Conservatives push for new check on IRS rules

Conservative groups and some GOP lawmakers are pushing for more oversight of IRS rules as the agency works to carry out President Trump’s new tax law.

They are calling for the agency’s tax regulations to be subjected to more review from the Office of Management and Budget (OMB). They also want the IRS to conduct cost-benefit analyses of regulations to determine how they will affect the economy.

{mosads}The conservatives argue that doing so would improve the quality of the rules and subject them to the same type of oversight that is the norm for other federal agencies.

“The IRS must live by the same rules of administrative law and agency oversight as the rest of the Executive Branch,” a coalition of conservative-leaning groups — including the Cause of Action Institute, Americans for Tax Reform, the National Taxpayers Union and groups associated with conservative donors Charles and David Koch — wrote in a recent letter to Trump and other administration officials.

But former Treasury Department officials defend the exemption that applies to most IRS rules. They say the OMB lacks the technical expertise necessary to understand tax rules and warn that reviews from the office would slow down the regulatory process at a time when guidance is desperately needed.

“Why would you slow the process down? Why would you inject people into the system who don’t know what they’re doing?” asked Greg Jenner, a partner at Stoel Rives who worked at Treasury during both Bush administrations.

Federal agencies are typically required to analyze the economic impacts of their significant rules, conducting cost-benefit analyses and examining alternatives. They’re required to present those analyses to the OMB’s Office of Information and Regulatory Affairs (OIRA), which provides feedback and often circulates rules to other agencies for comment.

According to a draft paper the OMB released in February, the office reviewed 2,670, or about 7 percent, of the final rules published in the Federal Register from fiscal 2007 through fiscal 2016.

IRS rules, for the most part, do not go through the OMB review process or receive a cost-benefit analysis. A memo issued in 1983 largely exempts IRS rules from being subject to OMB review. Additionally, the IRS has said that its rules generally don’t have an economic impact, as they are only implementing laws passed by Congress.

Conservative groups said they would like to see the 1983 memo withdrawn.

James Valvo, counsel and senior policy adviser at Cause of Action, said that dialogue between agencies and the OMB can improve the quality of rules.

“Hopefully the proposed rule is improving because of the feedback,” he said.

Valvo added that “there’s an element of political legitimacy” to rules when the White House provides oversight. The OMB is the White House’s budget office.

Alex Hendrie, tax policy director at Americans for Tax Reform, said that he’s concerned that the IRS “seems to have special treatment” and that some of their rules impose significant burdens on businesses.

He also said that the IRS’s exemption from OMB review should be re-examined, given Trump’s call for two rules to be repealed for every new rule created.

“Given the president’s emphasis on regulatory reform, this should be examined,” he said.

Sens. Ron Johnson (R-Wis.) and James Lankford (R-Okla.) have also asked OIRA to reexamine the 1983 memo. Johnson is chairman of the Senate Homeland Security and Governmental Affairs Committee, while Lankford is chairman of the panel’s Subcommittee on Regulatory Affairs and Federal Management.

Lankford said that he’s working on getting a hearing on the topic. And he said he thinks the OMB will subject IRS rules to more scrutiny.

“There’s no reason not to,” he said.

Tax experts are worried that subjecting IRS rules to OMB review could made it harder for the agency to implement the tax law that Trump signed in December. Companies are looking to the IRS for guidance on how to navigate key aspects of the new system.

“The practitioners, they want the guidance. They don’t want it in six months, they want it now,” said Mark Mazur, who served as assistant Treasury secretary for tax policy during the Obama administration.

OIRA Administrator Neomi Rao acknowledged at a recent conference that OMB review of IRS rules would add more time to the regulatory process, though she also said it would add “more analysis,” according to Politico.

Mazur, who now serves as director of the Tax Policy Center, said he thinks it makes sense for the OMB to only get involved in tax rules in “exceptional circumstances.”

“Congress in passing the laws, has done their own cost-benefit analysis themselves,” since the Joint Committee on Taxation estimates how much revenue the federal government would gain or lose due to tax changes, Mazur said.

Jenner said that if IRS rules were subject to OMB review, “you also inject politics into it.”

Lisa Zarlenga, co-chair of the tax group at Steptoe & Johnson and a former career official at Treasury, said the 1983 agreement probably needs to be revisited, since the legal landscape has changed since then.

But she also argued “that Treasury regulations as a whole are different” from rules in other agencies because so many of them are about federal laws.

But conservative groups, which pushed hard for the passage of Trump’s tax law, reject that argument.

“It’s almost self-evidently absurd to think that nothing the IRS does has an impact on paperwork burdens beyond what Congress intended,” said National Taxpayers Union President Pete Sepp. “For one thing, Congress’s intention is not always clear.”

It remains to be seen what action, if any, the administration will take on the 1983 agreement. There are reportedly tensions between the OMB and Treasury over the issue.

In an executive order last year, Trump directed Treasury and the OMB to “reconsider the scope and implementation of the existing exemption for certain tax regulations from the review process.”

Treasury Secretary Steven Mnuchin told reporters last month that he and OMB Director Mick Mulvaney are working closely together on the tax law.

“To the extent that it makes sense to reconsider how things have been done over the last 30 years, we’re already doing that,” he said.

House Ways and Means Committee Chairman Kevin Brady (R-Texas) told reporters recently that he expected the bulk of the work on implementing the new tax law to be done by Treasury.

A spokeswoman for Senate Finance Committee Chairman Orrin Hatch (R-Utah) said that the senator “is closely watching the development of IRS rules on the tax law and is confident that OMB and Treasury will strike the right balance to ensure a transparent regulatory process.”