companies and consumers to reap 
            the benefits of expanding international trade, we will 
            improve the efficiency of Customs operations, and finalize 
            regulations implementing the North American Free Trade 
            Agreement Implementation Act and its Customs modernization 
            provisions.
Consistent with these themes and priorities, and our statutory 
responsibilities to implement the laws as enacted by the Congress and 
signed by the President, we will continue to look for opportunities to 
delete unnecessary regulations, seek maximum public input in the 
promulgation of regulations, and improve our internal regulatory 
processes. A more detailed description of our regulatory priorities 
follows.
Statement of Regulatory Priorities
Departmental Offices
Office of the Under Secretary for Enforcement
Office of Financial Enforcement
The Bank Secrecy Act (BSA) authorizes the Secretary of the Treasury to 
issue regulations requiring financial institutions to maintain records 
and file reports determined to have a high degree of usefulness in 
criminal, tax, or regulatory proceedings. These regulations, codified 
at 31 CFR part 103, are developed by the Office of Financial 
Enforcement (OFE) and issued by the Director of the Financial Crimes 
Enforcement Network (FinCEN) in the Office of the Under Secretary for 
Enforcement. The purpose of these regulations is to combat financial 
crime, particularly money laundering.
OFE has sought to reduce the cost and burden of compliance with BSA 
regulations and to enhance the utility of those regulations to law 
enforcement. To this end, OFE is working to:

<bullet> Simplify the Currency Transaction Report (CTR);
<bullet> Streamline and simplify the BSA process for exempting certain 
            accounts from BSA currency transaction reporting 
            requirements;
<bullet> Clarify existing regulations defining non-bank financial 
            institutions that are subject to BSA regulations;
<bullet> Develop regulations requiring, and improve existing mechanisms 
            for, the reporting of suspicious transactions;
<bullet> Develop regulations requiring financial institutions to 
            implement ``Know Your Customer'' procedures; and
<bullet> Reduce the substantial recordkeeping requirements applicable 
            to the sale of money orders and other similar monetary 
            instruments.
To comply with the principles and philosophy of E.O. 12866, the 
Department has initiated extensive consultation with financial 
institutions and persons affected by BSA reporting and recordkeeping 
requirements to tailor regulations that impose the least amount of 
burden. In 1993, the Department convened an interagency Money 
Laundering Task Force staffed by experienced agents and regulators from 
Treasury bureaus with BSA compliance and money-laundering 
responsibilities. This Task Force undertook a comprehensive examination 
of Treasury's BSA regulatory programs, with a special focus on the 
manner in which Treasury exercises its BSA authority.
The Task Force made recommendations to the Bank Secrecy Act Advisory 
Group (Advisory Group) established by the Department, which consists of 
representatives from financial institutions and trades and businesses 
affected by the requirements of the BSA and section 6050I of the 
Internal Revenue Code of 1986, plus staff from Treasury, the Department 
of Justice, and the White House Office of National Drug Control Policy. 
The Advisory Group is considering alternative regulatory approaches and 
formulating recommendations concerning the BSA to Treasury policy 
officials.
During fiscal year 1995, OFE will accord priority to regulations 
concerning recordkeeping requirements for international and domestic 
funds transfers, requirements for the inclusion of certain information 
in funds transfer payment orders, and the implementation of new anti-
money laundering procedures and programs. These regulatory projects are 
described below.
In addition, OFE will determine whether to withdraw its proposed rules 
regarding the mandatory aggregation of currency transactions and filing 
of CTRs by magnetic media. Enhanced computer technology for the 
tracking and reporting of financial transactions may permit OFE to 
achieve the objectives of its proposed regulations through alternative 
means. These alternative methods may permit the design of rules that 
achieve the Department's regulatory objective in a more cost-effective 
manner, consistent with the principles of E.O. 12866.
Internal Revenue Service
The Internal Revenue Service (IRS) promulgates regulations that 
interpret and implement the Internal Revenue Code and related tax 
statutes. Consistent with E.O. 12866, the IRS adheres to the following 
principle in developing its regulations:

To carry out the tax policy determined by Congress fairly, impartially, 
reasonably, and practically, taking into account rational tax policy, the 
intent of Congress, the realities of relevant transactions, the need for 
the Government to administer the rules and monitor compliance, and the 
overall integrity of the Federal tax system.

