Maybe the old canard should be “regulations, like sausages, cease to inspire respect in proportion as we know how they are made.” Except Otto von Bismarck doesn’t seem to have made that assertion about lawmaking, and it's untrue of regulation drafting at Treasury and the IRS. There’s much transparency in the process, and recent changes have made it even more open.
A December 30, 2019, article in The New York Times said the process of drafting regulations for the Tax Cuts and Jobs Act was “conducted largely out of the public view,” and labeled tax lawyers in private practice “lobbyists.” In a January 16 letter, five Democratic members of the Senate Finance Committee wrote to Treasury that they were concerned about “the extent to which closed-door lobbying influenced the process of drafting regulations.”
Frederick W. Vaughan, Treasury deputy assistant secretary in the Office of Legislative Affairs, responded that “consistent with departmental practice, as well as requirements under the Administrative Procedure Act, Treasury has taken part in extensive taxpayer engagement, internal meetings, and interagency process in developing rules and guidance implementing the TCJA generally and the international provisions about which you inquire in particular.” He further explained that “in addition to written comments, meetings with commenters are a routine part of the notice-and-comment period, as they can provide taxpayers and job creators the opportunity to clarify or emphasize issues reflected in their written comments.”
Vaughan’s letter is correct in saying that critical pieces of the regulatory process are deliberately public and that taxpayers are invited to participate in the process. Treasury and the IRS make it relatively easy to tell them what you think the rules should look like, either in writing or in person. And as of a few years ago, if you have something substantive to say about a proposed rule and you put that into a written submission, they will explain why they’ve taken or rejected your recommendation in the preamble to the final rule. Taxpayers that want to have input into the regulations' substance have multiple chances to provide it, including by requesting a meeting with Treasury or the IRS.
Here’s a rundown on how the regulatory sausage is made and how to tell the IRS and Treasury what guidance they should produce. They’ll listen, even if they don’t necessarily agree.
Save the Date!
The public part of the tax regulatory process typically begins with an annual notice that requests recommendations of items Treasury and the IRS should work on. (Last year’s notice is available here.) Taxpayers can submit recommendations throughout the year, but if you want your item to be considered for the following year’s work, you must get it to the government by the deadline in the notice. As the notice says, taxpayers submitting items for guidance can also tell the government how they think the issue should be resolved.
The notice is followed by the release by the Treasury Office of Tax Policy and the IRS of the annual priority guidance plan (PGP). The PGP typically comes out in the fall, although the timing of its release sometimes varies. It's generally updated quarterly, but the official word on that is “periodically,” which doesn’t always translate into quarters.
The PGP is essentially a heads-up for taxpayers and practitioners that Treasury and the IRS are preparing to write guidance about a particular tax issue, and it serves as a workflow management document for the government. The appearance of a particular topic on the PGP isn't a guarantee that Treasury and the IRS are actively working on a piece of guidance — note that the text at the top of the document often hedges about timing by saying something like “we hope to put out guidance on these topics in the next fiscal year,” which doesn’t always translate into guidance within that year — but it’s a good indication of the government's focus.
The latest PGP, like every one of its predecessors since at least 2001, explains that “the published guidance process can be fully successful only if we have the benefit of the insight and experience of taxpayers and practitioners who must apply the internal revenue laws.” It goes on to invite taxpayers and practitioners to “continue to provide us with their comments and suggestions as we develop guidance throughout the plan year.”
You’re Invited!
After the PGP, the next routine opportunity to comment on tax rules and guidance is when Treasury and the IRS release a notice of proposed rulemaking. In that document, they lay out their specific plans for the rules. In the preamble to proposed rules there's a "Background" section that helps readers figure out where the rules fit, and then an explanation of provisions, followed by proposed regulatory text. Every notice of proposed rulemaking has a comment deadline and gives taxpayers a chance to request to speak at a public hearing. You can submit comments online or send a hard copy of your letter to the IRS. All those comments are made public, and the government reviews and responds to them all in the preamble to the final regulations. There are phone numbers listed for government employees in each notice of proposed rulemaking if you also want to talk to someone about the proposed regs.
What about those private meetings between government officials and lawyers in private practice? Surely not just anyone can call up Treasury or the IRS and arrange one. Actually, you can. If Jane Taxpayer — or Jane Taxpayer’s tax attorney — has something substantive to add to help the tax attorneys at Treasury and the IRS write regulations, she can call either the officials listed in the proposed regs or one of the other attorneys at Treasury or the IRS and ask for a meeting. You can look up the phone numbers for attorneys in specific parts of Treasury and the IRS in Tax Notes' Tax Directory. If you don’t know who to call, the Office of Chief Counsel at the IRS is probably the place to start.
Treasury and the IRS have long been open to those meetings. Former Treasury and IRS officials said at the recent American Bar Association Section of Taxation meeting that they welcomed them from essentially anyone who had something substantive to add, and that the meetings were particularly informative when taxpayers came in to explain some technical details about their industry or operations that tax lawyers might not otherwise have known. The former officials agreed that taxpayers or their lawyers don’t need special connections within Treasury or the IRS to get a meeting with someone who's working on a particular regulatory project; they need only ask.
An Invitation to the After-Party, Too
There are other opportunities to talk to the government about tax regulations. Because of changes to the regulatory review process in the past few years, taxpayers or their representatives can request a meeting with the Office of Management and Budget’s Office of Information and Regulatory Affairs. OIRA reviews tax regulations for compliance with the regulatory principles of Executive Order 12866 and the president’s policies and priorities. It's charged with coordinating significant regulations and ensuring that they don’t duplicate or conflict with other regulations. OIRA's approach to meetings with interested outside parties is similar to that of Treasury and the IRS — it takes all comers. The chief difference is that OIRA publicizes who asks for meetings on its website. The timeline for talking to OIRA could be short, because its review period is limited to 90 days, and it's sometimes much shorter.
Treasury and the IRS — and later, OIRA — give taxpayers and their representatives a number of opportunities to comment during the regulatory process. Much of that is required by law, and other parts are standard practice. It might be worth considering whether Treasury and the IRS should adopt the practice of publicly disclosing that meetings with outside lawyers or taxpayers occurred, but the current system in which taxpayers and their lawyers can simply request a meeting isn’t inherently problematic lobbying.