Several major tax regulations have now undergone review by the Office of Management and Budget, and those involved in the process say it’s shaking up the way things are done with rulemaking.
A senior administration official and several lobbyists offered fresh insights and insider perspectives into a process that was designed to bring greater transparency to the development of tax regulations, but has nevertheless stirred up controversy in the tax community.
What those sources described is a process that is working to ensure that anxiously awaited tax guidance is provided without undue delay while still adding value to the review process. And for lobbyists, the extra chance to inject input into the review process has proven to be a welcome opportunity.
The new review process, established in an April memorandum of agreement between Treasury and OMB, grants the Office of Information and Regulatory Affairs (OIRA) greater authority to review and approve tax regs.
Return to Sender
Regs that Treasury sends to OIRA for review aren’t just rubber-stamped, according to the administration official, who along with the lobbyists spoke to Tax Notes on condition of anonymity to speak freely.
The official said that once OIRA receives a tax reg from Treasury and the review period commences — 45 days for tax regs generally, and 10 business days for regs related to the Tax Cuts and Jobs Act (P.L. 115-97) designated for expedited review — there is a dialogue between the agencies, in which OIRA provides comments on the regs, and Treasury responds.
Although OIRA hasn’t outright rejected any of Treasury’s proposed tax regulations thus far, “there are certainly changes that flow from that iterative process,” the official said, adding that several back-and-forth exchanges occur even within the context of the expedited review periods.
A Treasury spokesperson affirmed the accuracy of that characterization of the review process but declined to specify what, if any, changes had been made to tax regs.
The administration official emphasized several times that all TCJA-related regs that have undergone review by OIRA are only at the proposed stage. Given the concerns about the importance of providing taxpayers with expedient guidance on the new tax law, the goal of OIRA’s reviews at this stage is often to raise issues that can then be more thoroughly discussed before the final rule is issued and takes effect, the official said.
“We’re trying to add as much value as we can with the expedited review and also tee up issues for public comment,” the official explained.
Although questions had been raised over whether OIRA has staff with sufficient technical expertise to effectively review tax regulations, the official offered assurance that “we have a good tax team that has been working on these rules.” The official added that several staff hires that had been stuck in the government hiring process are now working, and more are being hired.
Treasury is required to consider and describe regulatory alternatives for the regs that it issues, but in several instances, the alternative it posed was to simply do nothing.
Not every proposed regulation achieves the optimal amount of analysis and consideration of alternatives, but time and resource constraints play a role in that, the administration official acknowledged. A more robust consideration of alternatives would be expected in the final regs, particularly because the public will have had time to comment on the issues, the official continued.
The official also indicated that while Treasury has until April 2019 to develop its formal regulatory impact analysis for tax regulations, the economic analyses it provided so far are “improving with each rule review.”
Observers have noted that tax regulations present unique challenges to the standard cost-benefit analytical framework.
About Those Expensing Regs
Section 168(k) ordinarily would have met the criteria for review by OIRA, but the agency is seeking regs for which it would be appropriate to waive review, given the urgency related to TCJA actions and the fact that all of the regs are at the proposed rule stage, the official said.
Waivers are more likely to be offered in cases in which the regulation in question is a straightforward application of the statute and doesn’t raise any novel or legal questions, the official explained.
But waiving review at the proposed rule stage doesn’t necessarily mean it will be waived at the final rule stage, the official added.
Fly on the Wall
Representatives for industries affected by the reviewed regs each reported different experiences meeting with officials from OMB and Treasury during the OIRA reviews.
“It was very strange, different than any meeting I’d been in before,” said one representative, who described the meeting as a listening session where the officials present were nearly stoic. “They gave us an opportunity to express our view and concern. And then it was over,” the representative said, adding that the meeting took less than 30 minutes.
But two other lobbyists, who attended separate meetings, said there was some dialogue between the industry representatives and the officials present, although they both noted it was almost exclusively OMB and OIRA staff who interacted, rather than anyone from Treasury.
One reason offered by the lobbyists for the stoicism of Treasury staff is that their members are already available to meet to discuss issues and concerns while regs are being developed, making their presence at the OMB meetings somewhat redundant.
And despite the concerns about OIRA’s expertise on tax issues, the two lobbyists both indicated that the OMB staff appeared to be closely acquainted with the issues discussed, with one lobbyist describing the OIRA staffers as asking “extremely specific” questions.
Those meetings, required by Executive Order 12866, are intended to be listening sessions, according to the administration official. Some of the meetings held have been “very helpful” in providing OMB staff with a better sense of how the regs might work in practice, the official said.
The meetings on tax regs have also occasionally featured officials from other federal agencies outside of OMB and Treasury, according to the OIRA website, which lists all meeting attendees.
For example, the website indicates that a National Economic Council official attended two meetings on the highly anticipated section 199A passthrough deduction regs, and a senior adviser with the Department of Housing and Urban Development was at a meeting about the regs addressing state and local income tax deduction workaround strategies.
The administration official explained that the presence of those other federal agencies is common, and that OIRA has received “some very good feedback” on the tax regs from other offices in the administration through the interagency regulatory review process.
Hello From the Other Side
Unlike the listening sessions required under Executive Order 12866, meetings solely with Treasury staff are far more conversational, the lobbyists said.
Although lobbyists aren’t privy to the draft tax regs that OIRA reviews, each of the ones interviewed indicated that with the deregulation-focused Trump administration in power, they view the meetings with the OMB, and the agency itself, as a potential backstop against tax regs that may be damaging to their interests, based on the statutes or on prior statements by Treasury.
“Theoretically, if the Treasury or IRS meetings didn’t go so well . . . there’s always another shot at the apple with OMB,” one lobbyist remarked.
Determining what effect, if any, the meetings with the OMB had on the outcome of the proposed regs is unclear, but for two meeting attendees who spoke to Tax Notes, at least the desired outcome in the proposed regs was achieved.
“I’d do it again if we had the chance,” one lobbyist said.
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