The goal of the IRS is to make the regulations practical and user-
friendly by providing guidance that is as clear and simple as possible. 
Most IRS regulations interpret tax statutes to resolve ambiguities or 
fill gaps in the tax statutes.
During fiscal year 1995, the IRS' priorities will include the following 
regulations interpreting and implementing tax provisions contained in 
the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993) and the North 
American Free Trade Agreement (NAFTA) Implementation Act:

<bullet>Electronic Funds Transfer for Tax Deposits. Currently, certain 
            taxpayers are required to deposit taxes with an authorized 
            government depository (generally, a commercial bank or 
            savings institution or a Federal Reserve bank) by various 
            dates specified in regulations. Each deposit must be 
            accompanied by a form (Form 8109, Federal Tax Deposit 
            Coupon) which contains tax and taxpayer information. The 
            government depository processes the form and forwards it to 
            the appropriate IRS Service Center.
  NAFTA amended the Internal Revenue Code to authorize the issuance of 
            regulations that are necessary for the development and 
            implementation of an electronic funds transfer system to 
            replace the current form-based system for the collection of 
            depository taxes. The new system will be phased in over a 
            period of several years, beginning with fiscal year 1994. 
            (Note: A related regulation to be issued by the Financial 
            Management Service is described below.)
<bullet>Substantiation of Certain Charitable Contributions. OBRA 1993 
            amended the Internal Revenue Code by not allowing a 
            deduction for a charitable contribution of $250 or more 
            unless the donor obtains contemporaneous written 
            acknowledgment of the contribution from the charitable 
            donee. This new substantiation requirement is effective for 
            contributions made after December 31, 1993. The regulations 
            implementing this section also will provide special 
            substantiation rules for contributions made by payroll 
            deduction.
<bullet>Spousal Travel and Club Dues. OBRA 1993 limited the 
            deductibility of club dues, spousal travel expenses, and 
            business meals. However, this statutory change did not 
            answer the question of whether by denying the deduction to 
            the employer, the employee is required to recognize income. 
            The regulation will address this and other fringe benefit 
            questions.
<bullet>Lobbying; Influencing Legislation. OBRA 1993 amended the 
            Internal Revenue Code to deny a deduction for amounts paid 
            or incurred in connection with influencing legislation 
            (other than local legislation) by communicating with 
            members or employees of the legislative and executive 
            branches who may participate in the formulation of 
            legislation. Proposed regulations defining the term 
            ``lobbying'' were issued in May 1994. Final regulations 
            will provide guidance to business taxpayers and certain 
            exempt organizations also subject to these rules by 
            defining activities of which the costs are not deductible.
<bullet>Earnings Invested in Excess Passive Assets. This regulation 
            will implement a change in the Internal Revenue Code 
            (section 956A) added by OBRA 1993 which provides rules to 
            determine, with respect to the U.S. shareholder of a 
            controlled foreign corporation (CFC), the amount of 
            earnings of the CFC invested in excess passive assets. The 
            regulation also will provide guidance to taxpayers on the 
            meaning and scope of certain terms in the statute, such as 
            ``applicable earnings'' and ``passive assets,'' on the 
            application of section 956A with respect to groups of CFCs, 
            and on the computation of the section 956A amount.
<bullet>Diesel Fuel Excise Tax. OBRA 1993 amended the Internal Revenue 
            Code (section 4081) by imposing an excise tax on diesel 
            fuel. OBRA 1993 provided an exemption from the excise tax 
            for certain diesel fuel; that fuel is dyed to aid 
            compliance in accordance with regulations issued under the 
            Internal Revenue Code. The regulation will provide guidance 
            on issues relating to the imposition of, and liability for, 
            the tax; the exemption for dyed diesel fuel; the back-up 
            tax on dyed diesel fuel used for a taxable purpose; and 
            credits and payments relating to taxed diesel fuel used for 
            a nontaxable purpose.
<bullet>Mark-to-Market Accounting for Dealers in Securities. OBRA 1993 
            amended the Internal Revenue Code to require dealers in 
            securities to account for their securities by marking them 
            to market. The statutory definitions of the terms 
            ``security'' and ``dealer in securities'' are extremely 
            broad. Preliminary guidance in the form of temporary 
            regulations was provided in 1993. A regulation providing 
            additional guidance will be published in fiscal year 1995.
<bullet>Conduit Financing Arrangements. This regulation will implement 
            section 7701(l) of the Internal Revenue Code, added by OBRA 
            1993. This new section provides that the Secretary of the 
            Treasury may issue regulations recharacterizing any 
            multiple-party financing transaction as a transaction 
            directly among any two or more of the parties where the 
            Secretary determines that a recharacterization is 
            appropriate to prevent avoidance of any tax imposed by the 
            Internal Revenue Code.
<bullet>Special Passive Activity Loss (PAL) Rules. Section 469 of the 
            Internal Revenue Code disallows losses from passive 
            activities to the extent they exceed income from passive 
            activities. Traditionally, passive activities have included 
            (1) trade or business activities in which the taxpayer does 
            not materially participate and (2) rental activities 
            regardless of the level of the taxpayer's participation. 
            OBRA 1993 added section 469(c)(7) to the Internal Revenue 
            Code to modify the PAL rules relating to certain real 
            estate. This regulation will provide taxpayers with 
            guidance concerning the application of the new section.
The IRS also will accord priority during fiscal year 1995 to the 
following regulations:

