Tax Rules Stymied in Trump Regulatory Freeze

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By Laura Davison,Alison Bennett and Colleen Murphy

Recently released tax rules, including final regulations for master limited partnership qualifying income and for dividend equivalent payments and a proposal on a partnership audit regime, will be sent back to the IRS until further notice.

President Donald Trump issued a presidential memorandum Jan. 20 that institutes a moratorium on all federal rulemaking until the new administration can review all regulations in process.

Reince Priebus, Trump’s chief of staff told department and agency heads in the memo to send no regulations to the Federal Register until advised by the administration. Regulations that have already been submitted to the Federal Register will be withdrawn, and regulations that have been published but aren’t yet effective will be postponed 60 days.

Such regulatory freezes are common in changes of administrations. Trump’s anti-regulatory stance displayed during the campaign has some tax professionals worried that the administration could unnecessarily delay much-needed guidance, such as the rules for the partnership audit regime starting in 2018.

Size and Scope

President Barack Obama issued a similar freeze at the start of his administration, but Trump’s memo is broader because it applies to sub-regulatory guidance, such as notices and revenue procedures, Brian Kittle, co-leader of the Tax Controversy & Transfer Pricing practice at Mayer Brown LLP, told Bloomberg BNA in an e-mail.

“While the memorandum is clearly designed to provide the incoming administration time to assess any proposed rulemaking by agencies, it begs the question as to how long this moratorium will be in effect,” Kittle said Jan. 23. “A lot of rulemaking in the tax context is procedural in nature, governing routine tax compliance functions.”

The tax regulatory pipeline probably won’t thaw until a new assistant secretary for tax policy is selected, which could be several months from now, said Monte A. Jackel, senior counsel at Akin Gump Strauss Hauer & Feld LLP.

The action will also delay the effective date for some guidance implementing the Affordable Care Act, including rules for employer health insurance reporting and expatriate health plans. Trump has repeatedly attacked the ACA, and Republican lawmakers have vowed to dismantle it as quickly as possible.

Review of the regulations would “ideally” occur within that 60-day window, though it is possible the window would be extended to give agencies more time to be fully staffed. Still, quick action is likely, given the administration’s commitment to overhauling the health care system, Damian Myers, an associate at Proskauer Rose LLP in Washington, told Bloomberg BNA Jan. 23.

“Certainly likely we’ll start seeing the ball moving pretty quickly with respect to health care reform,” he said.

Repealing Established Rules

Regulations that are already effective would have to be repealed by the little-used Congressional Review Act, through which Congress can void rules on a case-by-case basis.

Tax regulations might not be at the top of the incoming administration’s priority list to pull, Eric Solomon, co-director of the national tax department of Ernst & Young LLP, said Jan. 20 at the American Bar Association Section of Taxation’s midyear meeting in Orlando, Fla. Even rules that might be unpopular within parts of the tax community might not be the area of first focus, he said.

Harrington said the freeze likely won’t have a big impact on international tax rules because the Obama administration appears to have “cleared the decks of international tax packages” before leaving.

The IRS and Treasury worked so hard to get regulations out the door before the inauguration, Harrington said, that in most cases their work is protected.

To contact the reporters on this story: Laura Davison at lDavison@bna.com, Alison Bennett at abennett@bna.com and Colleen Murphy at cmurphy@bna.com, in Washington

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

For More Information

The presidential memorandum is at http://src.bna.com/lAj.

Highlights of IRS Rules That Could Be Affected in Regulatory Freeze
REGULATIONSSTAGEWHAT'S HAPPENING TO ITNUMBER
Passthroughs: Centralized partnership audit regime Proposed rules Not yet scheduled to appear in Federal Register, so will be reviewed and possibly revised before being submitted. Regulations implement a law that goes into effect in 2018. REG-136118-15
Financial Products: Dividend equivalent payments for foreigners who own contracts that reference U.S. source dividends Final rulesWithdrawn from Federal Register publication schedule and will be reviewed by incoming administration. Unlikely to face much resistance because they are technical in nature, tax professionals say. T.D. 9815
Passthroughs: Qualifying income for master limited partnerships Final rulesWithdrawn from Federal Register publication schedule and will be reviewed by incoming administration. Could be resubmitted as is, revised or pulled completely. T.D. 9817
Passthroughs: Transfers of certain property by U.S. persons to partnerships with related foreign partners Proposed rulesCross-references temporary rules (T.D. 9814) that expire in three years. IRS currently accepting comments on the guidance and will incorporate feedback before making final. REG-127203-15
International: Recognition, deferral of foreign currency gain or loss under Section 987 Proposed rulesCross-references temporary rules (T.D. 9795) that expire in three years. IRS currently accepting comments on the guidance and will incorporate feedback before making final. REG-128276-12
International: Earnings-stripping rules under Section 385 Final rulesDocumentation requirements aren't effective until Jan. 1, 2018, so unlikely to be further postponed by administrative review. T.D. 9790
Health: Employer health insurance reporting Proposed rulesOne of many regulations that would be pulled by repeal of Affordable Care Act.REG-103058-16

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