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Nov. 15 — Many Obama-era tax regulations—including controversial earnings-stripping rules—could be headed for the chopping block or not even make it out the door under President-elect Donald Trump, former Treasury officials said.
Tax guidance could be in peril under Trump, who has pledged to yank most of the regulations created under President Barack Obama, the former officials said at a Nov. 15 conference. Prominent rules on estate valuation, spinoffs and intellectual property transfers may be at risk of not getting finished, they said.
The unpopular debt-equity rules, intended to curb multinational companies from shifting income out of the U.S., could be a prime target.
“My prediction is that it doesn’t survive,” said Lisa Zarlenga, former tax legislative counsel in Treasury’s Office of Tax Policy. “It will be withdrawn by the next administration.”
Pressure on Trump to yank the tax code Section 385 rules is likely to come not only from corporations but from Capitol Hill. “I’m hopeful that he stops those regulations cold,” House Ways and Means Committee Chairman Kevin Brady (R-Texas) said at a post-election conference held by Bloomberg BNA and KPMG LLP. He did not say whether Congress would take action against the rules, which call for recasting some loans to offshore subsidiaries as equity rather than tax-favored debt.
Even though the final version of the rules lifts most of the burden from U.S. multinationals, Brady said, “they’re still damaging to the economy,” and likely would act as a wall to keep investment out of the U.S.
Zarlenga, now a partner with Steptoe & Johnson LLP, said while the government has to explain why it’s pulling rules under the Administrative Procedure Act, the dozens of comments sharply criticizing the Section 385 rules would provide plenty of backup. Greg Jenner, who has served as both acting assistant Treasury secretary for tax policy and deputy assistant secretary for tax policy, said, “there’s too much weight behind revocation for it to last.”
The former officials said they aren’t just concerned about the fate of existing regulations under a Trump presidency. The future of some big guidance still under construction in the current Treasury Department—much needed by business taxpayers—is looking less certain, they said.
Jenner, now a partner at Stoel Rives LLP, said there may be a last-minute push at Treasury to get out some significant regulations. But Zarlenga said it is her understanding that right now, “there’s more of a mandate to put their pens down because the new administration is going to freeze and pull and yank. There’s going to be a slowdown.”
In a future where even new guidance is likely to face big obstacles, the Trump administration may be more willing to listen to Congress, according to Joe Mikrut, former acting assistant Treasury secretary for tax policy.
With lawmakers sending increasing numbers of letters to Treasury to take aim at regulations, “you may see more of that,” Mikrut said. “As the incoming administration determines what to do, I think they’ll take those letters into account.”
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