Filed under: Tax Compliance & Planning
By Rick Cooley, CPA
On January 20, 2017, President Donald Trump issued a presidential memorandum declaring a moratorium on all new federal rule making.
This practice is not unusual for an incoming president, especially one from a different political party than the departing president. In fact, former President Barack Obama issued a similar order shortly after his inauguration in 2009.
However, Trump’s memorandum should have a much broader impact – potentially applying to sub-regulatory guidance, including IRS Notices and Revenue Procedures.
So what impact will this memorandum really have? That depends on where the federal rules are in the rule making process.
The federal rule making process involves several distinct steps prior to a rule’s enactment. First, the federal agency that has jurisdiction over that particular area of federal law needs to write and propose the law.
Second, the rule must be published in the Federal Register for stakeholders to review and make comments. The comment period usually lasts either 30 or 60 days, but agencies may extend or re-open comment periods. For more complex rule making, federal agencies frequently provide a 180-day comment period.
Federal agencies may incorporate changes into proposed rules based on comments from stakeholders. In some cases, the agencies may publish the modified proposed rule for additional comments.
Third, once the agency has finalized a proposed rule, they will publish a final version in the Federal Register along with a summary of the issues the rule addresses and the rule’s effective date.
Trump’s memorandum would then indefinitely suspend rules that federal agencies are still drawing up.
Likewise, proposed rules that have been published in the Federal Register but are still in the public comment stage, or have otherwise not been finalized and/or put into effect, are indefinitely suspended as well.
Further, final rules that have been published in the Federal Register, but are not yet in effect, will be suspended for 60 additional days under President Trump’s Memorandum.
How do these changes affect tax rule making? As there were many tax-related rules and regulations in the pipeline as of January 20, 2017, many of the following proposed rules will be suspended for at least several months:
- New rules clarifying the centralized, entity-level audit regime for partnerships and LLCs will be indefinitely suspended and subject to review and revision by the Trump executive branch. These new implementation rules are particularly critical as the new audit regime goes into effect in 2018 by statute.
- The proposed rules impacting discounting of pass-through entity interests on intra-family transfers, the Section 2704 Proposed Regulations, will be indefinitely suspended and subject to review, modification or withdrawal.
However, new final regulations on master limited partnerships (MLPs), which qualify income and dividend equivalent payments, were published in final form prior to Trump’s presidential memorandum. These regulations will go into effect as published.
If the Trump administration wants to modify or rescind these regulations, they will need to work with Congress via the Congressional Review process, or work with Treasury to issue new regulations.
In addition to his campaign promise to streamline federal government regulation, the president went one step further. On Monday, January 30, 2017, Trump signed an executive order that would require federal agencies to eliminate two existing rules, or regulations, for every new regulation created.
So not only is the federal government now forced to delay rule issuance, it must revoke existing rules for each new rule it is attempting to issue.
There is definitely a new sheriff in town. Only time will reveal the long-term impact of the rules freeze and revocation process. We will monitor the situation and keep you updated.
© 2017 Clark Nuber PS All Rights Reserved
