Tax News Update    Email this document    Print this document  

President Trump on April 21, 2017, signed an Executive Order calling for the Treasury Department to review all "significant tax regulations" issued on or after January 1, 2016, to identify those that impose undue financial burden or add undue complexity, and to recommend specific actions to mitigate the burden imposed by the regulations.

Treasury Secretary Steven Mnuchin confirmed that final and temporary regulations (TD 9790) under Section 385 are among items to be looked at in the review. Those regulations treat as stock certain related-party interests that otherwise would be treated as indebtedness for federal tax purposes and establish extensive documentation requirements for related-party indebtedness. The Executive Order, however, is not specifically targeted toward those regulations, Mnuchin said.

During a press briefing, Secretary Mnuchin said the purpose of the regulatory executive order is for Treasury to review all significant 2016 and 2017 tax regulations "and to look at where there are undue financial burdens, unnecessary complexity and requirements, and for us to issue a report that goes through what the issues are and comes up with solutions by repealing or modifying them." He said Treasury will look at every significant regulation done in the last year and a half to "determine whether we think they are needed in the tax code, or whether they are unnecessary and the tax burden and complexity is too much. And if we think it's too much, we will make a recommendation to the President [on] how to change that."

During a signing ceremony, President Trump said he would have a "big announcement" on tax reform on Wednesday, April 26, and that the Executive Order instructed Mnuchin to begin the process of tax simplification. "This regulatory reduction is a first step toward a tax reform that reduces rates, provides relief to our middle class, and lowers our business tax, which is one of the highest in the world and has stopped us from so much wealth and productivity," he said. Upon signing the order on Identifying and Reducing Tax Regulatory Burdens, President Trump said, "that covers a lot of territory, believe me."

Under the Executive Order, an interim report identifying burdensome regulations is to be completed within 60 days, and a report providing recommendations is to be completed within 150 days. A final rule that has already been published in the Federal Register may only be rescinded by going through a new Administrative Procedure Act public notice and comment process. That, combined with the timeframe for the report, means it could be some time before any regulations are rescinded, if that is what Treasury recommends.

"I appreciate the Trump Administration's thorough review of all these regulations and encourage [it] to work to roll back the Section 385 regulations and estate tax regulations that will hurt American workers and their families," House Ways and Means Committee Chairman Kevin Brady (R-TX) said.

Memos on orderly liquidation, 'SIFI' non-bank designations

The President also signed two memos related to post-crisis financial reforms. One directs Treasury to examine the "orderly liquidation authority" that was given to financial regulators in Title II of the 2010 Dodd-Frank Act, after the 2008 failures of Lehman Brothers, Bear Stearns, Countrywide, Washington Mutual and other companies. The review must be completed in 180 days. Under OLA, if the Financial Stability Oversight Council (FSOC) votes to take over a failing bank or other institution to protect the financial system, the FDIC is empowered to wind down the company. The statute includes controversial language allowing FDIC to draw upon a line of credit from Treasury to allow the bank to continue operating in receivership while its derivative contracts and other entanglements are unwound in an orderly fashion, avoiding the freeze-up of liquidity that faced Lehman in 2008. While Dodd-Frank requires any such taxpayer outlay to be fully repaid through an ex-post fee on larger banks, Republicans have described this provision as perpetuating "bailouts."

The executive order calls for an assessment of: 1) whether OLA's line of credit could expose taxpayers to excessive risks; 2) the effect on financial stability of the collapse of a large financial institution; and 3) whether an enhanced form of bankruptcy would be a preferable alternative to the OLA regime.

The second memo requires Treasury to conduct a 180-day review of the FSOC's authority under Dodd-Frank to designate large, non-bank financial firms as systemically important financial institutions (SIFIs), which are then subject to heightened prudential supervision by the Federal Reserve. The order stipulates that FSOC cannot make any new SIFI designations while the review is under way. Since Dodd-Frank's enactment, four companies — AIG, Prudential Financial, GE Capital and MetLife — have been given the designation. The FSOC rescinded GE Capital's SIFI designation in June 2016 after the company sold off many of its financial assets. MetLife challenged its SIFI designation in federal court, winning a ruling removing the tag in March 2016. The Obama administration appealed that ruling to the US Court of Appeals for the District of Columbia and the case has not yet been decided.

President Trump also signed an order on February 3 launching a 120-day review of financial reform regulations to determine if they aligned with a set of "core principles" for financial reform also contained in the order. Secretary Mnuchin on April 20 told a conference that Treasury has been soliciting feedback for the review through a series of large focus groups, and he expects to submit a report to the President with recommendations in June. Mnuchin said changes prompted by the review could take the form of agency rulemaking, new executive actions or legislation.

The Executive Order and two memos are attached.

———————————————
ATTACHMENTS

Executive order

Financial stability

Orderly liquidation