[Congressional Record Volume 145, Number 24 (Wednesday, February 10, 1999)]
[Extensions of Remarks]
[Page E187]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




LEGISLATION TO PROHIBIT THE DEPARTMENT OF THE TREASURY FROM ISSUING ANY 
  REGULATIONS DEALING WITH HYBRID TRANSACTIONS UNDER SUBPART F OF THE 
                         INTERNAL REVENUE CODE

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                          HON. PHILIP M. CRANE

                              of illinois

                    in the house of representatives

                      Wednesday, February 10, 1999

  Mr. CRANE. Mr. Speaker, joined by my Ways and Means Committee 
colleague, Mr. Matsui, I introduced legislation today to prohibit the 
Department of the Treasury from issuing any regulations dealing with 
hybrid transactions under Subpart F of the Internal Revenue Code. The 
bill will further instruct the Secretary of the Treasury to conduct a 
study of the tax treatment of hybrid transactions and, after receiving 
input from the public, to submit his findings to the House Committee on 
Ways and Means and the Senate Committee on Finance.
  This legislation is identical to a bill we introduced in the 105th 
Congress. During the last Congress, most members of the House Ways and 
Means Committee expressed their concern over the policy changes to 
Subpart F suggested by Treasury in Notice 98-11. Both Chairman Archer 
and Ranking Democrat Rangell wrote Secretary Rubin to express their 
concerns with both the policy changes pursued by Treasury as well as 
the means by which Treasury implemented the changes. Mr. Matsui and I, 
along with 31 other Committee members, also wrote Treasury asking them 
to withdraw the regulations in order for Congress to have an 
opportunity to review the issues. We hoped that Treasury would do this 
in consultation with members of our Committee.
  The provisions of Subpart F of the Code have a direct impact on the 
competitiveness of U.S. businesses operating in the global marketplace. 
Congress historically has moved carefully when making changes to those 
sections of the Code relating to international taxation. Unwarranted or 
injudicious action in these areas can have a substantial adverse impact 
on U.S. businesses operating abroad.
  Treasury issued Notice 98-11 to restrict the use of hybrid entities. 
After input from Congress and the business community, Treasury issued 
Notice 98-35, which withdrew Notice 98-11. However, Notice 98-35 still 
left Treasury with the option of issuing binding rules regarding hybrid 
transactions. And, although the rules will not be finalized before 
January 1, 2000, they will be effective for certain payments made on or 
after June 19, 1998. I am concerned that Treasury's actions, in effect, 
legislate in this area. Our bill will protect Congress' Constitutional 
prerogative.
  With regard to the policy, I am concerned that the proposed changes 
would put U.S. companies at a competitive disadvantage in world markets 
by subjecting them to more taxation by foreign governments. This raises 
the question as to why the U.S. Treasury Department is so concerned 
about helping to generate revenue for the coffers of other countries. 
Furthermore, Notice 98-35, or similar regulations, is at odds with 
changes Congress recently made to Subpart F in the Taxpayer Relief Act 
of 1997.
  I look forward to further study and input from Treasury on the issue 
of modifications to Subpart F. However, we must not allow Treasury to 
implement regulations in this area until Congress determines the 
appropriate course of action. The bill we introduce today will allow 
for that judicious process to go forward and I urge my colleagues to 
join with us by cosponsoring this bill.

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