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New final regulations on master limited partnerships qualifying income and dividend equivalent payments that were thought to be automatically undone by the White House’s regulations freeze are intact—for now.
The Internal Revenue Service regulations under tax code Sections 7704(d)(1)(e) and 871(m) became effective upon their publication in the Federal Register on Jan. 24.
Final and temporary rules published in the Federal Register take legal effect, according to the register’s website. Rules can be effective at a later date if their effective date comes after the date of publication. Published regulations can only be reversed through further publication in the register.
This development came as a surprise, as many had assumed the projects would be put on hold following President Donald Trump’s regulatory freeze that was instituted by a Jan. 20 memorandum to all federal departments and agencies.
“We were surprised and disappointed to learn that the final qualifying income regulations, promulgated by the IRS, circumvented the regulatory freeze issued by the White House Chief of Staff and were published in the Federal Register this morning,” SunCoke Energy Partners LP said in a Jan. 24 news release. Under the final MLP rules, the company loses its status as a master limited partnership after a 10-year transition period because the regulations exclude cokemaking as a qualifying income-generating activity.
“It’s not the Federal Register’s role to decide they aren’t allowed to publish something or not,” said Jim Hemphill, special assistant to the director of the Federal Register. “The agencies work with the administration on that,” he told Bloomberg BNA Jan. 24.
Brian Kittle, co-leader of the tax controversy & transfer pricing practice at Mayer Brown LLP, said the rules were probably already going through the process of publication at the Federal Register when Trump issued the freeze—a process he said is tough, if not impossible, to reverse. In general, “once it’s in motion it’s hard to turn it off,” Kittle said.
If that was the scenario, “it was already a done deal,” he told Bloomberg BNA, adding it is unlikely the IRS would deliberately try to circumvent the freeze.
Kittle said he got several calls from clients who were worried about the scope of the memorandum, which he said covers all kinds of guidance in addition to regulations, such as notices and revenue procedures.
Those documents often help taxpayers understand the IRS’s thinking and positions on critical issues, and gives them a boost with technical compliance, Kittle said. “The question is, how long is this moratorium going to last? We need this guidance.”
The IRS didn’t respond to a Jan. 24 request for comment.
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