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Can Trump stop the IRS from evading federal rules?

January 23, 2018

 

Did you know that, as a result of a secret memorandum of agreement between the Treasury Department and the White House signed way back in 1983, the Internal Revenue Service has for more than 30 years evaded the kind of regulatory oversight imposed on every other executive branch department and agency?

 

Neither did I. That’s just one of the disturbing discoveries revealed in a new report from Cause of Action Institute. In a virtual case study of the law of unintended consequences — the one law Congress cannot repeal — James Valvo’s research documents show, over time, the IRS has amassed unto itself more and more power to determine whether or not its own proposed rules and regulations require review by other executive branch agencies or the White House.

 

 

It went to the point where, “Over the past 10 years, the IRS has submitted only eight rules to [the Office of Information and Regulatory Affairs, a White House agency within the Office of Management and Budget] for regulatory review and deemed only one of those rules significant. Those eight rules are less than one percent of the final rules the IRS published in the Federal Register over the same period,” according to a 2016 amicus curiae brief submitted to the Supreme Court by Cause of Action Institute.

 

The IRS, you see, regularly evades regulatory oversight of its new rules by refusing to acknowledge the significant impact they will have. Those impacts, the IRS contends, are the result of the underlying laws the rules will implement, not the rules themselves, so the rules don’t require review. Or so the IRS says.

 

You may recall a recent example. Following the Supreme Court’s ruling in Citizens United vs. Federal Elections Commission, the IRS decided to update its guidance on what constitutes “political activity” by nonprofit organizations. In November 2013, the IRS issued a notice of proposed rulemaking to update its rules governing such activity by certain nonprofit organizations. The IRS claimed, as usual, that its proposed rule was not significant, and, thus, not subject to review by the White House or other agencies.

 

But the proposed rule was so poorly written that nonprofit organizations across the political and ideological spectrum rebelled. In my role as CEO of Tea Party Patriots, I submitted a formal comment, and our organization drove thousands of our supporters around the country to comment in opposition to the proposed rule.

 

A study by the Center for Competitive Politics revealed that 94 percent of public comments and 97 percent of experts, organizations, and public officials either opposed or partially opposed that proposed rule. The Cause of Action Institute’s comment on the proposed rule noted that it was “significant” because it would have had an economic impact of more than $100 million per year on the nonprofit sector and because it raised “novel legal and policy issues,” another of the criteria used to determine “significance.”

 

Is it possible that such a poorly-written proposed rulemaking would have been promulgated if it had been subject to review by either the White House or other agencies? Doubtful, to say the least. Certainly other bureaucrats would have seen the same flaws and faults caught by other public commenters and us, and the proposed rule could have been changed, or scrapped altogether.

That’s just one example. As Cause of Action Institute points out, the IRS published in the Federal Register more than 99 percent of its new rules without first having them reviewed over a 10-year period. That’s wrong. The IRS should be held to at least the same standard — if not a higher standard, given its power over every single taxpayer in the nation, both individual and corporate — as every other executive branch department and agency.

 

The good news is, President Trump can change this. He can choose as his nominee for IRS commissioner an executive who understands that the IRS should follow the same rules that bind every other executive branch department and agency. He can insist that his nominee change this outrageous holding by the IRS.

 

He can direct his Treasury secretary to direct his general counsel to update the 1983 memorandum of agreement between the Treasury general counsel and the administrator of the Office of Information and Regulatory Affairs, and he can direct his new IRS commissioner to oversee a rewrite of the internal revenue manual to accomplish proper review.

 

And the better news? President Trump can do it without Congress.

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