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Proposed Firearm Safety Deduction Legislation: At What Procedural Cost?

Posted on July 8, 2022

Lots of legislators lean on the tax code to address issues that seem unrelated or only loosely connected to the main functions of a modern tax system. In this guest post, longtime PT reader Kenneth H. Ryesky offers his views on legislation proposing a new above the line deduction for certain expenses associated with gun ownership. Ken is an expatriate American currently based in Israel, where he formerly was a Senior Advisor at the U.S. Tax Desk of the EY Tel Aviv office. Les

Introduction:

The three basic functions of taxation are to (1) fund the government; (2) implement monetary policy; and (3) encourage or discourage particular behaviors by the populace.

The Firearm Training and Proficiency Act (H.R.7973), introduced in the House of Representatives and referred to the Ways and Means Committee 7 June 2022, unabashedly falls into the latter category; the Bill’s sole function is to amend the Internal Revenue Code to allow “an above-the-line deduction for the purchase of gun safes, gun safety devices, and gun safety courses.”

Of taxation, Ricardo noted that “[i]t frequently operates very differently from the intention of the legislature, by its indirect effects.” H.R. 7973 is now postured to spawn many such indirect effects. This posting, while taking no position on the current public discourse regarding gun violence and the Second Amendment, critiques how H.R. 7973 could implicate the IRS’s interactions with taxpayers and the IRS’s own internal procedures if the legislation were to be enacted in its current original text.

Overview of the proposed Legislation:

The bill provides for three tweaks to the Internal Revenue Code. Firstly, it redesignates the current I.R.C. § 224 as I.R.C. § 225; secondly, it inserts a new I.R.C. § 224 to authorize the aforementioned deductions; and thirdly, it adds a new subparagraph I.R.C. § 62(a)(22) to facilitate the deduction from gross income set forth in the new Section 224.

The redesignation of an Internal Revenue Code section can pose complications to legal research and to judges who decide cases where the renumbered Code section or subsection is relevant [see, e.g., Freytag v. Commissioner, 89 T.C. 849 (1987), aff’d 904 F.2d 1011, aff’d 501 U.S. 868 (1991).]; this can implicate tax issues even where the redesignated statute is in a Title other than the Internal Revenue Code [see, e.g.,
Wallace v. Commissioner, 128 T.C. 132 (2007)].

Here, the potential legal research obstacles are minimal because the current Section 224 which would be renumbered as a new Section 225 is not a substantive statute, but a “cross reference” section that specifically notes the renumbering of the relevant sections of Subchapter B; the proposed legislation specifically updates the cross references as appropriate.

Another redesignation issue comes to mind from my days with the IRS more than 30 years ago, when the ink-on-paper legal resources were the norm. The IRS’s paucity of funding (of which Treasury Secretary Janet Yellen complained to Congress the very same day H.R. 7973 was introduced) was operative even back then, when the budgets were insufficient to timely procure enough of the semiannual CCH Code and Regulation volumes for everyone, so many of us made do with older sets that had been cast off by senior colleagues who were fortunate enough to be issued editions of more recent vintage. There were instances where redesignations were relevant to some case in someone’s caseload. The possibility is real that one or more relevant IRS employees will not receive the appropriate updates if the legislation is enacted. Analogous to the IRS’s failure to keep its employees current with statutory changes is the IRS’s past failure to update its own regulations to reflect statutory changes, thereby causing confusion and misinformation to the American public at large [see, e.g., Taibo v. Commissioner, T.C. Memo. 2004-196.].

The deductions:

The bill would provide two separate deductions, each limited to $250 in any taxable year, and each available even if the taxpayer has not otherwise chosen to itemize deductions.

The first deduction, in the proposed new I.R.C. § 224(a)(1), is the amount paid for “any secure gun storage or safety device.”

The second deduction in the proposed new I.R.C. § 224(a)(2), is

… the amount paid by the taxpayer during the taxable year for a concealed carry firearms course or a firearm safety course which—

           (A) is taught by a firearms instructor certified by the State to teach such course, or

           (B) satisfies the training requirement, if any, for any license or permit related to a firearm (including a hunting license) which is issued under the authority of State law.

The use of the word “State” (spelled with a majuscule “S”) in the textual language of the second deduction limits those who can benefit from the deduction to United States residents. By way of disclosure, this excludes me, inasmuch as I am currently based abroad in Israel, which has no equivalent of the Second Amendment and which strictly regulates possession of firearms, issuing permits only to people who reside in certain areas and/or engage in certain occupations (e.g., military, law enforcement officers, tour guides, the diamond industry, etc.). In order to comply with the law here, it was necessary for my own firearms and ammunition to be included in the extensive downsizing my wife and I did in preparation for our relocation.

There are U.S. citizens here (including a former client from my Long Island law practice) who legally carry firearms. After jumping through all of the hoops of the qualification and licensure procedure, they must store their guns in secure safes when not actively carrying them, and, just as my wife and I must take continuing education courses to maintain our respective professional credentials, the gun owners must take periodic approved training courses to maintain their carry licenses.

If, as the press release by the sponsors of H.R.7973 insists, the legislative intent behind the bill is “to promote gun training and safety,” then many expatriate Americans here and elsewhere who eventually will return to the United States would be excluded from that noble and worthy goal by the word “State” in the text of the proposed legislation.

The data stewardship mandates of H.R.7973:

The proposed new I.R.C. § 224(d) would interpose many obstacles to the IRS in both its interactions with the taxpayers and its orderly internal processes. The proposed subsection begins:

INFORMATION COLLECTION AND RECORD RETENTION AND DISCLOSURE.—

           (1) PROHIBITION ON COLLECTION OF INFORMATION REGARDING FIREARMS.—No taxpayer shall be required, as a condition of any deduction allowed under this section, to provide any information with respect to any firearms owned by the taxpayer.

