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A recent White House memo imposing a “regulations freeze” on all government departments is generating confusion among tax professionals, who aren’t sure just how broad the decree is with respect to the Internal Revenue Service.
Since the Jan. 20 memo was issued, practitioners have told Bloomberg BNA that it appears the moratorium goes beyond regulations to cover notices and revenue procedures as well, but that remains uncertain.
George A. Hani, chair of the tax department at Miller & Chevalier Chartered in Washington, said such breadth would make this freeze “unique” compared with similar actions taken by past presidents.
“I think it is unclear how the regulatory freeze will apply to revenue procedures, revenue rulings, notices, and announcements that are typically published in the Internal Revenue Bulletin and not in the Federal Register,” said John L. Harrington, an international tax partner at Dentons US LLP and former Treasury Department international tax counsel.
Subject to exceptions for “emergency situations,” the presidential memorandum says: “send no regulation to the Office of the Federal Register (the “OFR") until a department or agency head appointed or designated by the President after noon on January 20, 2017, reviews and approves the regulation.” The memo characterizes “regulation” as any “regulatory action” as defined in Executive Order 12866 or “guidance document” as defined in Executive Order 13422 when that order was in effect.
Notices, revenue procedures, revenue rulings and announcements “depending on their content, do fall within the definition of ‘guidance document,’” Harrington said in a Jan. 25 e-mail to Bloomberg BNA.
However, the “freeze” language for new guidance in the first paragraph of the memo deals solely with sending documents to the Office of the Federal Register, and not with publication by other means, he said.
The IRS didn’t respond to questions about the scope of the regulations freeze. The agency noted in an e-mailed statement, however, that while final rules on master limited partnership qualifying income and dividend equivalent payments published Jan. 24 in the Federal Register were safe, “several pending regulations,” such as proposed partnership audit rules, have been pulled.
Hani said delaying issuance of the proposed audit rules—which may remain unchanged by the new administration because they aren’t highly political—pushes back the comment period and could delay the hearing on those regulations. According to the statute, they are supposed to go into effect Jan. 1, 2018, he said.
Harrington said the freeze is “more problematic” if the IRS and Treasury aren’t able to issue administrative guidance typically published at this time of year.
“For example, the IRS issues on a monthly basis a revenue ruling that lists the adjusted applicable federal rates and issues on a quarterly basis a revenue ruling that identifies the applicable interest rates for overpayments and underpayments,” he said.
“I hope those would be viewed as administrative and not as the kind of policy statement that would be covered by a freeze,” Harrington said.
He said he also expects that notices announcing future regulatory action “would be off-limits.” An example would be the anti-inversion notices published in 2014 and 2015—Notice 2015-79 and Notice 2014-52.
Such notices are published in the Internal Revenue Bulletin but not in the Federal Register. “Notices sent to the IRB are really just announcements of an intent to issue a notice of proposed rulemaking and an announcement that those future regulations will have the date stated in the notice,” he said. “They do not go through the approval process required for documents that go to the Federal Register.”
Mark J. Silverman, a partner and corporate tax specialist at Steptoe & Johnson LLP, told Bloomberg BNA one of the more critical questions about the recent moratorium is how long it lasts.
It’s important that President Donald Trump’s administration completes its review process “expeditiously” and the IRS gets back to issuing guidance, he said. Taxpayers and tax preparers depend on that guidance for planning purposes, Silverman said.
James F. Hogan, managing director at Andersen Tax LLC and a former IRS official, said the degree to which the length of the freeze impacts regulations will vary on a case-by-case basis.
“It would depend on the particular project itself and any dates that pertain to the statute, particularly like a filing date or a date when an election has to be made,” he said. If there were any time-sensitive regulations that Treasury and the IRS were working on but didn’t have a chance to complete before the freeze went into effect, those would be most impacted, Hogan said.
“A temporary lull in publishing guidance should not be a problem, as long as truly noncontroversial, traditional guidance is permitted,” Harrington said. “Indeed, a temporary freeze is unavoidable in a change of Administration, whether it is publicly announced or not,” he said in an e-mail.
“A lengthy ban—especially if combined with a delay in bringing in the new tax policy team—would be a problem, however.”
Hani said he expects the freeze will be in place “as a practical matter” until the top appointed Treasury positions are filled, such as the assistant secretary for tax policy role and the deputies reporting directly to that person.
Those officials generally have to sign off on new regulations, he said.
Once those roles are filled, “then it’s a question of how long it will take them to get up to speed and how the different pieces of guidance are prioritized by them,” Hani said.
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