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Trump Administration: Tools to Modify Current Tax Guidance

The election of Donald J. Trump as the 45th President of the United States, along with the Republican control of the majority of both the House of Representatives and the Senate, has raised the possibility that current Treasury regulations may be modified or nullified. The Trump Administration can consider one of two methods to do so:

  1. The IRS/Treasury may issue new, and simultaneously withdraw existing, Treasury regulations, or

  2. Congress can act under the Congressional Review Act (“CRA”) to strike down Treasury regulations.

The easier of the two methods for the IRS/Treasury to modify or nullify current Treasury regulations would be to withdraw existing temporary and/or final Treasury regulations and issue new proposed Treasury regulations. In doing so, the IRS/Treasury, similar to other administrative agencies, must satisfy the current interpretations of the Administrative Procedure Act. Typically, this requires a notice and comment period for new proposed Treasury regulations prior to finalization of the Treasury regulations. In addition, the IRS/Treasury generally needs to acknowledge that it is changing its policy when withdrawing the Treasury regulations and state the reasons for the change, though it does not need to prove that its new policy is better than its old policy.

As an alternative, Congress can act under the CRA to strike down Treasury regulations. Under the CRA, Congress may act by passing a joint resolution to disapprove Treasury regulations, although the President can veto the disapproval.  From the time a CRA report is submitted, Congress has 60 legislative days to review the rule (60 session days in the case of the Senate and 60 legislative days in the case of the House of Representatives).  If an agency rule is promulgated when there are 60 or fewer legislative days remaining in the legislative session, the rule is also subject to review under the CRA in the following Congressional session. Congress may be hesitant to use this approach because once a Treasury regulation has been disapproved, the agency generally cannot issue a rule that is substantially the same. Because of these procedural difficulties, it should not be surprising that the CRA has rarely been used to override administrative regulations.

We can expect the Trump Administration to consider the modification of numerous Treasury regulations, including the recently issued debt-equity regulations under I.R.C. section 385 (view our previous memo here) and the anti-inversion regulations under I.R.C. section 7874 (view our previous memo here), and we would generally expect that it would issue new, and withdraw existing, Treasury regulations to achieve its objectives.

© Copyright 2020 Cadwalader, Wickersham & Taft LLPNational Law Review, Volume VI, Number 335


About this Author

Mark P. Howe, Cadwalader Law Firm, Corporate Taxation Attorney

Mark Howe's practice is concentrated in partnerships, financial products, securitization, the tax aspects of capital markets, general corporate finance, securities, and commodities. His work includes emphasis on the tax structuring of domestic and offshore investment funds and in the development, structuring, and implementation of a wide variety of financial and derivative products and transactions, such as fixed income, currency, equity, and commodity linked swaps, forwards, notes, options, and similar instruments and transactions, securities and other instruments with...

Edward Wei, Cadwalader Law Firm, Taxation Attorney

Edward Wei is a tax lawyer with extensive experience in U.S. and international tax matters, including taxable and tax-free mergers and acquisitions, divestitures, tax-free spin-offs, leveraged buyouts, initial public offerings, formation of funds, real estate transactions, equity and debt financings, and restructurings.

Ed routinely provides tax planning advice for multinational companies within and outside the affiliated group context and advises on structuring partnership and limited liability company formations (including publicly traded partnerships), joint ventures and real estate funds.  He also advises debtors and creditors in troubled companies, both within and outside of bankruptcy, and in structuring the tax aspects of financial instruments, derivatives and other capital market transactions. In addition, Ed has experience with various employee benefits and executive compensation issues arising in mergers and acquisitions. 

Gary T. Silverstein, Cadwalader, Debt Issuances Lawyer, Asset Backed Securities Attorney

Gary Silverstein represents issuers, underwriters, insurers, and other parties in connection with the tax aspects of mortgage-backed and asset-backed securities, REMICs, CLOs, CRE-CLOs, and other debt issuances. He has extensive experience in structuring commercial and residential mortgage-backed securitizations and resecuritizations (including “RE-REMICs”), and in other capital markets transactions. Gary advises borrowers and lenders (including securitization vehicles) in connection with loan workouts, foreclosures, and restructurings. He is also involved in the...

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Linda Z. Swartz, Cadwalader, complex global mergers lawyer, joint ventures attorney

Linda Swartz, the Chair of Cadwalader's Tax Group and a member of the firm's Management Committee, focuses her practice on structuring complex global mergers and acquisitions, spin-offs, joint ventures, and restructurings, and on foreign tax planning strategies. She also has considerable experience advising clients on financings, derivative transactions, and executive compensation issues.

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