The Honorable Kevin Brown, Acting Commissioner

Internal Revenue Service, Room 5226

1111 Constitution Avenue, N.W.

Washington, D.C. 20224

RE:   Comments on Proposed Regulations under Section 1367(b)(2) Concerning Open Account Debt [REG-144859-04]

Dear Acting Commissioner Brown:

Enclosed are comments on proposed regulations under section 1367(b)(2) of the Internal Revenue Code, regarding the application of certain open account debt basis, as prepared by members of the S Corporation Technical Resource Panel of the American Institute for Certified Public Accountants (AICPA) and approved by the AICPAs Tax Executive Committee.

We believe that because of the extremely heavy burden these regulations will place on small business owners, they should be withdrawn and the IRS should use other means, such as substance-over-form or business purpose analyses to stop abuses. If the IRS will not withdraw the regulations, then several changes are strongly urged: (1) raise the de minimis threshold and/or minimize the monitoring frequency; (2) clarify whether or not converted debt is a written instrument for purposes of receiving sale or exchange treatment under section 1271 and thus benefits from capital gain rates; (3) clarify/provide transition rules with regard to the effective date; and (4) more fully discuss recognition and character issues related to repayment.

If you have any questions about these comments, please contact me, at jeffrey.hoops@ey.com; Laura Howell-Smith, Chair, AICPA S Corporation Taxation Technical Resource Panel, at lhowellsmith@deloitte.com; or Marc A. Hyman, AICPA Technical Manager, at or mhyman@aicpa.org.

Very Truly Yours,

Jeffrey P. Hoops, Chair

Tax Executive Committee

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