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Congressional Review Act Threatens Some Trump Tax Regs But . . .

Posted on Jan. 11, 2021

Now that Democrats have gained control of the Senate, they can use a procedure available under the Congressional Review Act (CRA) to nullify tax rules and regulations sent to Congress since late August 2020. But the procedure is so cumbersome that Democrats are unlikely to use it.

The basic idea behind the CRA is that Congress has the option to nullify rules and regulations within 60 legislative days after they are issued. The precise rules surrounding implementation of the CRA are complex and in many cases uncertain. Here are three key points to keep in mind.

First, without the CRA, it is difficult for a new administration on its own to overturn a finalized regulation. To do so, it would have to repeat the entire formal process required by the Administrative Procedure Act, including issuing proposed regulations, requesting comment, and promulgating final regulations. Also, it could be awkward in court and elsewhere to contradict its reasons for issuing the original regulations.

Second, the CRA doesn’t increase congressional powers. Under the Constitution, Congress can always write laws that override regulations. The CRA merely provides streamlined procedures. Most notably, consideration cannot be blocked by filibuster in the Senate.

Third, as a practical matter, the CRA comes into play only during a presidential transition in which the outgoing president and the new president are affiliated with different political parties and the new president’s party controls both houses of Congress. That is because it is highly unlikely a president would agree to sign the joint resolution to invoke the CRA against his own regulation (although a veto can be overridden with a two-thirds majority in both houses). And it is highly unlikely that members of a party controlling either house would agree to disapprove a rule or regulation issued by a president of their own party.

The CRA was enacted in 1996. The political conditions noted above have existed only twice before: in 2009 after the election of George W. Bush, and in 2017 after the election of Donald Trump. President Bush and the Republican-controlled 107th Congress used the CRA once to nullify a Clinton administration rule. President Trump and the Republican-controlled 115th Congress approved 14 resolutions repealing Obama administration rules. The CRA has never been used to disapprove a tax rule.

Several issues could prevent Democrats from using the procedures provided by the CRA. Let’s rattle off a few. Any resolution implementing the CRA can apply to only one rule, and it must apply to the entire rule. The CRA allows 10 hours of debate on the resolution, which is a huge cost in terms of lost floor time for any new administration with an ambitious agenda. If the resolution passes, the CRA prohibits the issuing agency from issuing “substantially similar” regulations; although the meaning of substantially similar is ambiguous and hasn’t been tested in court, a new administration may not want to preclude adopting some part of the original regulation. Most Trump administration tax regulations were taxpayer favorable; it probably wouldn’t be difficult to find at least one Democratic senator who disagreed with nullifying a targeted regulation. In the end, if Democrats want to disapprove a regulation, it may be simpler to use non-CRA legislative procedures like budget reconciliation, which also cannot be blocked by a Senate filibuster.

For reasons we will spare you, figuring out when a 60-day legislative lookback process begins is only slightly less difficult than solving a Rubik’s cube. But experts on this topic have calculated that only rules submitted to Congress after August 21, 2020, can be caught in the CRA net. (By the way, although the two dates usually are close to each other, the date of publication in the Federal Register and the date of official submission to Congress — which requires receipt by the House, the Senate, and the comptroller general at the Government Accountability Office — aren’t always the same.)

The GAO website provides a list of all rules submitted to it. Since August 22, the GAO has received 48 IRS-related rules. Of these, 32 are classified as “significant/substantive” and the remaining 16 are “routine/info/other.” Of the 32 significant rules, the table below includes 22 final regulations and omits revenue rulings and revenue procedures.

For taxpayers and their advisers who like these rules, the good news is that given all the practical obstacles, it seems unlikely they will be revoked by the CRA. The bad news is that doesn’t mean they are invulnerable to attack by the Democrats if Congress and the administration have the time and the willingness to disapprove them.

General Accountability Office List of Significant Tax Regulations Sent to Congress After August 21, 2020

 

Treasury Decision

Regulatory Information Number

GAO Description/Informal Description

Date Published

Date Effective

Date Received

1

9932

1545-BO95

Specific employee remuneration exceeding $1 million under section 162(m).

Final regs implementing more limitations of deductions of executive compensation.

Dec. 30, 2020

Dec. 30, 2020

Dec. 28, 2020

2

9940

1545-BP41

Misdirected direct deposit refunds.

Final regs for correcting IRS failure to send refund claims to correct account.

Dec. 22, 2020

Dec. 22, 2020

Dec. 23, 2020

3

9939

1545-BP49

Qualified transportation fringe, transportation, and commuting expenses under section 274.

Final regs concerning Tax Cuts and Jobs Act limitation on deductions of commuting expenses.

Dec. 16, 2020

Dec. 16, 2020

Dec. 15, 2020

4

9921

1545-BP16

Source of income from specific sales of personal property.

Final regs implementing TCJA tightening of favorable source rules on exported property.

