Trump Order to Cut Back on Federal Rules Puts IRS in Bind Over Issuing Tax Guidance

The most comprehensive resource available for payroll professionals. This service provides payroll news, white papers, custom research answers, webinars on the hottest payroll topics, survey and...

By Alison Bennett and Ben Penn

Significant guidance from the Internal Revenue Service likely would not be issued in the near term after a suspension of federal regulations was ordered by President Donald Trump, an agency official said.

The IRS and the Treasury Department are in talks about the potential effects of Trump's Jan. 30 executive order, said Robert H. Wellen, an IRS associate chief counsel. Executive Order 13771 requires federal agencies to cancel two burdensome or costly regulations for every new one that is written.

The Trump administration has not offered much guidance on what it might mean to issue or repeal a regulation, and the question of how much a tax regulation costs is a difficult one, said Wellen, who spoke Feb. 13 at a conference held by the Practising Law Institute in New York.

Before Wellen’s remarks, a Treasury official at the conference said taxpayers should assume that IRS rules are subject to the executive order, at least for now. “At this point, there’s no reason to believe there’s going to be exceptions for any agency,” said Krishna Vallabhaneni, a deputy tax legislative counsel at the Treasury Department.

Speaking separately, Wellen and Vallabhaneni said the IRS does not plan to issue any but the most routine guidance for mow.

“It’s not entirely clear that anything will be coming out imminently or in the near future,” Vallabhaneni said, adding that the Office of Tax Policy may devote “a lot more bandwidth than in previous years” to tax overhaul efforts.

Until the new tax team is settled in at the agency, Vallabhaneni said, “it’s too soon to make any sort of judgment as to what or what might not be coming out.”

The faucet of IRS guidance is all but shut off right now, including revenue rulings and revenue procedures, Wellen said.

“We’re not sending anything to the Office of Management and Budget of any consequence and not putting anything in the Internal Revenue Bulletin,” Wellen said, although he and Vallabhaneni said separately that the IRS still may issue taxpayer-specific guidance, such as forms, private-letter rulings and memos from the chief counsel.

Hiring Freeze May Affect Labor Department Wage Investigations

Another executive order, meanwhile, may have implications for the Labor Department and its efforts to investigate possible workplace wage violations. Trump, in a memorandum issued Jan. 23, put a halt to federal hiring.

The Labor Department has not disclosed how it plans to implement the order, and it has not said how the Wage and Hour Division would be prioritized in the next budget. Still, former division officials said the freeze could create a problem if investigators and their supervisors were to leave, leaving the agency unable to fill vacancies.

“I think the WHD does need to have a vibrant complement of investigators to be an effective protector of the workplace, both for employers and employees,” said Alfred Robinson, an acting division administrator under President George W. Bush. “You have to be careful that the hiring freeze doesn’t compromise” the division, he said.

The division field staff is made up of more than 1,200 nonmanagerial workers, including about 1,000 investigators responsible for protecting workers’ wage and leave rights. Those investigators are responsible for looking into a wide range of alleged minimum wage and overtime pay violations.

Possibility of Dwindling Ranks

About 25 percent of division field employees now are eligible to retire or take an early out, according to Labor Department bargaining unit statistics reviewed by Bloomberg BNA.

Many career civil servants often consider leaving an agency during a presidential transition. But the Trump administration’s talk of shrinking the federal workforce and reducing pay and benefits makes the potential for departures acute now, said the president of the union representing half of the department's employees.

“You’re not going to have as many people out there enforcing child labor, minimum wage, overtime and family and medical leave. People are going to have less protection under the law,” said Dennis DeMay, a former division investigator who now runs the union representing about 8,000 Labor Department field employees working outside of Washington.

Former division directors recall similar operational challenges during the administration of George W. Bush, when slashed enforcement budgets led to limits on travel and prevented complex investigations. For now, the former directors are taking a wait-and-see approach on how Trump's hiring freeze shakes out, but the former officials said enforcement activities and compliance assistance may deteriorate if hiring at the division is not prioritized.

Answers about how the Wage and Hour Division may operate under Trump are not likely to materialize until the Senate confirms a new labor secretary. The first indication about the administration’s plan for the Wage and Hour Division may not come until the White House’s initial budget request is issued this spring.

The division has a fairly consistent attrition rate through the years, with about 10 people a month quitting, retiring or otherwise leaving, said Michael Hancock, a former assistant administrator for policy at the division.

“If you can’t replace those people, then it’s a matter of time before the losses are so significant that it impacts the ability of the agency to fulfill its mission,” said Hancock, now with the law firm Cohen, Milstein, Sellers and Toll P.C. in New York.

To contact the reporter on this story: Alison Bennett in Washington at abennett@bna.com and Ben Penn in Washington at bpenn@bna.com To contact the editor responsible for this story: Michael Trimarchi at mtrimarchi@bna.com.

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Try Payroll Decision Support Network