Tax Uncertainty for Businesses After the Regulatory Freeze

Posted on by Ellen Horne

President Trump’s new executive leadership is likely to bring increasing uncertainty for businesses in the area of tax law as the Internal Revenue Service (IRS) struggles to make sense of the reach and intent of some of the President’s recent orders on federal rulemaking. In one of his first major acts after taking office, President Trump instituted a freeze on all new federal rulemaking until pending rules can be reviewed by the new administration.1 Though suspending the issuing of new regulations is typical when a new President takes office, Trump’s order seems to be more expansive than any of his predecessors’.2 Experts believe that the language of the memo means that it applies to not only the federal rules that are published in the Federal Register, but also to sub-regulatory guidance from federal agencies.3 For the IRS, this would mean that they could be prevented from issuing notices, revenue procedures, revenue rulings, and announcements.4

The regulatory freeze was followed shortly thereafter by an executive order that requires all federal agencies to eliminate two federal rules for every new one enacted.5 The rule also requires that any “cost” (undefined in the order) associated with the new regulation be offset.6 This could greatly delay the IRS’s work on regulations and could even lead to the repeal of taxpayer- friendly regulations or regulations that taxpayers need for guidance on how to properly comply with certain tax laws.7 Practitioners have stressed that not all regulations that the IRS issues are negative for the taxpayer, and in fact some help to alleviate the burdens of legislation that Congress has passed.8

For now, the IRS is holding off on issuing any new guidance beyond the most routine items for “a while” and are working on the assumption that all of the regulations that they issue are subject to both the regulatory freeze and the two-for-one rule.9 Historically, tax regulations have been considered merely interpretive—offering taxpayers necessary information on how to comply with tax laws—and have therefore not been considered “significant regulatory actions” whose costs have to be reviewed by the Office of Management and Budget.10 It is unclear if that understanding will continue under the new executive order.11

All of this is adding up to great uncertainty for IRS officials and for businesses who rely on the agency’s guidance in ordering their own affairs.12 Even if corporate taxpayers may not like all of the regulations that the IRS issues, guidance from the agency is often preferable to nothing at all because it provides business certainty and bright line rules for businesses to follow.13

  1. Office of Mgmt. & Budget, Exec. Office of the President, M-16-17, Memorandum on Regulatory Freeze Pending Review (Jan. 20, 2017); Memorandum on Federal Civilian Employee Hiring Freeze, 2017 Daily Comp. Pres. Doc. No. 62 (Jan. 23, 2017); Elizabeth C. Crouse, Mary Burke Baker & Abigail F. Williams, The Trump Freeze Leaves New Proposed Regulations on Partnership Audit Rules out in the Cold, Nat’l L. Rev. (January 30, 2017), http://www.natlawreview.com/article/trump-freeze-leaves-new-proposed-regulations-partnership-audit-rules-out-cold. ↩

  2. Lydia Wheeler, Trump’s Regulatory Freeze Goes Further Than Obama’s, The Hill (Jan. 29, 2017, 8:30 AM), http://thehill.com/regulation/administration/316585-trumps-regulatory-freeze-goes-further-than-obamas. ↩

  3. Allyson Versprille, Trump’s Regulatory Freeze: How Broad and for How Long?, Bloomberg (Jan. 26, 2017), https://www.bna.com/trumps-regulatory-freeze-n73014450305/. ↩

  4. Id. ↩

  5. Reducing Regulation and Controlling Regulatory Costs, Exec. Order No. 13771, 82 Fed. Reg. 9339 (Feb. 3, 2017); Allyson Versprille & Alison Bennett, New Trump Executive Order May Delay IRS Work, Bloomberg (January 31, 2017), https://www.bna.com/new-trump-executive-n57982083093/. ↩

  6. Id. ↩

  7. Id. ↩

  8. Id. ↩

  9. See Andrew Velarde & Emily L. Foster, No Substantive IRS Guidance Coming for a While, Official Says, TaxNotes (Feb. 14, 2017), http://www.taxnotes.com/editors-pick/no-substantive-irs-guidance-coming-while-official-says. ↩

  10. See id. ↩

  11. Id. ↩

  12. Versprille & Bennet, supra note 5. ↩

  13. Id. ↩

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