IRS Plans to Kill 298 Tax Rules Ahead of Tax Law Implementation(1)

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By Allyson Versprille

The IRS is proposing to eliminate 298 regulations it says are obsolete—a step toward simplifying the tax code as the agency prepares to release a flood of new regulations on the recently enacted tax law.

Removing “a layer of burden before they issue new guidance” to implement the tax law “is smart tax policy,” Jorge E. Castro, founder of Castro Strategies LLC and a former Internal Revenue Service official and congressional tax counsel, told Bloomberg Tax.

The proposal (REG-132197-17, RIN:1545-BO17), released by the IRS and Treasury Department Feb. 13, stems from a 2017 executive order from President Donald Trump to create a Treasury Regulatory Reform Task Force to review all tax regulations and eliminate those deemed obsolete.

“The removal of these regulations is unrelated to the substance of rules in the regulations, and no negative inference regarding the stated rules should be made,” Treasury and the IRS said in the proposal. The action is being taken “solely because the regulations have no current or future applicability. Removal of these regulations is not intended to alter any non-regulatory guidance that cites to or relies upon these regulations.”

In addition to killing 298 regulations, the IRS and Treasury plan to amend 79 that cross-reference the soon-to-be-eliminated rules.

Removing and amending these regulations will streamline the tax code, “reduce the volume of regulations taxpayers need to review, and increase clarity of the tax law,” Treasury and the IRS said.

Lisa M. Zarlenga, a partner with Steptoe & Johnson LLP in Washington, told Bloomberg Tax the proposal would help “clean up” the tax code.

Satisfying Two-for-One

Gregory F. Jenner, who has been Treasury acting assistant secretary for tax policy and deputy assistant secretary for tax policy, said he hopes that by pulling these nearly 300 regulations, the department can satisfy Trump’s 2017 executive order directing federal agencies to eliminate two regulations for every new one. Jenner is a partner at Stoel Rives LLP in Washington.

Castro said he’s unsure if the proposal will satisfy the requirements of the “two-for-one” directive. “But I think that” Treasury and the IRS “have an argument to make.”

“I don’t see a reason why it wouldn’t count, and therefore it sort of frees up their ability to put out regs on the tax reform bill,” Jenner told Bloomberg Tax. However, the fact that this discussion has to occur points out the “silliness” of the two-for-one rule, at least in the tax area, he said.

It’s difficult to predict if eliminating deadwood regulations will satisfy the president’s directive, said Zarlenga, a former Treasury tax legislative counsel. “The difficulty is there are sort of two aspects of that two-for-one executive order.”

The first aspect is based purely on the numbers, she said. “You have to pull two regs for each one you issue. This would be really helpful” in that regard.

“But the other thing is that you have to offset the cost” and it’s not clear if pulling obsolete regulations can result in enough savings to offset future regulatory actions, she said.

Heavy Lift

Identifying hundreds of regulations for revocation isn’t an easy project for the IRS, Castro said. “It’s a significant lift.”

While it’s generally good practice to clear out unnecessary regulations, Jenner said he’s concerned about allocation of resources at a time when Treasury and the IRS should be directing their full attention to implementing the 2017 tax act.

“We need these very, very smart people focusing on the new law and not clearing out underbrush,” he said.

Zarlenga said the effort to eliminate outdated regulations shouldn’t place much of a strain on the implementation process. It seems the IRS and Treasury were able to identify most of the regulations they wanted to revoke before Congress passed the new tax law, she said.

In an October 2017 report—in which Treasury highlighted several Obama-era regulations that should be amended or pulled because it said they are burdensome to taxpayers—the department said the IRS Office of Chief Counsel had already identified more than 200 regulations for potential revocation.

Opportunity for Comment

Comments and requests for a public hearing on the proposal for removing regulations are due May 14.

In January, Acting Chief Counsel William M. Paul said the comment period will provide taxpayers and practitioners an important opportunity to inform the IRS and Treasury if any of the rules that have been singled out shouldn’t be eliminated. There’s some concern that aspects of a seemingly obsolete regulation could still be relevant to taxpayers, he said.

On a first read, the practitioners who spoke to Bloomberg Tax didn’t see any rules that stood out as being problematic.

The 90-day comment period will give taxpayers and their advisers an opportunity to not only speak up if regulations are still relevant but also to provide suggestions for guidance that can be added to the list, Castro said. “I suspect that taxpayers are going to highlight other areas.”

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