A newly obtained document from the IRS reveals ambitious timetables for some of the Tax Cuts and Jobs Act’s most important guidance projects, though it appears several goals have already been missed.
Tax Notes obtained the February 26 Tax Reform Enterprise Integrated Program Plan, the final version of which is nearly 10,000 Excel rows long, via a Freedom of Information Act request from April. The plan was described by the Treasury Inspector General for Tax Administration as a tool developed by the Tax Reform Implementation Office (TRIO) and completed by IRS operating divisions implementing the various TCJA provisions. It indicates when projects began, when they were completed or are anticipated to be completed, and how far along the projects are.
The planning tool is broken down by each provision's section number corresponding to the TCJA conference report. All told, the tool incorporates thousands of projects and updates across more than 100 provisions of the TCJA. In addition to reg projects, the tool outlines goals for notices, revenue procedures, soft guidance, forms and instructions, employee training, and revisions to the Internal Revenue Manual.
TRIO, devised to centralize TCJA implementation, closed down in March after completing the initial implementation push, though much guidance remained to be issued. Following its closing, Treasury Assistant Secretary for Tax Policy David Kautter praised the office for its “enormously effective job.”
Pending International Guidance
That the IRS has missed its mark for the release of several reg projects may not come as a surprise. A Treasury official previously hinted that not all international tax guidance would make the June 22 deadline that would enable retroactivity for its regs back to the enactment of the TCJA.
Treasury has not wavered in its commitment to release final regs on the global intangible low-taxed income provision before June 22, however. Those regs already missed the release goal under the plan, which aimed for April 30. The regs are nearing completion, as they are under review by the Office of Management and Budget's Office of Information and Regulatory Affairs.
OIRA review is a new step in the review process that was implemented following disagreement in the administration over tax’s historical exemption from OMB oversight. The OIRA review process has been criticized as slowing the release of guidance.
According to the plan, highly anticipated final foreign tax credit regs are targeted for release June 21. Following that, final regs for the section 250 deduction related to the foreign-derived intangible income and GILTI provisions have a release date goal of July 31. The IRS is aiming to finalize the base erosion and antiabuse tax regs shortly thereafter on August 16, and it hopes to release final rules on hybrid transactions and hybrid entities by September 23. The order of those timelines doesn't quite mesh with Treasury's intention that final international guidance would be released in the order it was proposed.
Notices and regulations include timelines for first drafts and for green and pink circulations before public release. According to IRM section 32.1.6, a green circulation draft is a draft distributed outside the initiating associate chief counsel office to other counsel and IRS offices that are involved in or affected by a project for review. The pink signature package contains the documents submitted to the Federal Register that are authorized for publication by chief counsel, the commissioner (or deputy commissioner for services and enforcement), and the assistant secretary for tax policy.
Under additional guidance items, the plan slated the release of proposed regs on the definition of previously taxed earnings and profits for August 16. As of February 26, the green circulation for those rules was already completed, but the pink circulation had not yet begun.
Interestingly, the plan set a March 29 release date for section 245A proposed regs on the deduction for dividends received from foreign corporations and a June 21 release for those final regs. Special rules concerning the participation exemption system for the taxation of foreign-source income follow the same timeline. The pink circulation to Treasury of the proposed regs for both projects was completed by January 28, but temporary regs under section 245A and section 91 were not sent to OIRA for review until May 14, where they currently sit.
The TCJA’s repeal of section 958(b)(4), which had provided that downward attribution was not to be applied so that a U.S. person would be regarded as owning stock owned by a non-U.S. person, caused practitioner concerns over the potential creation of numerous new controlled foreign corporations. Its repeal has led to acknowledgment from the IRS that it has had to survey other provisions of the code to gauge the impact. The plan set a goal of March 28 for release of proposed regs on the issue, with a pink circulation draft having been completed December 10, 2018. The IRS released guidance May 17 addressing older CFC attribution rules without tackling the broader issues caused by repeal of section 958(b)(4).
