Trump Rule Freeze Makes It Harder for Taxpayers to Get Answers

President Donald Trump’s freeze on regulations is having a chilling effect on other forms of guidance that help clarify intricacies of tax law, taxpayers and practitioners said.

Trump’s action has blocked several pending and proposed tax regulations, as well as notices, revenue procedures and other less-formal but still-significant guidance from the IRS and the Treasury Department that are critical to helping taxpayers clarify how the tax rules apply to them.

As a result, taxpayers have lingering questions about how to follow numerous complex regulations—the rules on clean-energy tax credits and on tax-free corporate spin-offs, for instance—that are going unaddressed, practitioners and other tax observers said.

While taxpayers wait for the freeze to be lifted, they’ll manage by scouring the tax code and other resources for indications on how they should act, talking to their advisers, and reaching out to the IRS.

“The potential lack of subregulatory guidance certainly can cause issues for companies in interpreting and complying with complex regulations that need interpretation,” said Devon Bodoh, a partner at Weil, Gotshal & Manges LLP.

The effect is already being felt by companies. For instance, a draft rule meant to give them some guidance on the use of the Section 45Z clean fuel production energy tax credit is creating confusion about some aspects of how the market works, and the regulatory freeze means clarity isn’t forthcoming, said Amish Shah, a partner at Holland & Knight LLP.

“What do you do where you’re in a situation like this—something that’s not even regulations or proposed regulations, but a draft of proposed regulations, and is contrary to how the industry works?” said Shah, speaking at a meeting of the American Bar Association’s tax section in Los Angeles.

‘Fair Degree of Uncertainty’

The regulatory freeze blocks agencies from issuing most new rules until a Trump-appointed official signs off on them. That means that regulations the IRS has proposed but not finalized are on hold, like rules on the corporate book-income tax and some clean-energy tax credits.

There’s “a fair degree of uncertainty out there” because of the freeze, said Monte Jackel, principal at Jackel Tax Law and a former IRS official. “People are generally nervous about whether the needed guidance will come out timely in their area.”

In addition to formal regulations, the freeze also applies to any generally applicable statement by an agency that sets forth a policy or interpretation on a statutory or regulatory issue. That would seem to mean that IRS guidance such as notices, revenue procedures, and revenue rulings are paused as well, said Eric Solomon, a partner at Ivins, Phillips & Barker and a former Treasury tax official.

In areas where guidance is needed to answer important, unresolved questions that must be addressed to implement a government program, “the freeze could deter or delay taxpayers from participating in that program,” Solomon said.

Solomon said taxpayers must cope by examining the text of the tax code, legislative history, other existing regulations and guidance, and IRS memoranda to come up with the best possible information on which they can base their interpretations of the law.

“You dig around and see what kind of statements you can find to give you whatever insights you can glean,” said Kristin Hickman, a University of Minnesota law professor and a White House regulatory-review staffer during Trump’s first term. “It’s frustrating when you are a taxpayer, or you are representing a taxpayer in that position.”

Hickman expects taxpayers and their advisers to call people at the IRS “and say ‘here’s my not-so-hypothetical hypothetical,’” trying to glean any insights they can from the IRS about how the law and regulations are supposed to work. “This is what lawyers do,” she said.

Joshua Odintz, another Holland & Knight partner at the ABA meeting, said taxpayers may seek formal opinions from tax advisers to give them some certainty on their tax returns, or they may turn to their auditors, which will likely develop positions on tax issues for financial reporting purposes.

One set of regulations where taxpayers may especially feel the lack of subregulatory guidance are the recently proposed rules on spin-offs, Bodoh said. On those rules, “there will likely be some iteration and significant comment that could take time to implement in final regulations,” he said.

Private Letter Rulings

The freeze would appear not to cover private letter rulings, or PLRs, the observers said. That’s because PLRs—individual, company-specific IRS decisions approving a company’s actions from a tax perspective—don’t have the kind of general applicability that would render them “rules” to which the freeze applies.

Some observers think that has the potential to prompt more taxpayers to seek PLRs as a means of addressing their questions while other guidance options are closed off.

Emily Cauble, a University of Wisconsin law professor, doesn’t think PLRs are an effective way of doing that, since only the taxpayer to which a PLR is issued can rely upon it, and the IRS sometimes won’t issue them.

It’s “a mixed bag” as to whether taxpayers will seek PLRs while the freeze is in effect, Bodoh said. Some might, but they can take significant time, so some companies “may shy away from pursuing the PLR” and may instead seek comfort by getting an opinion from tax counsel, which often can be done more expeditiously, he said.

Dustin Stamper, tax legislative affairs practice leader at Grant Thornton, said he hopes Treasury and IRS leaders “will quickly see the wisdom of getting the guidance wheels turning again.” Any clarity they can offer about which areas they’re targeting for review, and what their timeline is, “would be helpful,” he said.

Trump and other Republicans may not like every current tax provision, but until and unless they’re repealed outright, “holding back guidance isn’t doing anyone any favors,” Stamper said.

—With assistance from Erin Schilling, Lauren Vella and Caleb Harshberger.