Dec. 11, 2020

Dec. 11, 2020

Dec. 14, 2020

5

9933

1545-BO79

Unrelated business taxable income separately computed for each trade or business.

Final regs implementing TCJA tightening of rules on business income received by nonprofit organizations.

Dec. 2, 2020

Dec. 2, 2020

Dec. 1, 2020

6

9912

1545-BP76

Guidance clarifying premium tax credit unaffected by suspension of personal exemption deduction.

Final regs clarifying that the reduction of the personal exemption deduction to zero doesn’t affect healthcare premium credit.

Dec. 1, 2020

Dec. 1, 2020

Dec. 1, 2020

7

9934

1545-BP57

Coordination of extraordinary disposition and disqualified basis rules.

Final regs preventing “excess taxation” of income from foreign subsidiaries subject to current tax under global intangible low-taxed income rules (section 951A) and tax on distribution under TCJA dividend exemption rules (section 245A).

Dec. 1, 2020

Jan. 12, 2021

Dec. 1, 2020

8

9926

1545-BO60

Withholding of tax and information reporting regarding interests in partnerships engaged in a U.S. trade or business.

Final regulations implementing new TCJA withholding rules on foreign partners doing business in the United States.

Nov. 30, 2020

Nov. 30, 2020

Nov. 30, 2020

9

9923

1545-BM68

Guidance under section 529A: qualified ABLE programs.

Final rules for tax-favored accounts for families raising children with disabilities.

Nov. 19, 2020

Nov. 19, 2020

Nov. 18, 2020

10

9930

1545-BP11

Updated life expectancy and distribution period tables used for determining minimum required distributions.

Final regs updating rules for retirement accounts.

Nov. 12, 2020

Nov. 12, 2020

Nov. 9, 2020

11

9919

1545-BO86

Gain or loss of foreign persons from sale or exchange of certain partnership interests.

Final regs for determining gain or loss from business in the United States.

Nov. 6, 2020

Nov. 6, 2020

Nov. 9, 2020

12

9914

1545-BP20

Eligible terminated S corporations.

Final regs to ease election to change from S to C corporation status.

Oct. 20, 2020

Oct. 20, 2020

Oct. 21, 2020

13

9918

1545-BO87

Effect of section 67(g) on trusts and estates.

Final regulations clarifying that some costs incurred by estates and trusts are not miscellaneous itemized deductions disallowed by the TCJA.

Oct. 19, 2020

Oct. 19, 2020

Oct. 21, 2020

14

9917

1545-BO75

Guidance on the determination of the section 4968 excise tax applicable to specific colleges and universities. Final regulations defining which institutions are subject to 1.4 percent endowment tax.

Oct. 15, 2020

Oct. 14, 2020

Oct. 22, 2020

15

9913

1545-BP52

Dependent defined. Final regulations defining dependent (for various code sections) since TCJA repealed personal exemption amount through 2025.

Oct. 13, 2020

Oct. 13, 2020

Oct. 21, 2020

16

9925

1545-BP23

Meals and entertainment expenses under section 274.

Final regs pertaining to entertainment and lavish food and beverage expenses deduction disallowed by the TCJA.

Oct. 9, 2020

Oct. 9, 2020

Oct. 6, 2020

17

9924

1545-B032

Income tax withholding from wages.

Final regulations for employers reducing withholding under August 8 memorandum from White House to Treasury.

Oct. 6, 2020

Oct. 6, 2020

Oct. 6, 2020

18

9920

1545-BP69

Income tax withholding on specific periodic retirement and annuity payments under section 3405(a).

Final regs implementing default withholding on payments from pension plans.

Oct. 1, 2020

Oct. 1, 2020

Oct. 6, 2020

19

9908

1545-B052

Ownership attribution under section 958, including for determining status as controlled foreign corporation or U.S. shareholder.

Final regs providing guidance on TCJA change to attribution rules so more U.S. shareholders are subject to U.S. tax on foreign subsidiary income.

Sept. 22, 2020

Sept. 22, 2020

Sept. 21, 2020

20

9915

1545-BP56

Rehabilitation credit allocated over a five-year period.

Final regs pertaining to TCJA change in law spreading out receipt credit over five years.

Sept. 18, 2020

Sept. 18, 2020

Sept. 21, 2020

21

9906

1545-BN42

Nuclear decommissioning funds.

Final version of regs proposed in 2016 pertaining to deductions for contributions to trusts maintained for decommissioning nuclear power plants.

Sept. 4, 2020

Sept. 4, 2020

Sept. 8, 2020

22

9909

1545-BP35

Limitation on deduction for dividends received from specific foreign corporations and amounts eligible for section 954 lookthrough exception.

Corrects final regulation issued August 21 revising controversial regulation issued in 2019.

Aug. 27, 2020

Aug. 27, 2020

Aug. 25, 2020

Source: GAO, “Congressional Review Act — Reports on Major Rules,” and commentary by the author.

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