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Several tax regulations have now been scrutinized by the White House’s Office of Management and Budget, shedding light on the inner workings of a process the tax community is reacquainting itself with after a decades-long hiatus.
The Treasury Department and OMB reached an agreement in April to give the OMB’s Office of Information and Regulatory Affairs more authority to oversee tax regulations, reversing a 35-year-old arrangement under which Internal Revenue Service regulations were generally exempt from an OIRA cost-benefit analysis that applies to most executive agencies.
While the April 11 memorandum of agreement (MOA) offered a basic outline for how the review process would work, the two agencies have had to hash out some of the finer details in the four months following the policy shift.
“It seems like this is a process that’s going to evolve, and that is what you ought to expect any time you make a fundamental change like this,” said Christopher Netram, vice president of tax and domestic economic policy at the National Association of Manufacturers. “You’re not going to have all the answers at the outset, it’s a little bit of learning while doing.”
So far, OIRA has reviewed three proposed rules implementing the 2017 tax act (Pub. L. No. 115-97): regulations related to a one-time tax on income U.S. companies have stockpiled offshore; guidance on a 20 percent deduction for pass-through businesses, such as limited liability companies and sole proprietorships; and rules governing state and local tax credits and charitable contributions.
The office waived its review of one set of regulations allowing businesses to immediately write off 100 percent of the cost of certain investments—the “full expensing” rules.
Here’s how the review process works.
Not all new tax regulations will undergo OIRA’s review.
According to the April agreement, rules will be subject to extra scrutiny if they are likely to:
However, Neomi Rao, the current OIRA administrator, can decide to waive the office’s review, even if regulations meet these criteria.
There are several factors the office considers when deciding whether to waive its review, including the amount of discretion the law gives the IRS and Treasury to interpret a provision and how closely regulations adhere to the underlying statute, an administration official told Bloomberg Tax.
If the office waives its review of proposed regulations it still reserves the right to review the rules before they are made final, the official said. Regulations undergo OIRA review twice: once before being proposed and again before being finalized.
OIRA is considering adding a list of waived rules to its website to improve transparency, the administration official said.
Practitioners and taxpayers can learn if OIRA has reviewed regulations once they are published in the Federal Register. The rules will say whether a review occurred, a Treasury spokesperson told Bloomberg Tax.
Under the new agreement, OIRA has 45 days to assess Treasury’s tax rules before publication. Certain regulations implementing the new tax law can be designated for an expedited review that lasts for up to 10 business days, as long as both agencies agree.
Rules mutually designated for the fast-tracked review will have "[TCJA*]" beside the regulations’ "title” on OIRA’s website, reginfo.gov. The office’s assessment begins the day the regulations are received by OIRA. Both a “received date” and “completed” date are included on the website.
The 10-day timeline isn’t set in stone, however. Both agencies can agree to extend the review if necessary. An extension may occur “for any number of reasons,” the administration official said.
As part of OIRA’s analysis, the office not only makes its own recommendations but gathers comments from other agencies and the Executive Office of the President and then sends those to Treasury as part of an iterative process, the official said.
Several tax practitioners told Bloomberg Tax that they still view Treasury as the place to go if they have technical questions or comments about regulations, whereas OIRA is increasingly being viewed as the go-to for “more traditional lobbying.”
“Personally, I don’t think there will be any question about who I’m going to approach with comments or concerns about the finished product—it is still the attorneys in the Office of Chief Counsel and Treasury who draft the substantive provisions,” said Glenn Dance, a former IRS official who is now a managing director at Grant Thornton LLP in Washington.
Lisa Zarlenga, a partner at Steptoe & Johnson LLP in Washington and former Treasury tax legislative counsel, said her understanding is that OIRA’s input in the process is “really on the cost-benefit side.” And “so to the extent that you’re viewing a reg or a potential reg as burdensome or you’re trying to get a less burdensome alternative adopted, that seems to be the sweet spot for OIRA,” she said.
However, this thinking could change, Zarlenga said. As OIRA reviews “more regs, I think people will start to gain an understanding of what the roles of the various players are.”
The administration official said OIRA’s staff is equipped to handle technical tax issues. One role of the office is to make sure regulations are consistent with the law, which often means “digging into the weeds,” the official said.
Since OIRA began its review of tax regulations, more than 25 attorneys, congressional offices, lobbyists, corporations, and trade associations have held meetings with the office, including the American Bankers Association, the National Automobile Dealers Association, General Electric Co., Phillips 66 Co., NAM, practitioners from Ernst & Young LLP, and advisers to Sens. Patrick J. Toomey (R-Pa.) and Tim Scott (R-S.C.).
Once OIRA’s review is complete, the rules head back to Treasury, where it is finalized and sent to the Federal Register for publication.
At this time, the regulations’ "status” on OIRA’s website will change from “pending review” to “concluded,” and will eventually move to the office’s webpage for “Regulatory Reviews Completed in Last 30 Days,” which can be accessed from the reginfo.gov homepage.
It may take several days after OIRA’s review has concluded for the regulations to appear in the Federal Register, largely due to the Register’s formatting and publishing schedule, the Treasury spokesperson said.
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