Notice & Comment

More Thoughts on the IRS’s Failure to Comply with the Congressional Review Act


In a prior post, I discussed concerns expressed by Senator Hatch regarding the IRS’s failure to subject its “major” regulations to the procedures required by the Congressional Review Act (CRA). Major regulations are generally those that have economic effects of $100 million or more and would seem to include many tax regulations.  However, as my prior post discussed, the IRS apparently believes that its regulations are not major because it is the provisions of the tax code, not the IRS’s regulations, that create economic effects.  My post explained why the IRS’s approach was not sound, at least for some types of regulations.

In reply, my always thoughtful co-blogger Dan Hemel suggests a different justification for the IRS’s actions, which would fully shield IRS regulations from congressional review.  Interested readers should read Dan’s full post but, in short, Dan emphasizes the OMB’s key role in determining whether a rule is major.  Under Section 804 of the CRA (technically, Section 804 of U.S.C. Title 5), a “major” rule is “any rule that [the OMB] finds has resulted in or is likely to result in… an annual effect on the economy of $100,000,000 or more.”  Dan argues that since the IRS does not send its regulations to the OMB, those regulations literally cannot be “major” because the OMB has never reviewed those regulations, and thus has not made any findings regarding them. Thus, there’s “no reason to blame the IRS for following the letter of the law.”

I see the textual plausibility of Dan’s suggested interpretation, though I would not focus so heavily on Section 804’s definition of a major rule.  Section 801(a)(1)(A) prescribes the actual responsibilities of a federal agency and states that:

Before a rule can take effect, the Federal agency promulgating such rule shall submit to each House of the Congress and to the Comptroller General a report containing—

(i) a copy of the rule;

(ii) a concise general statement relating to the rule, including whether it is a major rule; and

(iii) the proposed effective date of the rule.

Section 801(a)(1)(A) requires that an agency tell Congress and the CG whether a rule is a major rule.  Under Dan’s suggested analysis, an agency can satisfy its responsibility simply by not submitting its rule to the OMB and then telling the legislature that the rule is not a major rule. (Because the agency never gave the rule to the OMB, the OMB has not made any findings on economic effects, and the rule cannot be a major one.)

This strikes me as an excessively clever reading of the statute.  In my view, the legislature’s command that an agency report on whether its rule is major encompasses a good-faith obligation to submit the rule to the OMB for that determination.  And I have a hard time believing that the IRS will tell Congress that it need not comply with the CRA because the executive branch has unilaterally chosen not to subject tax regulations to OMB cost-benefit analysis.

Ultimately, although my and Dan’s interpretive disagreement is interesting, it is largely besides the point for now and I’ll forgo further research.*  Senator Hatch wants to know why federal agencies generally submit regulations that have major economic effects to Congress, but the IRS won’t designate its regulations as “major” and trigger the CRA procedures.  A memo between the IRS and White House apparently details the reasoning for the special treatment of tax regulations, but the IRS has kept the memo secret from Congress and from the public.  Maybe the blame for non-review of tax regulations lies with the IRS, maybe it lies with the OMB, maybe it lies with both, or (under Dan’s suggested interpretation) maybe it lies with neither.  Whatever the case, transparency is the immediate goal here. Once we understand why the IRS won’t treat its regulations as “major” and submit them to Congress under that designation, we can more extensively debate the legality of its approach.

*A statute showing Congress’s understanding that OMB review is mandatory for all regulations would vindicate my view;  a statute showing that such review is left to the discretion of each agency would vindicate Dan’s.  I have not searched for such statutes, nor have I parsed the language of the relevant Executive Orders, which could also inform what Congress meant in the CRA.

(This post was updated on 8/11 thanks to a helpful correction by Dan.)

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