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Nov. 16 — Officials at the IRS and Treasury Department will keep working on regulations through the inauguration of President-elect Donald Trump, but the outlook beyond that is less clear.
There haven’t been any instructions to stop activity on projects, and officials are working to issue final regulations in areas where there has been much consensus-building in recent years, Holly Porter, chief of Branch 3 in the Internal Revenue Service Office of Chief Counsel (Passthroughs and Special Industries), said Nov. 16 at the American Institute of CPAs Fall Tax Division Meeting.
Republican leadership in Congress asked government agencies Nov. 15 not to move forward on new rules during the transition period. Most positions at the IRS aren’t political appointments, but the Treasury Department, which makes the policy calls in tax regulations, will largely turn over after the Jan. 20 inauguration.
Lack of clarity about the agency’s future is underscored by the uncertainty about who Trump’s team, which has so far led an unconventional transition effort and has been generally opposed to regulating businesses, will select to fill key tax policy roles at Treasury and to lead the IRS’s Office of Chief Counsel. It’s also possible that Trump could ask IRS Commissioner John Koskinen to step down before his term expires in November 2017. Some House conservatives have continued to call for him to leave.
The push to issue final regulations isn’t driven by the election, but rather by the desire to complete projects that have been in the works for a while, Porter told Bloomberg BNA. The IRS and Treasury officials that have been working on the rules are all fully briefed on the issues and have been working together for months to come to agreement about what the right direction is, she said.
It’s all “above the table,” Porter said.
The future of some regulations, such as the debt-equity classification rules (T.D. 9790) that are still partially in proposed form (REG-130314-16), is uncertain under Trump, who has promised to scale back regulations.
“We are limited in the sense that we literally don’t know what’s going on,” said Filiz Serbes, special counsel to the associate chief counsel (Corporate) at the IRS. “Hopefully we’ll have jobs on the 21st and that’s about all we can think about right now.”
The debt-equity rules under tax code Section 385 issued in October left some issues, such as how to treat debt issued by U.S. multinationals and whether to require some documentation for non-debt instruments, for the Treasury to answer at a later time. The rules give the government the ability to recharacterize intercompany loans as equity. Because the rules faced much opposition from lawmakers and business groups, it is unlikely that the IRS or Treasury will try to issue any more guidance on the topic before the end of President Barack Obama’s term.
Regulations addressing what types of assets qualify for a tax-free spinoff under Section 355 are also likely to be punted to the next administration.
“You have to think about whether it’s worth putting out something brand new when you don’t know what the new administration is going to do,” said Krishna P. Vallabhaneni, Treasury deputy tax legislative counsel.
Tax professionals who wish to provide input on the rules might want to wait to send letters until Trump’s Treasury Department is in place, Serbes said. The incoming crop of officials are likely to have a much different view on the rules, she said.
“It’s a new world,” Serbes said.
Treasury will continue to work on rules about how to tax transfers of intangibles under Section 367(d), according to both Treasury Deputy International Tax Counsel Douglas Poms and Brenda Zent, special adviser in Treasury’s Office of International Tax Counsel.
Poms said Treasury won’t let 2014 rules on inversions expire. Although the future is less clear for more recently issued inversions guidance, Zent said work continues on those as well.
Poms said the government also won’t let two sets of regulations on passive foreign investment companies expire.
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