President Trump issued three executive orders or memoranda in his first 10 days in office that could have a significant impact on taxes. One issued a halt to implementation of any regulations that had not yet been published in the Federal Register or become effective as of the date of his inauguration. Another asks federal departments and agencies to take any steps within their power to ease the burdens of the Affordable Care Act. And finally, an order instructs agencies to abolish two regulations for every new one that is introduced.
The first memorandum seemed fairly clear but proved to be a little uncertain in practice. The second and third orders are fairly unclear on their face, at least as to how they might be applied. These orders have left taxpayers somewhat unclear as to what regulations are currently in effect and what their continuing obligations under the Affordable Care Act might be.
A HOLD ON REGS
Chief of Staff Reince Priebus issued a memorandum putting a hold on new regulations on Friday, Jan. 20, 2017, the day of the inauguration. The memorandum called for a hold on all new regulations that had not yet been published in the Federal Register or that had not yet become effective. The Internal Revenue Service had issued a number of regulations in the days just prior to the issuance of the order. Those regulations may have been issued to get them out before the end of the Obama administration, or they may have been tied to getting them issued before the American Bar Association Tax Section meeting, which was happening in Orlando, Fla., that weekend. The IRS has a history of trying to issue regulations before major tax meetings so that they can be discussed at those meetings.
Donald Trump signing an executive order
Photo: Shawn Thew/Pool via Bloomberg
The IRS regulations that appeared to be at issue included regulations with respect to the definition of qualifying income of publicly traded partnerships, the withholding tax on dividend equivalent payments, and the partnership audit rules. While those regulations had not yet been published in the Federal Register as of the date of the administration’s memorandum, both the regulations on qualifying income of publicly traded partnerships and the withholding tax on dividend equivalent payments were subsequently published in the Federal Register and appeared to escape the hold since they had become effective. It appears that these regulations were too far into the process to be pulled back from Federal Register publication. The partnership audit rule regulations have not been published in the Federal Register and therefore appear to have been caught up in the hold. It appears possible, however, that, after a subsequent review by the new Treasury team, the partnership audit rule regulations may again be released without substantial modification.
ORDER ON THE ACA
One of President Trump’s first orders purports to try to reduce any further damage from the Affordable Care Act until it is repealed. It directs the Secretary of Health and Human Services and other agencies, presumably including the Treasury Department and the Department of Labor, to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the ACA that would impose a fiscal burden on any state or a cost, fee, tax, penalty or regulatory burden on individuals, families, health care providers, health insurers, patients, recipients of health care services, purchasers of health insurance, or makers of medical devices, products or medications.
The language is very broad and appears to leave a lot of discretion to the agency heads in its implementation. Of course, the ACA itself is law and can only be repealed by an act of Congress. However, in implementing the ACA, the Obama administration itself imposed a number of delays in the statutory requirements to give additional time for businesses to come into compliance. Some of these same principles could be used by agency heads to institute further implementation delays to give time for Congress to enact repeal and replacement legislation.
Most commentators seem to believe that it is unlikely that any agency head would take any steps at this point that would affect tax filing requirements for 2016 tax returns. The tax filing season for 2016 has already begun, the forms, instructions and software have already been prepared, and to reverse course at this point might create too many problems. It appears more likely that the agency heads could suspend requirements for 2017.
The Obama administration had previously delayed the penalty on large employers for failure to offer affordable health insurance. That penalty could be suspended again. The Obama administration had also delayed penalties for failure to properly complete Forms 1095-B and 1095-C. Those penalties could be further delayed. Whether the Treasury might suspend the individual responsibility payments imposed on individuals for failure to obtain health insurance is not clear. The Treasury clearly has the authority to come up with additional categories of persons eligible for a waiver of the penalties, but it is not clear at this point if any action would be taken in this regard.
ORDER ON NEW REGS
On Monday, Jan. 30, 2017, President Trump issued an executive order requiring agencies to cut two existing regulations for every new rule introduced, and provided that, for 2017, the cost of new regulations should be paid entirely by revenue from repealed regulations. The order also states that it does not apply to regulations mandated by statute.
The two-for-one exchange would generally not work too well for Treasury regulations. Most IRS regulations are designed to help taxpayers comply with statutory requirements. Some legislative regulations are specifically called for in the Internal Revenue Code. Other interpretive regulations help taxpayers understand what the statute requires. Taxpayers may not always agree with the regulatory interpretations made by the Treasury and the IRS, but taxpayers in general are always seeking more guidance from the IRS, rather than less.
Some regulations, such as the repair regulations promulgated a couple of years back, have imposed significant compliance costs on taxpayers. The IRS might be very hard-pressed to come up with a couple of regulations to repeal that would offset the cost of the repair regulations. It is possible that, once the Trump Administration has a new Secretary of the Treasury and team in place to look more closely at the regulatory situation, the IRS might get an exemption from this rather arbitrary rule. It is possible, however, in the meantime, that it could slow down the IRS regulatory process, which a lot of taxpayers and tax practitioners consider to be much too slow already.
In rushing to get out executive orders in the first week in office to help fulfill campaign promises, the Trump administration has often acted without sufficient forethought and before Trump’s entire team has been approved by the Senate and taken their posts. Hopefully, as the Secretary of the Treasury and other key policy positions in the Treasury take their places, there will be a more careful review of how these executive orders and memoranda should apply in the tax context, with adjustments made accordingly. In the meantime, taxpayers and tax return preparers should probably assume that they will have no effect on 2016 tax return preparation. With respect to 2017, however, we will all have to stay tuned.