Major Tax Rules Could Be Nixed Under GOP Legislation

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By Alison Bennett

The tax world could see a significant impact from House-passed legislation allowing Congress to repeal at once all the final and temporary regulations that President Barack Obama issued in the last 60 legislative days of his term, practitioners said.

That could theoretically let lawmakers do away with the final rules (T.D. 9790) the Treasury Department issued to stop multinational corporations from “stripping” earnings out of the U.S. through loans to subsidiaries, along with a host of other major tax regulations, although the future remains cloudy.

Calvin Moore, Rep. Darrell Issa’s (R-Calif.) press secretary, told Bloomberg BNA Jan. 6 that the Midnight Rules Relief Act (H.R. 21), passed by the House Jan. 4, could reach regulations issued as far back as June 2016.

The House vote came with President-elect Donald Trump—who has repeatedly threatened to pull dozens of Obama-era regulations—just weeks from taking office. The impact of that vow on tax rules remains unclear, but Moore said he is confident the incoming administration would sign Issa’s bill.

Moore said Issa wasn’t specifically aiming at tax guidance when he proposed the legislation in September 2016. “This is about accountability, transparency and ensuring job creators aren’t being crushed by droves of new regulations just before a President leaves office,” Issa said in a statement following House passage of his bill.

Controversial Rules

However, some controversial tax regulations issued toward the end of Obama’s tenure ends could be in the mix, including:

  •  final rules (T.D. 9803) making it tougher and more expensive under tax code Section 367(d) for companies to shift intangibles—such as intellectual property—into foreign markets;
  •  final rules (T.D. 9800) limiting when companies can take the foreign tax credit after buying and selling certain types of assets; and
  •  final (T.D. 9795) and temporary (T.D. 9794) rules spelling potentially higher taxes on some transactions involving foreign currency—including partnership deals.

Brian Kittle, a tax partner at Mayer Brown LLP, said that “reading between the lines, the proposed legislation may indicate that the administration is trying to stack the deck in two ways.”

Means to an End?

First, Kittle said, the bill would make it easier for the incoming administration to strike rulemaking by those federal agencies that the administration thinks should play a more limited role in their respective industries.

Second, he said, “The proposed legislation may be another means to an end. With respect to tax, the administration’s objective is major tax reform. To get the support it needs for this type of reform, it may be willing to offer to exercise its power to strike certain tax rules, such as the new section 385 regulations or the estate tax regulations, in exchange for the support necessary for achieving reform. Of course, the opposite may also be true.”

Only Some Rules Would Vanish

John Harrington, a former Treasury international tax counsel and now a partner with Dentons US LLP, said the way the legislation is constructed means that guidance would disappear entirely only in some cases if Congress moves to “disapprove.”

The specific impact would depend on whether the particular temporary or final regulations were replacing existing temporary or final guidance, he told Bloomberg BNA Jan. 6.

For example, he said, the earnings-stripping rules under Section 385—also known as the debt-equity rules—and the foreign currency rules under Section 987 are all new regulations. That means they would be gone if they were disapproved.

“The debt-equity rules would return to what they were under the case law and the foreign currency rules would return to the state of uncertainty that existed before the new regulations,” Harrington told Bloomberg BNA in an e-mail.

Intangibles Rules: Back to Beginning

By contrast, the final intangibles rules replaced existing final regulations. If the new rules were included in the disapproval package, those changes would be repealed and the final regulations would read as they did before the new rules were issued.

On a technical level, the bill amends the Congressional Review Act, a complex piece of legislation that allows Congress to look at regulations one at a time. Instead, it would enable lawmakers to simultaneously consider as many regulations as they would like.

To contact the reporter on this story: Alison Bennett in Washington at abennett@bna.com

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

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