OMB Wraps Up Review of New Law’s Transition Tax Rules

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By Cheryl Bolen and Allyson Versprille

The White House’s Office of Management and Budget has concluded its review of proposed regulations implementing the new tax law’s one-time repatriation tax.

The Office of Information and Regulatory Affairs, the unit within OMB responsible for overseeing the tax regulations coming from the Treasury Department, said on its website that review of the transition tax rules under tax code Section 965 concluded July 26. The site says the office received the rules from Treasury July 13—putting the total review time under the 10 business days set aside for rules under expedited review.

The rules address a new one-time tax on income accumulated overseas since 1986. The 2017 tax act (Pub. L. No. 115-97) treats the income as repatriated and imposes a 15.5 percent tax on cash or cash equivalents, and an 8 percent tax on illiquid assets, such as factories and equipment. The regulations are expected to contain anti-abuse guidance.

The next step is for Treasury to publish the rules in the Federal Register.

“There were no substantive changes as a result of OIRA’s review,” a Treasury spokesperson told Bloomberg Tax. “Treasury plans to send the reg to the Federal Register promptly.”

The OMB didn’t immediately return a request for comment on changes made to the rules.

OIRA’s increased role in reviewing tax regulations stems from an April agreement with Treasury. For more than three decades, Internal Revenue Service regulations were generally exempt from the OMB’s cost-benefit analysis, which applies to most executive agencies.

The agreement grants OIRA the power to review tax rules for 45 days before publication. For certain rules implementing the new tax law, Treasury can designate rules to be fast-tracked for a 10-day review, as long as OIRA consents.

Commitment to ‘Expeditious’ Review

Neomi Rao, the current OIRA administrator, said that in addition to the transition tax regulations, her office and Treasury have agreed to designate for expedited review proposed regulations implementing the tax law’s 20 percent deduction for pass-through businesses.

Rao also said OIRA “waived” review of one set of regulations, determining that the extra layer of scrutiny was unnecessary. She didn’t specify the subject matter of those regulations.

“I think that shows a real commitment to doing this in an expeditious way, providing as much value as we can in a short period of time,” Rao told Bloomberg Government.

Under new tax code Section 199A, the 20 percent deduction for some pass-through businesses—entities including S corporations and limited liability companies in which income flows to the owners, who are taxed as individuals—can lower the top rate for eligible business owners to 29.6 percent from 37 percent. The law imposes restrictions on taxpayers surpassing specified income thresholds.

OIRA’s website says the office received the pass-through rules July 23. They are labeled as “computational.” If the office uses all 10 business days, the review will conclude Aug. 3.

Rao said OIRA is in “good shape” to oversee other tax regulations coming. “We have a team here working on the Treasury regulations and we’re putting in place our own processes.”

In order for the review process to be efficient, Treasury and OIRA have to coordinate in a quick and professional manner, she said. “I think our first rule review demonstrates that that happened, so I’m optimistic about working with Treasury going forward.”

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