Trump Executive Order Could Trap Tax Guidance

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Publication February 15, 2017

A Trump executive order for federal agencies to withdraw at least two existing regulations for each new one proposed could delay future tax guidance.

All new policy guidance remains on hold in the meantime until the new Trump team has time to settle into office. That includes a notice that US solar companies hoped to see late last year that will explain when solar projects will be considered under construction in time to qualify for a 30% investment tax credit. The credits start phasing out after 2019. The freeze on guidance is expected to affect all forms of published IRS guidance, but not private letter rulings.

The executive order requiring at least two regulations to be withdrawn for each new one proposed defines “regulation” broadly to mean any “agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or to describe the procedure or practice requirements of the agency.”

The order is Executive Order 13771. It was issued on January 30.

A set of questions and answers about the order issued by the Office of Management and Budget on February 3 limited the focus during the remainder of fiscal year 2017 to “significant regulatory actions.” The government fiscal year runs through September 30.

Significant regulations are ones that have at least a $100 million effect on the economy or a material adverse effect on any sector or jobs, create a serious inconsistency with an action taken by another agency, materially alter the budgetary effect of grants, loan programs, entitlements or user fees, or “raise novel legal or policy issues.”

Such regulations are already subject to lengthy review by OMB. Fewer than 200 proposed regulations a year fall into this category.

OMB said the order does not apply to independent agencies, like the Federal Energy Regulatory Commission, but it encouraged them to try to offset the costs of new regulatory actions.

The order directs the federal government for the remainder of fiscal 2017 to keep the net incremental cost of all new regulations finalized this year at or below zero. The calculations will take into account any existing regulations that are withdrawn.

Costs are measured as the lost opportunity cost to society.

Starting in fiscal 2018, new regulations cannot be issued unless they are included in a “unified regulatory agenda” kept by OMB or special approval is given by the OMB director. All agencies will have to work to get planned regulations on the master list.

OMB is also supposed to come up each year with an internal regulatory budget at the same time it draws up the federal budget to present to Congress. It will allocate the total incremental cost of new regulations that can be issued during the year among the various federal agencies.

It has been longstanding practice to treat most tax regulations as interpretive and therefore exempted from review as significant regulations. It is not clear whether this policy will continue.

Many tax regulations fill in important detail in tax statutes for businesses that need certainty about how new tax laws enacted by Congress work before moving forward with transactions. Many tax regulations are also so highly technical that it would be hard for OMB to do a meaningful review. The Treasury has treated only two sets of regulations as significant since 2011.

Meanwhile, the Senate tax committee chairman, Orrin Hatch (R-Utah), said in a letter to the Obama Treasury secretary, Jacob Lew, in October that he would work to subject more tax regulations to cost-benefit review. The Government Accountability Office, an arm of Congress, recommended in a September 2016 report that there be a reevaluation of existing policy of exempting most tax regulations from such analysis.

Canada adopted a one-for-one regulation policy in April 2015 that requires the federal government to remove at least one regulation for every new one introduced. The Red Tape Reduction Act passed parliament 245 to 1. It builds on a program of reducing red tape that has been in effect in British Columbia since 2001 and that has led to a 43% reduction in regulatory requirements compared to when the initiative started.


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