(Bloomberg) -- White House Budget Director Mick Mulvaney successfully won his push to weigh in as the Internal Revenue Services clarifies dozens of the new tax law’s provisions.
A joint statement Thursday from the Office of Management and Budget and Treasury Department establishes a new process for reviewing tax regulations following months of debate. Since 1983, most IRS tax regulations have been exempt from the OMB’s cost and benefit analysis, which applies to most executive agencies.
The tax law signed by President Donald Trump in December revamped the tax code, but now the IRS is tasked with interpreting its text and answering many questions that remain -- such as what kinds of businesses can qualify for the new 20 percent deduction for pass-through entities and which assets are subject to new international levies.
“Today’s agreement ensures increased accountability and transparency for the American people as we continue to implement tax cuts across the country,” Mulvaney said in the statement. “It is critical that we complete an efficient yet proper cost-benefit analysis of tax regulations.”
Treasury Secretary Steven Mnuchin said in the statement that he was pleased with the agreement and that it would preserve Treasury’s ability to ensure taxpayers receive timely, clear rules and guidance on how to comply with the tax code.
Brent J. McIntosh, Treasury’s general counsel, said in prepared remarks for a Senate Homeland Security and Governmental Affairs subcommittee hearing on Thursday morning that the new framework restricts OMB analysis to tax regulations that are most likely to impose undue costs. He told reporters after the hearing that the agreement represented exactly where Treasury “felt we should have ended up.”
Former Treasury tax officials had raised concerns about the lack of tax experts at OMB, and how involving OMB could slow down implementation of the new tax law. OMB and Treasury are looking to add about 10 tax experts each as the federal government works to implement the new law over the next several years, McIntosh and Neomi Rao, administrator for the OMB’s office of information and regulatory affairs, said at the subcommittee hearing.
The deal gives the OMB’s office of information and regulatory affairs the ability to review regulations if they’ll create an inconsistency with a regulatory action planned by another agency, raise “novel legal or policy issues,” or have an effect on the economy of at least $100 million.
IRS regulations about the the pass-through deduction, full and immediate expensing, limits on corporate interest expenses and the international tax provisions affecting global intangible low-taxed income are all areas that could hit the triggers requiring OMB review, according to McIntosh.
Treasury will also have to submit to OMB a quarterly notice of planned regulatory actions and explain why the regulation is subject to review. Treasury will engage with OMB in “substantive consultation” regarding any tax regulations if the administrator for OMB’s office of information and regulatory affairs requests it.
The agreement says OMB must conclude its review of regulations within 45 days, unless OMB and Treasury mutually agree to an extension. Treasury also has the power to designate certain regulations for expedited release, which can’t be reviewed for longer than 10 days by OMB unless both sides agree to an extension.
If the two agencies have a policy disagreement that can’t be resolved, it will be elevated to the president.
During a Senate Finance Committee hearing about the IRS on Thursday morning, the top Democrat on the panel, Ron Wyden of Oregon, emphasized the timely need for IRS clarification on the new tax law’s pass-through deduction.
“There is rampant confusion about how the new tax law works -- untested policies, sloppy legislative drafting, and outright mistakes in the law,” Wyden said. “On top of that, a Trump cabinet turf battle has been adding to the uncertainty and lengthening the time that small businesses are going to be in the dark about how the tax rules apply to them.”
Top Republican leaders have endorsed the IRS’s authority over tax regulations. During a Bloomberg TV interview last month, when asked about OMB’s involvement, House Ways and Means Chairman Kevin Brady of Texas said: “I really think that role lies with Treasury. They know this tax code, they know the history of these provisions, and they work closely with us.”
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