The Treasury Department finalized all key rules from the 2017 Tax Act and marked a milestone in time for President Joe Biden's administration to initiate a review of the guidelines across the government.
Following Biden's inauguration yesterday, his administration issued a memo halting all new regulations, with limited exceptions, withdrawing published but not yet officially published rules and urging agencies to postpone a 60-day delay in entry into force in the EU published rules to consider federal registers.
Biden didn't elaborate any specific tax rules for review in a separate memo yesterday. But that doesn't mean that some won't take a second look – be it from new Biden candidates or from Congress.
Many tax regulations are within the timeframe to be challenged under the Congressional Review Act. This law allows Congress to set aside regulations through an invalidation decision that can be considered under expedited proceedings.
Six final provisions from the 2017 Tax Act were posted to the Federal Register on January 19, the last full day of administration for former President Donald Trump. These included the final rules for the "bus tax", an excise tax on highly paid non-profit employees (TD 9938; RIN: 1545-BO99) and final rules to restrict the tax breaks favored by hedge fund managers (TD 9945, RIN: 1545) -BO81) .
The CRA gives Congress 60 legislative working days to oppose the final settlement of a federal agency through the introduction of a special joint resolution. The law also allows a new Congress to review the last 60 days of the rules enacted during the previous Congress.
This would make fair game of any of the Trump administration's last-minute regulations, including the January 19th tax regulation published in the Federal Register.
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David J. Kautter, now former assistant finance minister for tax policy, said the department had done what it was supposed to do with tax guidance, issuing 59 final rules and a total of 537 guidance since the law went into effect.
"I'm sure there will be some additional guidance over time to resolve minor issues that need clarification, but all of the essential guidance has been issued and final," Kautter said in a statement.
Remaining packages could include projects addressing previously taxed income and profits – an open question under the tax law. An IRS official also recently said the agency was well advanced on the rules for consolidated companies. Tax professionals also expected the IRS to issue final rules on foreign tax credits after proposing them in the fall (REG-101657-20), in part in response to a surge in unilateral digital taxes.
Waiting for guidance could mean that companies have to rely on old rules or legislative history to evaluate transactions and business decisions, according to tax experts. While this did not slow down transactions, it made planning more complex.
"They'll probably speak at least a few months before the new administration comes in, gets everyone into positions, seriously reviews these regulations, and actually gets something out," said Lisa Zarlenga, partner at Steptoe & Johnson LLP and a former tax officer.
Biden has called for the provisions of the 2017 Act to be rolled back, including increasing the corporate tax rate and changing the mechanisms of a new tax on Global Low Intangible Tax Income (GILTI) through changes in the law. That target may be within reach now that the Democrats control the Senate.
Biden's candidate for Treasury Secretary Janet Yellen said before the Senate Finance Committee on Jan. 19 that pandemic relief remains an administration priority.
According to tax experts, the idea of changing international rules is still a cause for concern. The final GILTI rules (T.D. 9902) were published in July.
"If you change the GILTI calculation, you need a whole new set of rules," said Joan Arnold, partner at Troutman Pepper Hamilton Sanders LLP in Philadelphia and chairman of the American Bar Association's tax department. "I think it will take a long time to finish everything that has yet to be worked out – but you don't have a revision like 2017 and expect everything to be done in three years."
– With the support of Isabel Gottlieb.