Treasury has finished all major rules stemming from the 2017 tax law, checking off a milestone in time for President Joe Biden’s administration to begin a review of guidance across the government.
Following Biden’s inauguration yesterday, his administration issued a memo that—with limited exceptions—pauses all new regulations, withdraws rules released but not yet formally published, and asks agencies to consider a 60-day effective date delay on rules that have been published in the Federal Register.
Biden didn’t single out any specific tax rules for review in a separate memo yesterday. But that doesn’t mean some won’t get a second look—whether it be from new Biden appointees or Congress.
Many tax rules are within the timeframe to be challenged under the Congressional Review Act, a law that allows Congress to nullify regulations through a resolution of disapproval, which can be considered under expedited floor procedures.
Six final regulations from the 2017 tax law were published Jan. 19 in the Federal Register, the last full day of former President Donald Trump’s administration. Those included final rules for the “coach tax,” an excise tax on highly paid nonprofit employees (T.D. 9938; RIN: 1545-BO99) and final rules restricting the carried interest tax break favored by hedge fund managers (T.D. 9945, RIN: 1545–BO81).
The CRA gives Congress 60 legislative working days to disapprove of a federal agency’s final rule by introducing a special joint resolution. The law also allows a new incoming Congress to review the last 60 days of rules issued during the previous Congress.
That would make any of the last-minute regulations issued by the Trump administration fair game, including any of the tax rules published in the Federal Register on Jan. 19.
More Tax Guidance
David J. Kautter, now the former Treasury assistant secretary for tax policy, said the department achieved what it set out to do with tax law guidance, issuing 59 final rules and a total of 537 pieces of guidance since the law’s enactment.
“Over time, I am sure there will be some additional guidance to deal with smaller issues that need clarification but all the essential guidance is out and finalized,” Kautter said in a statement.
Remaining packages could include projects addressing previously taxed earnings and profits—an open question after the tax law. An IRS official also recently said the agency was far along on rules for consolidated corporations. Tax professionals were also expecting the IRS to issue final rules for foreign tax credits, after proposing them (REG–101657–20) in the fall partly in response to a spurt of unilateral digital taxes.
Waiting on guidance could mean companies have to rely on old rules or legislative history when evaluating transactions and business decisions, tax professionals said. While that hasn’t slowed down transactions, it does make the planning more complex, they said.
“You’re probably talking at least several months before the new administration comes in, gets all their people in positions, start reviewing these regulations in earnest, and actually come out with something,” said Lisa Zarlenga, a partner at Steptoe & Johnson LLP and a former Treasury official.
Biden has called for rolling back provisions of the 2017 law, including both increasing the corporate tax rate and altering the mechanics of a new tax on global intangible low-taxed income (GILTI) through legislative changes. That goal is now potentially within reach since Democrats control the Senate.
Biden’s nominee for Treasury Secretary Janet Yellen said in testimony before the Senate Finance Committee Jan. 19 that pandemic relief remains the administration’s priority.
The idea of changes to international rules remains a concern, tax professionals said. Final GILTI rules (T.D. 9902) were released in July.
“If you change the GILTI calculation, you’ll then need a whole new set of regulations,” said Joan Arnold, a partner at Troutman Pepper Hamilton Sanders LLP in Philadelphia and chair of the tax section of the American Bar Association. “I think it will be a long time before we have finalization of everything that still needs drafting—but you don’t have an overhaul like we had in 2017 and expect it all to be done in three years.”
—With assistance from Isabel Gottlieb.