Passthrough Deduction
Taxpayers can expect more guidance implementing the passthrough deduction over the next few months, according to the plan.
The passthrough deduction in section 199A generally provides a 20 percent deduction for qualified business income for passthrough business owners, including sole proprietors. The IRS estimates the deduction will be claimed on more than 20 million tax returns and above specific income thresholds; it’s limited by wages paid and basis in property.
The IRS released final rules in January implementing the broader aspects of the deduction, but other guidance projects on the topic remain outstanding.
The IRS set a March 11 deadline for the public release of how agricultural and horticultural cooperatives can use the deduction in section 199A(g), but the proposed rules weren’t sent to OIRA for review until April. The rules have since cleared OIRA review, but as of May 29 they haven’t been released to the public.
On the same day final regulations were released, the IRS issued a proposed revenue procedure providing a safe harbor for rental real estate owners unsure if they qualified for the deduction. The proposed revenue procedure raised the ire of many practitioners because triple net leases were explicitly excluded from using the safe harbor and are forced to navigate section 162 to determine if the rental rises to the level of a trade or business.
According to the plan, the final rental safe harbor is planned to be released by June 22. The IRS is also hoping to release final guidance on regulated investment companies and trusts by June 22.
Interest Limitation Guidance
Final guidance on the business interest deduction limitation may be released by August 1, according to the plan.
The TCJA amended section 163(j) to limit the business interest expense deduction to the sum of business interest income, 30 percent of adjusted taxable income, and floor plan financing interest. ATI excludes income, gains, deductions, or losses not properly allocable to a trade or business; business interest or business interest expense; deductions for net operating losses; deductions under section 199A; and for tax years 2018 through 2021, deductions allowable for depreciation, amortization, or depletion.
Proposed rules on the limit released November 26, 2018, punted on several issues — such as tiered partnerships and self-charged interest — but the government has recently indicated that a second round of proposed regulations will likely tackle those issues.
However, the timeline for the second round of rules isn’t listed in the plan.
Other Notable Projects
Unlike many of the projects listed, the Opportunity Zone program has no timeline under the plan for when final regulations will be released for either of the two sets of proposed regulations that have already been issued. The plan also doesn’t indicate that a third set of proposed regulations is in the works. Officials have said a third set of regulations is possible but only if it’s deemed necessary.
Two notices related to the deduction limitation for state and local taxes are also listed. One concerns “providing a safe harbor for payments under the limit,” and the other relates to “[section] 702 and [section] 1366 on certain payments of state and local taxes by partnerships and S corporations.” A notice related to the SALT deduction is currently under OIRA review, but OIRA's website says only that it will provide guidance related to section 164 and section 170(c).
Proposed regs on section 451(b) and section 451(c) were set to be released March 6 but have yet to materialize. The section 451(c) regs are under review at OIRA, but the section 451(b) regs aren’t listed as under review. The plan also lists a method change revenue procedure to accompany the section 451(c) proposed regs.
The plan indicates that the final regulations on section 168(k) bonus depreciation will be made public July 31. It also indicates that the IRS hopes to issue a revenue ruling on the same day that explains the application of section 168(k) to property qualified before September 28, 2017, and placed in service after 2017.
Guidance on the business loss limitation is scheduled for release May 31. The plan indicates that guidance will relate to the coordination of the excess business loss deduction with other code sections, but it does not indicate if it will take the form of proposed regs. That project doesn’t appear to be included in the most recent priority guidance plan.
Also not listed in the priority guidance plan are proposed regulations on the repeal of partnership technical terminations, which the TRIO plan says will be issued July 30.
Proposed regulations on the section 512(a)(6) silo rule for unrelated business income tax is scheduled for release July 31. Proposed regs on the section 162(m) deduction limitation and the section 4960 excise tax are slated for release October 14 and November 29, respectively.