Tax regulations seem likely to avoid Trump freeze
When President Donald Trump placed a temporary freeze on the issuance of new regulations, it was interpreted by many as a probusiness move. We have been conditioned by political debate to see regulations as onerous imposition by government on the free market.
The president’s order requires that any new regulation be accompanied by elimination of two existing regulations. It also mandates zero net cost of new regulation.
Regulate means to control or supervise. Even so, everyone understands that some regulation is good. We all seem willing to accept some regulation to ensure clean air and water.
But beyond the obvious safety issues, there seems to be great disagreement about the benefits of regulation. I wonder if some of the disagreement could be resolved by a clearer understanding of what regulation entails.
I do not mean to speak to all regulation, but as a tax columnist, I want to share some information about tax regulations. Tax regulations help to explain how specific provisions of the tax law work. Tax practitioners view most regulations as helpful or even necessary to do their jobs.
I believe the president’s order was intended to address regulations that businesses say are burdensome. These burdens may or may not be reasonable given the offsetting risks, but even if we accept that the rules are overly burdensome, a blanket freeze on regulations is painting with an extremely broad brush.
The president’s executive order is not clear how broadly it applies. Subsequent guidance issued by Reince Priebus, Trump’s chief of staff, suggests that tax regulations are not covered by the freeze.
Tax experts who follow this have now concluded that tax regulations “likely” are not covered by the freeze, the 2:1 reduction rule or the zero-cost rule. Likely is good, but not would be better.
There seems to be broad confusion about what the order covers. Business owners might be happy with the broad definition. Tax practitioners should not be.
Remember again that every new regulation must eliminate two existing regulations. So a tax regulation that helps people understand the law can’t be enacted without finding two other regulations to eliminate.
Tax practitioners are waiting for many helpful regulatory projects to be released. A change in the law has created a dramatic change in the way partnership audits will be conducted beginning in 2018.
This new “centralized” audit rule has several important elections available to a taxpayer. Tax preparers and lawyers drafting partnership agreements need to know what these rules mean and how they will be interpreted.
Proposed centralized audit regulations were withdrawn following the president’s order. While 10 months remain until the rules become effective, advisers need this lead time to consult with partners to determine what changes are needed to written agreements and what elections should be made.
The Treasury Department’s Priority Guidance Plan currently lists 281 regulatory projects in process and most are not onerous burdens waiting to be imposed on business. Instead, the vast majority of the items in Treasury’s regulatory plan are intended to clarify how the tax law works. One project would expand the exceptions for the 10 percent penalty for early withdrawal from a retirement plan.
Another project would clarify how the self-employment tax applies to members of an LLC and another would explain how to make “target allocations” in a partnership. Currently, no
one knows to what extent such allocations could avoid an IRS challenge.
Another project would explain how to take advantage of a new election to treat a stock disposition as an asset purchase and sale. This is an election that is made if it benefits the taxpayer. Guidance is helpful and needed.
I am well aware of how arcane these various examples sound to the reader. But the regulatory projects in process at Treasury are designed to help your tax preparer dissect a tax law that can seem mysterious even to those who know the secret handshake of tax advisers.
I’ll leave it to others to debate the costs and benefits of environmental, product safety, work safety and similar regulations. I’m no expert in those areas. But tax regulations are needed.