<bullet>Research or Experimental Expenditures. The Revenue 
            Reconciliation Act of 1989 amended section 174 of the 
            Internal Revenue Code with respect to research and 
            experimental expenditures. These regulations will be 
            revised to provide additional guidance to taxpayers and IRS 
            personnel regarding the term ``research and experimental 
            expenditures'' under section 174.
<bullet>Triangular Corporate Reorganizations. Between 1954 and 1971, in 
            order to increase flexibility in structuring transactions, 
            Congress enacted laws allowing an acquiring corporation to 
            acquire the stock or assets of, or to merge into, a target 
            corporation in exchange for stock of the acquiring 
            company's parent corporation in a tax-free ``triangular'' 
            reorganization. The enabling legislation did not provide 
            guidance, however, as to the effect of the acquisition on 
            the parent corporation's basis in the stock of its 
            acquiring subsidiary. Proposed regulations were issued in 
            1981 setting forth the IRS position on the basis issue. In 
            a number of transactions since the enabling legislation, 
            and in some cases since the proposed regulations were 
            issued, taxpayers have taken positions that have 
            inappropriately enhanced the parent's basis in the stock of 
            the acquiring subsidiary following triangular 
            reorganizations. These regulations will provide guidance 
            regarding the acquiring parent's basis in the stock of the 
            acquiring subsidiary following a triangular reorganization.
<bullet>Allocation of Interest Expense to U.S. Trade or Business of a 
            Foreign Corporation. Section 882(a) of the Internal Revenue 
            Code imposes a tax on the income of a foreign corporation 
            that is effectively connected with the conduct of a trade 
            or business within the United States (ECI). Section 882(c) 
            allows deductions and credits only to the extent that they 
            are connected with ECI, and further provides that the 
            proper allocation and apportionment of deductions shall be 
            determined as provided in regulations. Current regulations 
            prescribe rules for allocating interest expense, using an 
            approach that combines concepts of fungibility of funding 
            and tracing of interest expense. Proposed regulations 
            published in 1992 to replace existing rules better reflect 
            the current economic environment and changes in the law 
            since the original regulations were promulgated. The 
            proposed regulations, among other things, impose a 96 
            percent cap on a bank's actual debt-to-assets ratio; reduce 
            the elective fixed ratio to 93 percent; and eliminate the 
            separate currency pool method of determining the 
            appropriate interest rate for U.S. liabilities.
<bullet>Modification of Debt Instruments. Under section 1001 of the 
            Internal Revenue Code and current regulations, gain or loss 
            is realized on an exchange of properties that differ 
            materially either in kind or extent. Under longstanding 

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