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Remote Reg Hearings Come to the IRS: Let’s Keep the Lines Open

Posted on Apr. 24, 2020

Of all the ways the coronavirus pandemic has changed life in the United States, Treasury and the IRS’s announcement that they will move to telephone hearings on notices of proposed rulemaking is minor, even for regular observers of hearings on regulations, but it’s a welcome and overdue development. The government should consider keeping the lines open — and perhaps move toward online options as well — after the pandemic is over.

Treasury and the IRS said in Announcement 2020-4, 2020-17 IRB 1, on April 1 that public hearings would be held via telephone until further notice. The announcement explained that speakers must submit their public comments and an outline of the topics they want to discuss during their 10 minutes via email before the hearing. Taxpayers and practitioners also have the option to attend by phone but remain silent.

The announcement represents a change in procedure that the government should work to keep even after it’s no longer necessary as a public health measure, because it could strengthen public hearings by including more taxpayers’ views and opening them to a broader, non-participating audience. Opening an alternative way to participate and attend doesn’t mean that hearings should be entirely via phone after the health crisis has subsided, but that should be an option for those who can’t travel. The potential payoff for greater openness is better dialogue with taxpayers, particularly those who have substantive contributions regarding the development of new rules but might have an insufficient financial interest or travel budget to make a trek to Washington.

Beyond the Beltway

One consequence of D.C.-only hearings is that they effectively limit the in-person presentations to those who either are local enough to easily head over to 1111 Constitution Avenue for a few hours or represent clients with enough at stake to take the time out and pay for a trip from elsewhere in the country. But there’s little geographic equity in that practice, which makes it less defensible at a time when technology allows people to have happy hour and yoga class via webcast (although perhaps with the occasional uninvited interruption, as The Wall Street Journal recently documented).

The March 9 hearing on the extent of grandfathering that could be allowed on some employee remuneration exceeding $1 million under section 162(m) was a case in point. Henry Talavera of Polsinelli PC noted that the issue was important enough to him to “get on a plane, schlep from Dallas to be here in front of you all today.” But he added, “Does 162(m) matter that much to the greater community? Probably not.” Talavera was obviously correct — he was the lone speaker at the hearing. Planned hearings are routinely canceled because no one requests to speak.

Over the Past Year

A review of the past 12 months’ hearings suggests a lack of public desire to participate. Of the 11 hearings on proposed regulations the IRS and Treasury held between April 2019 and the end of March 2020, six had only one or two speakers, and six clocked in at less than an hour long.

Not all hearings are sparsely attended. The July 9, 2019, hearing on qualified opportunity funds had 20 speakers and was so large that the IRS moved it to its New Carrollton, Maryland, auditorium to accommodate the crowd. That hearing tipped the charts at just over five hours in length, including a lunch break.

But a long speaker list doesn’t necessarily mean a daylong slog for government officials. On February 7 the hearing on exempt organization reporting requirements drew 17 speakers. Even with that lineup, it finished in two and a half hours. The five-hour hearing appears to have been an anomaly; every other hearing in that period was under two and a half hours long, and most were much shorter.

A notable feature of many of the hearings is that the lists of speakers are frequently dominated by large companies, law firms, and industry groups. This isn’t surprising or problematic because all those groups should be able to discuss regulations, but it indicates that the views of taxpayers with smaller stakes aren’t as well represented. A less-burdensome method of participation would give taxpayers with smaller interests a greater opportunity to contribute to the discussion by explaining the effects of proposed rules on their operations, and that would likely be beneficial for the tax system as a whole.

A Rush to Participate?

If phone or online hearings are extended past the end of the pandemic, will the IRS be overwhelmed with people who want to talk? We’ll eventually find out, but it’s unlikely that most hearings will take much longer than usual. First, a prospective speaker still must submit a comment letter. Although some reg projects draw hundreds of comment letters and have correspondingly long hearings, those don’t seem to be the norm. Big reg projects that affect many taxpayers or have made headlines will always have well-attended hearings, but it would be surprising if the section 162(m)-type projects get much more attention.

Second, taxpayers frequently pay to have their views represented at a hearing by an attorney or devote staff time to preparing comments and presentations, so even if the costs of that representation decline because of a decrease in travel costs, a non-trivial burden to participation remains. Allowing taxpayers or their representatives to speak at a hearing via phone would help bring parity to those outside the Washington area in terms of participation and attendance costs.

One problem with continuing remote public hearings past the pandemic, when it’s necessary, is that the IRS and Treasury will need a way to verify the identities of speakers and address other security issues. Those concerns are real, but they aren’t novel in the world of teleconferencing and should have reasonable solutions.

Another issue is that including speakers by telephone or videoconference will add to the expense of hearings. That’s a problem, but it shouldn’t be a deal-breaker.

The IRS and Treasury have generally been open to hearing from taxpayers and their representatives. They take phone calls about reg projects, allow private meetings, and carefully review and respond to comment letters in preambles. At the end of public hearings, the government officials frequently ask if anyone in the audience wants to speak. Those efforts to engage with taxpayers are commendable. Given the relative ease of opening up the phone lines to public hearings and the increased opportunity that will give to taxpayers to discuss important rules and to government officials to ask questions of taxpayers and practitioners, it should continue after the health crisis has passed.

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