How Tax Regulations Are Made

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Today’s post is by frequent guest poster Monte Jackel, Of Counsel at Leo Berwick. In today’s post, Monte discusses his reactions to an article written by Shu-Yi Oei of Boston College Law School and Leigh Osofsky of the University of North Carolina at Chapel Hill. A few years ago they wrote an insightful article on the process that led to the 199A regs; Keith discussed their article in a 2019 post. In this post Monte draws on his decades both in and out of the government to suggest changes to the process of reg drafting. Les

A relatively recent article (Shu-Yi Dei and Leigh Osofsky, Legislation and Comment: The Making of the §199A Regulations-Article ) provides a useful discussion of how public commentary, both pre and post the issuance of proposed regulations, affects the ultimate content of final Treasury regulations. 

For me, having experienced this process firsthand, the following reforms should be seriously studied and if appropriate instituted:

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1. The most important reform that could be instituted would require the Congress to amend the Freedom of Information (FOIA) part of the Administrative Procedure Act, 5 USC 552 (APA), to require disclosure by the tax agency holding the government record, the IRS and/or Office of Chief Counsel, to proactively disclose those records to the public (either through the Federal Register or the Internal Revenue Bulletin), instead of the current law which requires that the record relating to pre-proposed regulations comments be disclosed to the public  only upon a FOIA request (post-proposed regulations are generally required by law to be disclosed in the Federal Register as part of final regulations). What a reader of, for example, Tax Notes typically sees is that this tax publication was sent a separate copy of the comment letter or other government record so it could publish it in the public interest (which it often does). But the problem with waiting for a FOIA request to disclose government records is that often the requestor would need to know a record exists before requesting it. That is backwards. See references in the Internal Revenue Manual

2. Under 5 USC 552(f)(2), a “record” and any other term used in reference to information includes—(A) any information that would be an agency record subject to these requirements when maintained by an agency in any format, including an electronic format; and (B) any information described under subparagraph (A) that is maintained for an agency by an entity under Government contract, for the purposes of records management. The term “records” are defined in various statutes, including the Federal Records Act and the Freedom of Information Act.

Although there is a required collection of emails and such (and voice discussions should be documented as well) by the tax agency, all that is done at present, to my understanding, is to send the material (such as an email from an outside party on a substantive issue) to the Procedure and Administration units at IRS Chief Counsel to be available if and when there is a FOIA request. See IRM 30.11.1 FOIA Requests for Chief Counsel Records, and FOIA Guidelines.  This practice should be changed to make the disclosure of such records proactive without request to the agency. Appropriate FOIA protections would continue to apply.

3. There is a practice by some to take oral comments and not document them in writing or to return written materials to the presenter at a private meeting with outside parties and then take the position that FOIA is not required-ever. That practice should be negated via a change to the APA. 

4. Pre-proposed regulatory meetings and commentary should be discouraged unless immediate public disclosure also occurs. That is item 1 above. The argument against this is that no one will comment during that period if it became public but, assuming that is true, the question comes down to whether public disclosure is more important to the process than is feedback from outside technical experts and “those in the know”.  Those comments do add value but at what cost? 

5. The agency should have a duty to search for articles and similar commentary and take those comments and commentary into account in drafting proposed and final regulations. Due diligence is all this would require. Current law would allow articles to be ignored unless they are part of the proposed regulation comment process.

6. Most technical and substantive regulations have a very limited number of readers and there are few in number who will truly read and understand the regulations. In light of that reality, substantive regulations should, generally, be made more general principles oriented as compared to innumerable and detailed rules.

Comments

  1. Robert Kantowitz says

    Re #4. If a commenter is hesitant to disclose his name, there may be circumstances where anonymity is justified, but (i) these should be rare, essentially limited to protection of proprietary information and protection from retaliation, and (ii) the comment itself could often be published without the name in any event.

    Also re #4, the agency should be directed explicitly by legislation to consider and weigh comments based on their merit with no deference whatsoever to the fact that the commenter may be a well known tax personality “in the know” except to the extent that the commenter brings peculiar and demonstrable factual expertise. The glitterati may have their own biases regarding tax administration and substantive rules, and they do make mistakes.

    Re #5, same as previous comments — no “extra points” for writing a long, heavily footnoted article — with the additional caveat that pithy articles from practitioners with real experience in how the tax law affects real taxpayers are often closest to the mark. As Edward Everett, a famed orator, wrote to Lincoln the day after the Gettysburg cemetery dedication: “I should be glad, if I could flatter myself that I came as near to the central idea of the occasion, in two hours, as you did in two minutes.”

  2. Monte, comments on proposed regulations are viewable online on http://www.regulations.gov and without FOIA request. For example, Keith and I submitted comments on a recent proposed section 7506A regulation. I was able to go online and see what other comments had been received. Since Keith and I submitted only as of the deadline, I do not know if the comments are viewable as received or whether they are just posted after the official comment deadline. -bryan

Comment Policy: While we all have years of experience as practitioners and attorneys, and while Keith and Les have taught for many years, we think our work is better when we generate input from others. That is one of the reasons we solicit guest posts (and also because of the time it takes to write what we think are high quality posts). Involvement from others makes our site better. That is why we have kept our site open to comments.

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