What Will Happen to 257 IRS Rules Still in Progress?

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By Alison Bennett and Laura Davison

Nov. 18 — President Barack Obama is likely to leave the White House with hundreds of tax regulatory projects still in the works. President-elect Donald Trump has pledged a temporary moratorium on all new regulations.

So, what happens to the 257 IRS projects that are in various stages of the regulatory drafting process? There isn’t likely to be immediate action on many of them, but that doesn’t mean they are headed to the recycling bin either.

In general “there is a lot of continuity between administrations,” Kurt Lawson, a partner at Hogan Lovells LLP, told Bloomberg BNA Nov. 18. “A lot of regulations that people are working on are not controversial and don’t really have any political elements.”

The uncertainty surrounding Trump’s picks for top Treasury Department positions who will guide the Internal Revenue Service agenda, his strong rhetoric against business regulations and the lack of policy specifics have left tax professionals wondering if the historical handoff of regulatory guidance will happen this time.

IRS and Treasury officials have said they are continuing to work on drafting rules, and aren’t waiting for Trump to officially begin his role. The IRS could slightly whittle down the number of unfinished projects in the next two months.

Will They Stay or Go?

Lisa Zarlenga, a tax partner with Steptoe & Johnson LLP, said the future of tax regulations is uncertain and taxpayers are watching carefully to see what the Trump administration does.

Companies would be grateful to see some guidance—like the controversial earnings-stripping regulations—go, Zarlenga told Bloomberg BNA.

But the hope is that a president who has pledged to pull most of the Obama-era regulations—across all agencies—would consider taxpayer input before yanking rules, she said.

Several tax attorneys and lobbyists have said rules that would change how interests in family businesses are valued for estate tax purposes will likely get shelved for the next four years once Trumps takes office. Other controversial tax regulations in the international realm, namely the rules on earnings stripping and transfers of intangibles, are also at risk of ending up on the cutting room floor, said John Harrington, a tax partner with Dentons US LLP.

Yanking the earnings-stripping rules under tax code Section 385 would make lots of money available to help pay for tax overhaul on Capitol Hill, where lawmakers will have to enact some provisions to curb earnings stripping if they adopt a territorial tax system, said Jeff Paravano, a managing partner at Baker & Hostetler LLP.

Not all regulations are eschewed by businesses. In some cases, such as the oil and gas industry issue resolution project, business groups or taxpayers requested the rules to give companies certainty about how much tax they would owe.

Zarlenga, who previously served as tax legislative counsel in Treasury’s Office of Tax Policy, said a Trump Treasury might delay action while Congress is working on tax overhaul.

Notices for Now

About half of the outstanding guidance projects have been issued as notices or are projects that could be reproposed, meaning the agency will allow taxpayers to comment on the rules before making them final. The remaining 50 percent are further along in the process and have already been proposed, though they would need to be issued as final rules to be effective.

“The administration might say, ‘Why spend all this time pulling regs now when it’s only a matter of time?’ ” Zarlenga said.

Changes that come with a tax revamp could invalidate several types of rules. If Congress repeals the Affordable Care Act, Zarlenga said, much of the extensive tax guidance now in place could be obsolete.

Agenda Items

Though it is still to soon to know how a Trump administration might respond to lobbying, it may take some time before the White House gets its guidance machinery up and running, Harrington said.

“Their immediate focus is going to be on enacting tax reform and repealing the Affordable Care Act,” Harrington said. “It’s likely they won’t have much of a regulatory agenda.”

He urged that the government tread cautiously in repeal efforts when it does get started, especially in areas like consolidated returns. That involves high dollar amounts and “sophisticated taxpayers who really do need guidance,” he said.

Paul Schmidt, the tax chair at Baker & Hostetler, said a Trump Treasury will have “all hands on deck” to help with tax overhaul, while Paravano predicted “a significant lull in regulations.”

With assistance from Allyson Versprille and Colleen Murphy in Washington.

To contact the reporters on this story: Alison Bennett in Washington at abennett@bna.com and Laura Davison in Washington at lDavison@bna.com

To contact the editor responsible for this story: Meg Shreve at mshreve@bna.com

For More Information

The list of in-progress tax regulations from the Office of Information and Regulatory Affairs is at http://src.bna.com/kcr.

Highlights of IRS Rules That Could Be in Limbo Under Trump
PROJECTNEXT STEPWHAT RULES DONUMBER
Exempt Organizations: Excise Taxes Relating to Donor-Advised Funds Proposed Rules Curb the ability for taxpayers to get a charitable deduction without donating the money. REG-142338-07
Exempt Organizations: Requirement to Notify IRS of Intent to Operate as a Social Welfare Group Final RulesRequire Section 501(c)(4) organizations, which can lobby the government, to notify IRS within 60 days of formation. REG-101689-16
Corporate Taxes: Spinoff Guidance for Device and Active Trade or Business Final RulesOutline what types and amounts of assets qualify for a tax-free spinoff.REG-134016-15
Financial Products: Deemed Distribution of Stock Final RulesOutline timing and amount for situations where deemed distribution of stock occurs because the conversion ratios change in way that increases the person's interest in the corporation. REG-133673-15
Financial Products: Mark-to-Market Accounting for Securities Dealers Proposed RulesRemove the need for a Section 481A adjustment, eliminating questions about whether an adjustment is capital or ordinary. REG-209724-94
International Taxes: Earnings Stripping Final RulesPrevent multinational companies from “stripping” income out of the U.S. through loans to offshore subsidiaries; address intercompany loan questions for partnerships, consolidated groups and cash-management arrangements. REG-108934-16
International Taxes: Inversion Transactions Final RulesBlock larger U.S. companies from merging with smaller foreign companies to take advantage of the foreign business's lower home tax rates. U.S. Chamber of Commerce has sued IRS over the rules. REG-135734-14
International Taxes: Treatment of Property Transfers to Foreign Corporations Final RulesPrevent U.S. companies from escaping taxes on overseas transfers of intangibles.REG-139483-13
Estate Taxes: Basis Consistency Rules Final RulesRequire the basis of assets received from a decedent be consistent with the basis reported on the estate tax return. An IRS official has indicated this could be published before the inauguration. REG-127923-15
Estate Taxes: Valuation of Family-Owned Businesses Final Rules Change the valuation of interests in family-owned businesses for estate, gift and generation-skipping transfer tax purposes. House Republicans have asked Treasury to withdraw the proposal. REG-163113-02
Passthrough Entities: Transfers of Property to Partnerships With Related Foreign Partners Proposed RulesRestrict U.S. taxpayers' ability to avoid paying tax on appreciated assets by shifting them to foreign partners. Notice 2015-54
Passthrough Entities: Management Fee Waiver Regulations Proposed RulesLimit investment fund managers’ ability to turn fees into carried interest taxed at preferential rates. Trump has said he would eliminate the carried interest tax benefit. REG-115452-14
Source: OIRA Agency Rule List, Fall 2016

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