The Treasury Department is targeting a handful of Obama-era tax rules for reform, including one that could resurrect corporate inversions.

The department issued a notice on Friday, July 7, proposing to revise or revoke eight tax regulations enacted under President Donald Trump's predecessor, Barack Obama. The notice is part of an executive order signed by Trump in April instructing Treasury to examine all "significant tax regulations" issued since the beginning of 2016. One of the rules targeted is a regulation that seeks to limit corporate earnings stripping brought about under Obama.

Earnings stripping is a technique inverted and multinational companies use to convert U.S. income into foreign income, thus benefiting from lower tax rates abroad. What commonly happens in earnings stripping is that corporations make inter-company loans where the borrower is the U.S. company and the lender a foreign parent. The U.S. subsidiary pays interest on those loans (and uses those payments to reduce taxable income), and the interest income received by the foreign lender isn't taxed or is taxed at a lower rate.

The Obama administration in October 2016 issued tax rules to curb earnings stripping and inversions. The Trump administration appears poised to change or roll those rules back. Pharmaceutical companies Allergan Inc. (AGN) - Get Report and Pfizer Inc. (PFE) - Get Reportscrapped their proposed $160 billion merger in April 2016 in anticipation of the new regulations being enacted.

"The idea ... was in part to cut down on inversions by making it more expensive for companies to load up on debt with their U.S. subsidiaries and shift profits overseas to lower-taxed jurisdictions," said Peter Cohn, senior analyst at Height Securities LLC. "If this regulation were pulled back or substantially modified to basically gut it, in isolation, it may prove to be an incentive for companies to, once again, launch a wave of inversions."

The White House is simultaneously seeking to plot out tax reform with Congressional Republicans. If earnings stripping rules are reversed, the GOP is likely to argue lower corporate tax rates will disincentivize inversions—assuming tax legislation is, in fact, passed. Republicans have said they plan to tackle tax reform by the end of 2017, though many observers are skeptical, given the other items on the agenda this year (health care, the debt ceiling, government funding).

"There is no scenario that I can think of that the ultimate tax reform plan does not include provisions intended to prevent stripping of the U.S. tax base, including by companies deciding to move overseas," Cohn said. "It's going to have a carrot-and-stick approach."

"Clearly, the resuscitation of earnings stripping is the most important outgrowth of the Trump initiative," said Bob Willens, a New York-based analyst and former Lehman Brothers managing director. "However, some of the other regulations slated for extinction are also quite important."

One regulation targeted, if scrapped, would revive the leveraged partnership technique under which corporations sold businesses to buyers on a tax-sponsored basis, such as Tribune Media Co.'s (TRCO) - Get Report sale of the Chicago Cubs in 2009. The removal of another rule potentially on the chopping block would allow U.S. corporations to transfer their foreign activities to foreign subsidiaries on a largely tax-free basis with the incomes on those businesses then taxed at lower rates in the foreign country where the subsidiary is organized.

"In short, eliminating these regulations would have the effect of reinstating many tax savings techniques that the Obama administration, through the promulgation of highly questionable regulations, interdicted," Willens said.

Another rule on Treasury's list is one tied to the estate tax that would restrict discounts on the value of minority shares of family-owned businesses for estate tax purposes.

"Treasury's reexamination of the estate valuation rules is unfortunate," said Steve Rosenthal, a veteran tax attorney and senior fellow at the Urban-Brookings Tax Policy Center. "Treasury has long wanted to plug a variety of valuation gimmicks to reduce estate taxes but, politically, that effort appears impossible now."

Interestingly, Treasury's notice did not identify any of the recent regulations targeted as exceeding regulatory authority, Rosenthal noted. The department was asked to identify regulations that "(i) impose an undue financial burden on U.S. taxpayers; (ii) add undue complexity to the Federal tax laws; or (iii) exceed the statutory authority of the Internal Revenue Service (IRS)." It only pinpointed regulations that fit into the first two categories.

"I agree," Rosenthal said. "Congress delegated wide latitude to Treasury to administer and interpret the tax laws."

Public comments on the earnings stripping rule and the other regulations named by Treasury are due on August 7. Treasury Secretary Steve Mnuchin is expected to submit a final report on his findings by September 18.

"It's going to be a long time before we see the fruit of this effort," Cohn said.