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Throughout 2025 and into early 2026, Treasury took a markedly narrower approach to corporate and partnership tax regulation following the issuance of Executive Orders 14192 and 14219, which directed federal agencies to identify and repeal regulations that impose significant costs on private parties and offset the costs of newly issued regulations by withdrawing 10 prior regulations. Following the directives, the IRS and Treasury froze or withdrew a number of proposed tax regulations that were heavily criticized by the tax bar as overly broad, unnecessarily burdensome, and complex, either because the proposed regulations imposed direct compliance or administrative costs on taxpayers, or distorted or discouraged otherwise legitimate business transactions.
Two notable examples of recently withdrawn regulations include:
Proposed Spin-Off Regulations
In September 2025, Treasury withdrew proposed regulations governing tax-free corporate spin-offs and reorganizations after sustained and unusually pointed criticism from the tax bar that the regulations were technically flawed, practically unworkable for many legitimate transaction structures, and, in several respects, inconsistent with the statutory text, as discussed here.
The withdrawal of the proposed spin-off regulations represented, in part, relief from a new compliance burden as they required all spin-off and corporate reorganization transactions to comply with a number of new documentary and filing requirements that had little precedent under prior law. More significantly, however, the proposed regulations would have effectively denied tax-free treatment to a wide swath of spin-off transaction structures, requiring participants to either adopt alternative, more complicated structures or else abandon their spin-off plans altogether. Questions remain, but by withdrawing the proposed regulations, the current administration has, in effect, continued permitting spin-off structures that would otherwise have been effectively prohibited under the proposed regulations.
Basis-Shifting Reporting Regulations
In late April 2025, the IRS announced its intent to withdraw widely criticized proposed regulations that would have, if finalized, designated a broad category of transactions in which partners shift basis among related parties as “transactions of interest,” requiring reporting by taxpayers and material advisors.
As discussed here, these regulations had also garnered significant criticism from taxpayers and their advisors for both the broad scope of the disclosure regime—which captured a wide range of legitimate, non-tax-motivated transactions—and their retroactive effect, requiring reporting of transactions that had taken place up to six years before the regulations took effect. The IRS and Treasury recently issued new proposed regulations that eliminated the reporting regime completely (discussed here), citing the compliance burden the reporting requirement would have imposed on taxpayers and their advisors.
Importantly, however, the government still believes, consistent with Revenue Ruling 2024-14, that certain partnership basis-shifting transactions lack economic substance and will continue to scrutinize these transactions on audit and attack transactions that lack economic substance, continuing their approach in recent Tax Court litigation. Thus, it is not entirely clear whether the repeal of the reporting regime also marks a change in the substantive tax rules, or merely moves the burden from the broad class of taxpayers and advisors who would have been subject to mandatory reporting onto IRS audit teams (and the taxpayers and partnerships selected for audit).
Taken together, these developments reflect a new course away from rules that were overbroad or imposed disproportionate compliance burdens, paving the way for new, more limited rules.
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