Retroactive Regulations

Transcription

1 Retroactive Regulations 2018 TEI Tax School May 11, 2018 Houston, Texas

2 Speakers Summer Austin Washington, D.C. Matt Mauney Houston, Texas 2

3 The Administrative Procedures Act should reflect either the terms or substance of the proposed rule or a description of the subjects and issues involved notice and comment 3

4 Exceptions to the APA Four exceptions to the APA: interpretative rules, procedural rules, policy statements, and good cause 4

5 Rules under the Code Section 7805 The Secretary shall prescribe all needful rules and regulations for the enforcement of the Code, including all rules and regulations as may be necessary by reason of any alteration of law Except as provided, no temporary, proposed, or final regulations can apply before the earlier of (i) the date the regs. are filed with the FR, (ii) in the case of final regs., the date on which the proposed or temporary regs. were filed with the FR, or (iii) the date on which any notice substantially describing the reg is issued Exceptions include (i) regs. issued within 18 months of a new statutory provision, (ii) prevention of abuse, (iii) congressional authorization to issue retroactive regs. Temporary regulations shall also be issued as proposed, and expire after 3 years Congress adopted section 7805 out of fairness concerns and to limit Treasury s discretion in making its regulations retroactively applicable. 5

6 Treasury s Typical Practice Treasury has three typical approaches to issuing regulations: Follow the APA and issue a notice of proposed rule making prior to issuing final, effective regulations Issue effective temporary regulation along side a notice of proposed rule making More often than not Treasury claims that the APA is inapplicable without providing an explanation Issue final regulations without notice and comment 6

7 Chamber of Commerce v. IRS 1 District Court in the Western District of Texas held that certain temporary regulations under section 7874 were invalid because Treasury failed to follow the notice and comment requirements of the APA The IRS argued that the temporary regulations were exempt from the APA notice and comment requirements because of section 7805(e), or, alternatively, because the temporary regulations were interpretative The court concluded that section 7805(e) did not exempt temporary regulations from the APA requirements, but, instead, placed additional requirements and restrictions with respect to temporary regulations The court also rejected the IRS argument that the regulations were interpretative An IRS appeal is pending before the 5 th Circuit U.S. Dist. Lexis

8 Self Executing Under certain circumstances, a statutory delegation of regulatory authority can be selfexecuting, meaning it has legal effect even in the absence of regulations Questions to ask are: Is the delegation mandatory (e.g., shall prescribe or prescribed by ) or permissive (e.g., may prescribe ); a mandatory delegation is more likely to be self executing Are regulations need to determine whether the statutory provision applies or how the statutory provision applies; courts are more willing to find self-executing if the regulations will merely address how the statute is to be implemented Is there sufficient guidance in the overall structure and purpose of the provision, legislative history, or other guidance to support the position being taken? [I]n the absence of regulations, [a delegation] should be applied if it is determined that the statute sets forth a clear rule and the literal application of the statute will not produce a result demonstrably at odds with congressional intent. - TAM (citing Pittway, 102 F.3d 932 (7th Cir. 1996) and International Multifoods, 108 T.C. 579 (1997)) 8

9 Self Executing Is the delegation taxpayer friendly; some courts are more likely to find the delegation self-executing if it provides the taxpayer a benefit the Secretary s failure to issue regulations does not bar application of a beneficial tax statute. Francisco, 119 T.C. 317 (2002) 9

10 Legislative Regulatory Grants in the TCJA Section 59A Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of [section 59A] Including (i) use of related persons, conduit transactions, or other intermediaries, (ii) transactions or arrangements designed, in whole or in part, to recharacterize or substitute a payment such that it is not subject to section 59A, and (ii) the definition of related party Section 163(j) adjustments to adjusted taxable income as provided by the Secretary Section 250 Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of [section 250] 10

11 Legislative Regulatory Grants in the TCJA Section 267A Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of [section 267A] Including: certain conduit arrangements, application to branches or domestic entities, structured transactions, tax preferences as exclusions from income, effect of participation exemption or similar systems, tax residence in the cause of dual or no tax residency, exceptions where the payment is taxed by a third country or does not present a risk of eroding the U.S. tax base, and record keeping and information reporting 11

12 Legislative Regulatory Grants in the TCJA Section 951A Secretary shall issue such regulations or other guidance as the Secretary determines appropriate to prevent the avoidance of the purposes of [subsection 951A(d) (QBAI rules)] Section 965 a reduction of accumulated post-1986 deferred foreign income for certain E&P attributed to non-u.s. shareholders to the extent provided in regulations... prescribed by the Secretary Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of [section 965] including (i) appropriate basis adjustments and (ii) to prevent the avoidance of the purposes of [section 965], including through a reduction in earnings and profits, through changes in entity classification or accounting methods, or otherwise 12

13 Personnel Announcement Kristin E. Hickman named as special adviser to the Administrator of the Office of Information and Regulatory Affairs (OIRA), which is within OMB. Department of the Treasury and OIRA crafted a new Memorandum of Agreement providing for OIRA review, and thus more transparency and accountability, for tax-based regulatory actions. Selection of Prof. Hickman s articles: Administering the Tax System We Have - 63 Duke L.J (2014) A Problem of Remedy: Responding to Treasury's (Lack of) Compliance with Administrative Procedure Act Rulemaking Requirements - George Washington Law Review, Vol. 76, 2008 Coloring Outside the Lines: Examining Treasury's (Lack of) Compliance With Administrative Procedure Act Rulemaking Requirements - Notre Dame Law Review, Vol. 82,

14 Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. This may qualify as Attorney Advertising requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.