By SAM HANDWERGER
SMITH BRAIN TRUST - “OK, tell me what to do.”
“I can't tell you.”
“Well, the president told me not to.”
“But I need you to explain to me the law so I can understand how to apply the law.”
“Well, that's just the way it is. The president doesn't want me to explain the law to you.”
If this sounds ridiculous and ludicrous, it is. If it sounds like something that couldn't happen in the real world, it has.
President Donald Trump, in writing an executive order that requires two existing regulations be eliminated for every new regulation created, has effectively caused the above scenario to happen.
I am referring specifically in this case to the regulations accompanying the Internal Revenue Code. President Trump’s idea is to lessen government burden, but in the case of IRS regulations these are, for the most part, interpretive of the actual tax law. The regulations help more than hinder tax preparers and tax planners since they give insight as to how the executive branch of our government is going to enforce the law. Without this information, taxpayers are often left guessing.
An executive order to ban new regulations is not atypical of new administrations. It is pretty common and it usually doesn't last for long. However, there is something unusual in this instance. The way this ban was written by the president leaves open the possibility that the ban is all-encompassing on the Department of Treasury. In other words, it may not only ban the Department of Treasury from writing regulations, but it may also ban the Internal Revenue Service from writing notices, rulings and procedural documents. This is not a good thing for taxpayers or the IRS as these are also primary ways for communicating clarification of tax law and procedure for tax compliance. If the ban lasts a long time, it could be crippling. Fortunately, it is not expected that this particular part of the recent executive orders will last long.
When it comes to the executive order calling for rescinding two “old” regulations for each “new” one, the order does not appear to be temporary in nature. And that’s tricky. The regulations of the Treasury make a complicated tax code less complicated, and they explain how to apply the rules to various situations that might not otherwise be obvious. Routinely the Treasury rescinds old regulations when they are out of date or when they no longer apply. The Treasury Department cannot simply stop writing regulations for the tax code, nor can it simply eliminate already existing regulations that explain the law as it stands today.
Further, and this really drives home the point, often the law itself dictates that the Treasury Department write regulations describing how to implement the law. Language in the executive order may allow the Treasury to complete these without having to rescind two older ones.
Nevertheless, there are certain regulations at the forefront of taxpayer and IRS concern today. Chief amongst those are regulations regarding debt-to-equity ratios for cross-border transactions and audit procedures for large partnerships. The latter regulations have been highly anticipated by the tax practitioner community and the IRS as a way of relieving burdensome procedures to partners of a partnership under audit. Since regulations have to go through a public disclosure process that takes time, these and other important regulations could be unduly delayed to the detriment of taxpayers.
Sam Handwerger, CPA, is a full-time lecturer in the accounting and information assurance department.