Just 10 days after his inauguration, President Trump signed Executive Order 13771, establishing the tenet of deregulation to be adopted by the Trump administration. Executive Order 13771 outlined the Trump administration’s vision for reducing regulation and controlling regulatory costs, and established a principle that for every one new regulation issued at least two prior regulations be identified for elimination — the “one in, two out” principle. President Trump’s Call for Reducing Tax Regulatory Burdens.

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Originally published in Law360, June 2018.

In the first few weeks of the Trump administration, we have seen several indications that tax lawyers are going to be busy keeping up with the shifting sands of tax reform.

We learned from an Executive Order released on January 30, 2017 that for every new regulation that will be issued, two regulations must be eliminated In a release on February 2, 2017, the Office of Management and Budget (OMB) clarified the edict explaining that it applies only to significant regulatory actions issued between January 20 and September 30, 2017.  This would apply to any regulation that:  (1) has annual effect on the economy of $100 million or more or adversely affects the economy; (2) created serious inconsistencies or otherwise interferes with action taken or planned by another agency; or (3) raises a novel legal or policy issue.

Officials at the Internal Revenue Service (IRS) have stated that the IRS will not issue much guidance in the near future, but will be focusing its limited resources on comprehensive tax reform. Accordingly, other than necessary releases (for example, monthly interest rates), we expect based on comments from the IRS that there will be a substantial slow-down in the issuance of revenue rulings, revenue procedures and other types of published guidance. However, the IRS will continue to release private guidance, such as private letter rulings and chief counsel advice memoranda. Indeed, the IRS has indicated that it will look to open up the process for private letter rulings, and is seeking input from practitioners regarding important subjects.

In other news, the Senate last night confirmed Steven Mnuchin as the Secretary of the Treasury by a narrow margin of 53-47. With a new captain at the helm, and the Trump Administration’s stated desire for major tax reform, we expect a new direction for Treasury and substantial resources devoted to what our tax system may look like in the future.

Practice Point: It remains to be seen how the recent Executive Order will impact guidance from the Treasury and IRS, but all signs point to a slow-down in the issuance of published guidance. We expect that with less guidance, there is a potential for more controversy. For the foreseeable future, taxpayers and their advisors should to continue to monitor these new developments and how it may impact their operations.

The Department of Justice (DOJ) Tax Division is responsible for litigating tax refund claims brought in Federal district courts and the Court of Federal Claims and handling appeals from decisions of the United States Tax Court (the Chief Counsel’s office is responsible for Tax Court litigation).  Effective January 23, 2017, David A. Hubbert became the Acting Assistant Attorney General for the DOJ Tax Division.  He replaces Carolyn Ciraolo, who resigned on January 20, 2017.  A copy of the DOJ press release, which includes biographical information on Mr. Hubbert, can be found here.  In accordance with the change, the Internal Revenue Service on January 31, 2017, announced corresponding changes in the address for correspondence to the DOJ Tax Division and the signature block for any Notice of Appeal from a Tax Court case.

Practice Note:  The changing of the guard is routine when there is a change in the administration, as demonstrated by the prior resignation of William J. Wilkins as Chief Counsel.  However, this year may be a little different as the new administration seems determined to “shake things up.”  In the coming weeks and months, we expect a lot of personnel changes.  Stay tuned!

With the inauguration of President Trump, and the accompanying change of administration, the American people have been promised great change in all areas of the federal government. One question we at McDermott have been frequently asked since the election is: what should a taxpayer expect from the Internal Revenue Service (IRS) and the Department of Justice (DOJ) Tax Division while the transitions in the executive branch are taking place? Major tax policy changes are being discussed, but what about the immediate practical effects of a turnover in high-level personnel within these agencies, particularly if a taxpayer is under audit or investigation?

During a change in administration, taxpayers may be affected by any of the following:

  • If under audit, the exam team may ask for longer statute extensions than would otherwise apply, to account for possible delays in internal managerial-level approvals.
  • If a taxpayer is negotiating a settlement, and that settlement requires approval by the IRS National Office or the Assistant Attorney General for Tax, settlement approvals may be delayed due to personnel changes.
  • This applies to civil settlements reached with IRS Appeals, in Tax Court litigation, or in federal district court litigation. Delays are also possible for criminal agreements, including plea agreements, deferred prosecution agreements and non-prosecution agreements.
  • Ongoing litigation (particularly appellate litigation) may be stayed or delayed, to the extent a case involves a policy position that the administration may want to change.
  • The regulatory freeze enacted by the Trump administration also affects procedural regulations, including proposed regulations related to the new partnership audit rules.

Initial comments from prospective Secretary of Treasury Steven Mnuchin indicate that he believes IRS staffing should be increased, which would be a welcome change.  Any significant changes like this are likely to be long-term, however, so we are unlikely to see their effect for some time.