           (2) LIMITATION ON RECORD RETENTION AND DISCLOSURE.—No official, employee, agent, contractor, or person otherwise acting on behalf of the Government may—

                        (A) keep any record relating to the deduction allowed under this section for any taxable year after the close of the 3-year period beginning with the date on which the return of tax for such taxable year was filed, or

                       (B) transfer any such record to a third party without the express written permission of the taxpayer.

Firstly, the term “any information with respect to any firearms owned by the taxpayer” [emphasis supplied] is subject to broad construction, and arguably extends well beyond even the sweepingly diffuse I.R.C. § 6103(b)(2) definition of “return information.”

As written by the pen of Arthur Conan Doyle’s famous Sherlock Holmes character, “From a drop of water, a logician could infer the possibility of an Atlantic or a Niagara.” Similarly, from a taxpayers claim of a Section 224(a) deduction, one can infer the possession of a firearm, and indeed, from the purchase receipt document for a firearm safety device can often be inferred information about the firearm. In one of the Estate Tax cases I had while serving with the IRS (the particulars of which are not appropriate for discussion here), the decedent’s checkbooks included entries such as payment to the local police department for a “carry license,” subscriptions to firearms enthusiast publications, and NRA membership; from those items, I was able to infer a collection of firearms worth a few thousand dollars that was unreported on the Estate Tax Return.

The IRS agent auditing a return would obviously be severely hobbled in examining any Section 224 deduction claim.

The I.R.C. § 224(d)(2)(A) prohibition against the IRS “keep[ing] any record relating to the deduction” would be all the more vexing to the IRS bureaucracy. In my IRS days, we were instructed to never remove a staple from a tax return (or if staple removal was necessary, to write an explanatory memo to the file and preferably have one or more witnesses to the removal process), lest questions arise as to whether the tax return being offered in evidence at trial is the same tax return that was filed by the taxpayer. The flip side of an organization’s document retention policy is effectively a document destruction policy, and proposed I.R.C. § 224(d)(2)(A) effectively mandates the IRS to destroy records in connection with a taxpayer’s Section 224 deduction claim.

Here, rhetorical questions abound: How would the IRS comply with this destruction mandate? Would some GS-½ wield an Exacto knife to excise, page by page, the verbiage relating to the deduction from the paper tax return document? Would the verbiage be crossed out with a black felt-tip marker (an IRS redaction mode that has proven ineffective in the past)? Wouldn’t the general tendencies of all bureaucracies to travel the past of least resistance lead the IRS to simply discard or destroy the entire file once the retention period expires?

And what about “the 3-year period beginning with the date on which the return of tax … was filed?” The I.R.C. § 6501(a) general 3-year statute of limitations for the IRS to assess a tax has exceptions, most notably the 6-year “substantial omissions” provision in I.R.C. § 6501(e). In light of the previously propounded possibilities, would the IRS’s document destruction policies effectively serve to render it unable to assess taxes on such returns after the three-year deadline has passed, even if the Section 224 deduction were not at issue? And what of any return that is in fact filed before the due date, considering that the I.R.C. § 6501(b)(1) provision deeming an early-filed return as filed on the latest timely filing date applies only to assessments, and not to the mandated record destruction date of the proposed new I.R.C. § 224?

Getting back to my own Estate Tax specialty, the Estate Tax return due date is nine months following date of death, and frequently extended another six months when timely requested. One item on the Estate Tax examiner’s punch list is to request copies of the decedent’s final three years’ personal income tax returns. If any of these returns were initially filed more than three years before the examination date, would the Estate Tax examiner’s mere possession of them not be contrary to the Section 224 document destruction mandate of “any record relating to the deduction” (it being noted that in the context of an Estate Tax return, it is possible to determine the identity of the decedent’s heirs, and therefore, have a lead as to the whereabouts of the decedent’s firearms)? Ditto for insurance policies.

Moreover, some states, including New York, do not allow the same state deductions as the federal income tax does. The fact that a federal Section 224 deduction is being backed out in order to compute the state income tax can effectively disclose information to the state authorities, who would not be be bound by the new Section 224 nondisclosure and document destruction rules. And speaking of New York State, might the people from whom the sponsors of H.R.7973 apparently intend to bar access to the firearms information be able to do an end run around the restrictions by requesting the information from the New York State tax authorities or other state offices? And might the IRS itself attempt an end run around the new Section 224 provisions by invoking the I.R.C. § 6001 recordkeeping requirement?

Other provisions of H.R.7973:

The bill also creates a private right for persons to obtain damages and injunctive relief for IRS violations of the firearms information collection and/or the recordkeeping provisions of the new Section 224. Jurisdiction is specifically conferred to the Federal District courts, and sovereign immunity is explicitly waived. Increased litigation can be expected if these provisions become law.

Conclusion:

As of this writing, H.R.7973 is now a proposed statutory amendment to the Internal Revenue Code; it is impossible at this time to predict whether it will or will not ultimately become law. This posting focuses on the potential for procedural agitation the current version of H.R.7973 would trigger if enacted into law. The committee assignments of the three initial sponsors of the legislation range from Health, Armed Services, and Trade to Labor, Environment, and Climate; none of the initial sponsors seem to have any appreciable background in taxation, and the text of the bill strongly suggests that it was drafted by one or more persons whose forte is other than taxation. It would seem unlikely that the proposed legislation would entail as many potential “indirect effects” had it been sponsored by Michele Bachmann, a former IRS attorney who served in Congress from 2007 to 2015.

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