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Tax Regulations Subject to New Scrutiny Under Agency Agreement

Major proposed tax regulations by the Treasury Department will be subject to a new layer of review in the future, potentially affecting the drafting of retirement-based regulations.

Under the terms of an April 11 Memorandum of Agreement between the Treasury Department and the Office of Management and Budget (OMB), a tax regulatory action will be subject to review by the OMB’s Office of Information and Regulatory Affairs (OIRA) if it:

  • has an annual non-revenue impact on the economy of $100 million or more;

  • creates an inconsistency or interferes with action taken by another agency; or

  • raises a novel legal or policy issue.

The agreement supersedes a previous arrangement between the agencies that had been in place since 1983. It’s not fully clear what the underlying motivation was for the change, but Treasury Secretary Steve Mnuchin and OMB Director Mick Mulvaney reportedly had been in a dispute over this matter for the last several weeks.

“This updated review framework will increase scrutiny of regulations most likely to impose new costs, while preserving Treasury’s ability to ensure taxpayers receive timely, clear rules and guidance on how to comply with our tax code," Mnuchin said in an April 12 statement. "Under today’s agreement, Treasury will continue to swiftly and successfully implement historic tax reform while still avoiding needless regulatory costs and delays.”

According to the memorandum, OIRA will have up to 45 days after submission of the action for review. To expedite guidance under the Tax Cuts and Jobs Act of 2017, Treasury and OIRA could mutually agree to designate certain items for a 10-day expedited review, subject to extension.

Treasury would be prohibited from publishing in the Federal Register or otherwise publicly releasing any tax regulatory action within the scope of the agreement unless OIRA notifies Treasury that it has concluded or waived its review. In the “rare event” of a policy disagreement, the two agencies will facilitate a principals meeting to resolve any remaining issues and, if necessary, “elevate those issues to the President,” the memorandum explains.

It’s not clear what specific tax regulatory projects will get swept into the new process, but a cursory review of the Treasury priority guidance plan suggests that some retirement and compensation-based projects could be subjected.

Some industry stakeholders fear that in many cases the additional layer of scrutiny will slow down the process of getting much-needed guidance to practitioners who rely on the regulations for compliance. The Treasury Department and IRS have dedicated experts in tax policy who specialize in the various sections of the tax law and understand the nuances and interactions when drafting complex regulations.

Supporters of the change argue that it is consistent with the President’s April 2017 Executive Order calling for a reduction in the burden and cost new and existing regulations.