Tax practitioners who were once optimistic about seeing final international tax rules soon are no longer holding their breath.
Multinationals have been waiting on final rules on new 2017 tax law provisions such as a deduction on American-made exports and a new foreign income category. But practitioners are telling their clients they may have to wait a lot longer amid the economic shock caused by the Covid-19 pandemic.
“This virus has a really significant impact on people where it’s life or death while also impacting economics, so while you wish you had clear guidance, think of the long list of priorities in terms of what people are trying to triage,” said John Harrington, a partner at Dentons US LLP in Washington.
The 2017 tax law introduced a host of new international tax provisions and income categories that tax professionals say increased complexity for multinationals. The IRS and Treasury have said they hope to have all guidance tied to the law wrapped up by fall, and they were targeting a spring release date for some, including rules on ordering previously taxed income and final rules on the dividend write-off a U.S. corporation gets from a foreign company in which it owns shares.
“This will cause people to rethink decisions they made in December based on TCJA rules because they were designed in a world going smoothly—in a world where things are restarting things could be a different,” Harrington said, referencing the 2017 tax law, known as the Tax Cuts and Jobs Act.
The IRS and Treasury didn’t return a request for comment.
“I have clients that are probably wondering where those regs are but they are more worried about keeping their business going and keeping cash flowing,” said Barbara Mantegani, principal and founder of Mantegani Tax PLLC.
‘Grinding To a Halt’
IRS and Treasury attention may also be on a new stimulus law (Public Law 116-136) that includes a host of tax provisions. President Donald Trump signed the package into law last week. It eases the tax treatment for distillers to make hand sanitizer, and fixes a prominent error in the tax law, among other changes.
“My guess is the regulations writers have been taken off their projects and put on projects coming out of the CARES law,” Mantegani said.
Highly anticipated international guidance includes final rules for the foreign-derived intangible income deduction and an exclusion tied to a new category of income, global intangible low-taxed income.
IRS and Treasury are likely to focus on “revenue collection and bread and butter issues,” said Ian Weinstock, a partner at Kostelanetz & Fink LLP in New York.
“Your standard regulation-making and private letter ruling requests are grinding to a halt,” he said.
Companies seeking certainty on the tax treatment of certain transactions could apply for private letter rulings—a written statement from the IRS that interprets tax law to a taxpayer’s specific situation.
But those applications with the IRS are unlikely to be granted in the current climate, practitioners say, likely because agency staffers are working remotely and it is more difficult to collaborate.
“Whether officially sanctioned or unofficially a work slowdown, who knows, but courts are closed, government agencies are operating on skeleton staff—I think it will be a long time before things get back to normal,” Weinstock said.
Still, there are clear signs the agency is continuing some regulatory work.
The IRS on Wednesday notified taxpayers that public hearings on proposed regulations would be held over the phone until further notice. Any request to speak at a hearing will have to be sent to the IRS in an email.
And guidance continues to move through the typical process: One of the final steps before IRS and Treasury release significant guidance is a review from the Office of Information and Regulatory Affairs. Projects have continued to enter and leave the office amid the pandemic. OIRA has recently finished review of rules on hybrid mismatch arrangements and settlement deductibility, to name a few.
The U.S. Chamber of Commerce flagged the progress as a sign that international work is likely to continue despite the outbreak.
Harrington said one option Treasury and the IRS may consider to keep things moving is to only finalize areas of guidance where there are no questions, and leave trickier elements for future proposed rules.