US Inbound: Executive Order could displace recent tax regulations

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

US Inbound: Executive Order could displace recent tax regulations

Fuller-James
Forst-David

Jim Fuller

David Forst

President Trump issued an Executive Order (EO) on January 30 2017 regarding regulations that could have a significant impact on recently issued tax regulations.

The Congressional Review Act permits regulations dating back potentially to 1996 to be invalidated by a (filibuster proof) majority of both houses of Congress and the President's signature, again with potentially major tax implications. In addition, the Internal Revenue Code provides that temporary regulations automatically sunset after three years.

The EO provides that for every one new regulation issued, at least two prior regulations must be identified for elimination. The EO provides that for fiscal year 2017 (ending on September 30) the total incremental cost of all new regulations, including repealed regulations, to be finalised this year will be no greater than zero. "Regulation" is defined broadly and for tax purposes it could include such guidance as IRS notices and revenue procedures in addition to Treasury Regulations.

The Congressional Review Act authorises Congress to override all regulations issued within 60 legislative days of their issuance through an expedited review process. Regulations issued in December 2016/January 2017 at the end of the Obama Administration all fall within the 60-legislative day window. In addition, the 60-legislative day window does not begin until the promulgating agency submits a report to Congress regarding the subject regulation. To the extent this notification is not complied with, any regulation issued since the passage of the Act in 1996 is subject to Congressional invalidation.

In addition, Code section 7805(e) provides that a temporary regulation expires (sunsets) within three years of issuance.

The potential tax impact of these cumulative rules is broad. For example, the section 385 regulations, which have a significant impact on inbound taxpayers, and have received substantial criticism from the tax community could be part of either a two-for-one trade or invalidated under the Congressional Review Act. The same could apply for recently issued regulations under sections 987, 367(d), and 901(m).

Section 482 regulations issued in September 2015 that reflect increased IRS aggressiveness in aggregating transactions and other transfer pricing areas are in temporary form and could simply be permitted to sunset and therefore be invalid in September 2018 if not otherwise invalidated per the EO or the Congressional Review Act.

We expect a great amount of activity for the rest of 2017 in this area, with a large number of regulations up for reconsideration.

Jim Fuller (jpfuller@fenwick.com) and David Forst (dforst@fenwick.com)

Fenwick & West

Website: www.fenwick.com

more across site & shared bottom lb ros

More from across our site

India also brokered its first-ever multilateral APA last year, the Central Board of Taxes announced
A global tax framework may not materialise anytime soon, but a common set of principles is becoming increasingly necessary, Rudolf Winkenius also tells ITR
Kingsley Napley’s claimants are arguing that taxing the provision of education breaches the European Convention on Human Rights
While pillar two can progress without the US, it won’t reach the same heights without American involvement, argues Renáta Bláhová, founding partner of BMB Partners Taxand
There are unanswered questions as to how foreign investors could reclaim money via tax credits, advisers suggested
Amid an ever-changing tax environment, India’s advisory market is bustling with competition ahead of the 2025 World Tax rankings and ITR Awards
The deal comes after PwC had accused Paul McNab of using confidential information; in other news, McDermott hired a new London tax head from a US rival
Looking at transfer pricing simplification is “obviously helpful”, but it should be done in line with current standards, a senior government figure reportedly said
The UK Government’s plans to close the tax gap via increased HM Revenue and Customs investment have failed to impress local tax advisers
Under the merged scheme for R&D tax relief introduced last year, rules on contracted out R&D have changed. James Dudbridge argues for a proactive approach when reviewing companies’ commercial arrangements
Gift this article