On January 20, 2017, White House Chief of Staff Reince Priebus issued a Memorandum for the Heads of Executive Departments and Agencies (the “Freeze Order”) that ordered agencies to (i) refrain from sending regulations to the Office of the Federal Register until a department or agency head appointed by the new administration reviews and approves the regulation, (ii) withdraw any regulations that had been sent to, but not yet published in, the Federal Register, and (iii) delay the effectiveness of certain regulations promulgated at the end President Obama’s term for 60 days to allow for the new administration to review and approve of such regulations. The Freeze Order impacts a large number of regulations across many different agencies. For instance, on January 26, 2017, the Small Business Administration and the Environmental Protection Agency identified thirty one regulations (one and thirty, respectively) whose effective dates were extended as a result of the Freeze Order.

While freeze orders were issued during the administrations of President Obama and President Bush, the January 20, 2017 Freeze Order appears broader and impacts more than just agency regulations. In the context of U.S. tax, the Freeze Order also potentially applies to Internal Revenue Service (“IRS”) guidance that is set forth in various notices and revenue procedures. However, as of the date hereof, we are not aware of any specific notices or revenue procedures that have been impacted by the Freeze Order. The regulatory freeze has impacted tax regulations as the IRS has recently withdrawn various regulations, including the proposed centralized partnership audit regulations. Two tax regulations that were published in the Federal Register on January 24, 2017—covering qualifying income under Section 7704 and withholding on dividend equivalent payments under Section 871(m)—successfully bypassed the Freeze Order because the effective date of such regulations (January 19, 2017) preceded the date of the Freeze Order. Although these two regulations avoided the Freeze Order, Congress could exercise its discretion under the Congressional Review Act to repeal such regulations.

The temporary hold put in place by the Freeze Order could become permanent for some regulations. The effectiveness of those regulations that survive the Freeze Order may be further delayed on account of the January 30, 2017 Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs (the “Regulatory Order”). Among other things, the Regulatory Order provides that for every one new regulation issued at least two prior regulations must be identified for elimination. Any new incremental costs associated with a new regulation must also be offset by the elimination of existing costs associated with at least two prior regulations. The Regulatory Order focuses primarily on reducing the number of federal regulations as opposed to eliminating the most onerous regulations. In addition, while an agency must identify prior regulations for removal, the Regulatory Order does not condition the issuance of a new regulation on the elimination of such prior regulations. This, combined with the fact that the eradication of preexisting regulations will be subject to the procedural requirements of the Administrative Procedural Act, indicates that the ability of the Regulatory Order to substantially reduce the amount of federal regulations will be restrained.