After months of trading punches Director Mick Mulvaney of the White House’s Office of Management and Budget (OMB) and Treasury Secretary Steven Mnuchin released a memorandum of agreement (MOA) that creates a new framework for writing, reviewing, and implementing tax regulations.  In short, the MOA requires OMB’s Office of Information and Regulatory Affairs (OIRA) to review major tax regulations—just as it does major rulemakings from any other executive branch agency.  This is a fundamental change from a 1983 agreement, under which Treasury had hitherto operated, that exempted most tax regulations from review.

Under the new MOA, tax rulemaking will be subject to review by OIRA if it would:

1.       Create a serious inconsistency with another agency.

2.       Raise novel legal or policy issues.

3.       Have an annual non-revenue effect of $100 million or more on the economy (measured against a no-action baseline).

Additionally, Treasury will notify OIRA of any upcoming planned tax rulemakings in a quarterly report.  OIRA generally has 45 days to complete its review of relevant rulemakings, but in certain instances it can be as short as 10 days, if the OIRA administrator and the Treasury Secretary agree to an expedited timetable.

Critics of the new MOA argue that it will slow Treasury’s rulemaking significantly just at the time when taxpayers need guidance as quickly as possible. Delayed rulemaking will present significant challenges for taxpayers who are waiting for guidance to determine their tax liability under the new tax law, many of whose provisions are already in effect.  They argue that it will leave businesses flying blind.  The Administration, however, believe that it will not noticeably delay tax rulemaking and noted that the vast majority of tax regulations will still be promulgated by Treasury without review.  OIRA review would only apply to a small subset of rules, like those for the new passthrough deduction, that may have major impacts on the economy.  OIRA has also begun hiring more tax experts to prepare for its new role.

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