The IRS and Treasury have issued a wide range of coronavirus relief guidance in line with a recent executive order on boosting the economy through regulatory burden reduction, but that might not be good enough for the White House.
Former Treasury officials say Executive Order 13924, “Regulatory Relief to Support Economic Recovery,” signed May 19 by President Trump, will likely do little to move the needle at the IRS and Treasury, which had already taken actions such as postponing tax deadlines and relaxing enforcement efforts well before the order was issued.
“Treasury has way more than enough to do right now. This can’t be in their top 100 priorities,” said Mark J. Mazur, director of the Urban-Brookings Tax Policy Center. Between implementing the Tax Cuts and Jobs Act and legislation related to the COVID-19 crisis, Treasury is plenty busy issuing rules and guidance to clarify uncertainties in those new laws — work that is often welcomed by taxpayers and practitioners, and actually helps reduce their burdens, he said.
Treasury responded to a similar executive order on general regulatory burden reduction in 2017 by eliminating outdated regs as a kind of “check-the-box exercise,” according to Mazur, a former Treasury assistant secretary for tax policy. If Treasury and the IRS feel the need to come up with something to show the White House, they may do something similar here and call it a day, he said.
“I don’t expect a thorough look through the thousands of regs to see which ones we can get rid of,” Mazur said. “They should just say, ‘Hey, we moved the filing deadline to July 15.’”
But for an administration that has made federal deregulation one of its core priorities and that has given tax regulations extra scrutiny, a token response might not satisfy the Office of Management and Budget, which is monitoring agencies’ responses to the order.
Jerry Ellig of George Washington University’s Regulatory Studies Center told Tax Notes that tax officials would be justified in pointing to some of the actions they’ve taken as consistent with the order. But the “spirit of the thing is also telling agencies, ‘Thank you for what you’ve done so far, but you also need to look more carefully and look for things that will aid with recovery,’” he said.
“I don’t think Treasury and IRS can just say, ‘Been there, done that, got the T-shirt,’” Ellig added.
Kristin E. Hickman of the University of Minnesota Law School also said she expects more of Treasury. “I think as big as Treasury and IRS are, as many regs and rulings as they have on the books, I don’t think there’s any doubt that there’s things that they could do,” she said.
In Case You Missed It
The executive order directs all federal agencies to support the economic response to the COVID-19 pandemic by temporarily or permanently “rescinding, modifying, waiving, or providing exemptions from regulations and other requirements that may inhibit economic recovery” and by using their emergency authority to support the recovery.
Several observers pointed to the IRS and Treasury’s actions taken since the pandemic began as evidence that they’ve already met many of the order’s obligations.
“I would think they’ll state — correctly — that they’re already doing many of the things that have been requested in this executive order,” said Eric Solomon, another former Treasury assistant secretary for tax policy who is now with Steptoe and Johnson LLP.
For example, one section of the executive order directs federal agencies to consider “principles of fairness in administrative enforcement” and to revise their procedures and practices accordingly. The IRS has arguably met this obligation under the executive order through its People First Initiative, Solomon said, which was announced in late March and signaled that the agency would relax various enforcement requirements, such as by postponing payments on installment agreements and limiting some enforcement actions.
“Responding to this in action is something they’re already doing,” Solomon said. “On a day-by-day basis, they’re trying to think of ways to assist in this crisis.”
History as a Guide
Mazur suggested that for the IRS, the executive order doesn’t mark much of a shift. Trump issued regulatory burden reduction orders like the two-for-one order (Executive Order 13771) at the start of his administration, and later, Executive Order 13789 on reducing tax regulatory burdens directed specifically at Treasury and the IRS.
“When I read it quickly, this is just reiterating what they’ve said before with ‘coronavirus’ put in,” Mazur said. The new order might have a more tangible impact on other agencies, like perhaps streamlining Food and Drug Administration rules on approving coronavirus-related drug treatments or manufacturing ventilators, but “I just came up empty thinking in the tax world how this is going to move the needle,” he said.
The executive order directs the heads of all federal agencies to review all the rules they’ve waived or rescinded in response to the order and then report back to the OMB. Someone at Treasury will likely be tasked with writing up a memorandum in response, Solomon said.
Solomon said that if given that task, he would write that the IRS and Treasury “anticipated what the executive order said and have quickly done many things in the tax area to assist taxpayers in this difficult time . . . and here’s a list of our actions we’ve taken in response to the crisis that are consistent with the policy goals of the executive order.”
But Hickman, a longtime critic of “tax exceptionalism,” wasn’t so sure Treasury and the IRS would even go that far, arguing that they have a long history of viewing executive orders aimed at the entire executive branch as not applying to them.
For example, Hickman said that when Trump issued Executive Order 13771, the IRS and Treasury didn’t initially see it as applying to them, but under Executive Order 13789, which was tax-specific, they removed 296 regs. “Even though 13789 wasn’t all that different from 13771, they responded to one but not the other,” she said.
“If they style some of those things they did as being responsive to the new executive order, then they set a precedent of recognizing that a generally applicable order also applies to Treasury and the IRS,” Hickman said. “And I don’t think they want to set that precedent.”
You Can Do Better Than That
The latest executive order directs agencies to use their emergency authorities “to the fullest extent possible.” The IRS has exercised its emergency authority under section 7508A since Trump declared a national disaster because of the pandemic March 13.
Rochelle Hodes of Crowe LLP expressed hope that the executive order would push the IRS to go further in using its emergency authority, arguing that there are tax deadlines the IRS has either not thought about or has decided not to extend.
“That doesn’t sound consistent with section 3 [of the executive order], the idea that they would have potential for relief brought to their attention, have the authority under [section] 7508A, and yet still not provide the relief,” Hodes said.
The executive order also directs agencies to consider whether temporary burden reduction actions taken in response to the order should be made permanent, an idea that five Republican senators expressed support for in a June 3 letter.
Ellig pointed to Notice 2020-42, 2020-26 IRB 1, under which the IRS is temporarily allowing signatures for retirement plan elections to be done remotely, as an example of “sludge” — bureaucratic procedures often associated with compliance that are outmoded and should be simplified — that the IRS should consider making permanent.
“This could be a good opportunity for the IRS to go on a sludge hunt and come up with things that a broad, kind of bipartisan response would be ‘Oh, that makes sense, we should’ve done that a long time ago,’” Ellig said.
Susan E. Dudley, who served as administrator of OMB’s Office of Information and Regulatory Affairs during the George W. Bush administration, suggested that while the OMB might credit the IRS for past actions that are consistent with the executive order, some sections of the order call for more “internal reflection and adjustment to practices that each agency, including Treasury and IRS, must do.”
“I think it would be harder for the IRS to claim it had already met those requirements,” said Dudley, now director of George Washington University’s Regulatory Studies Center.
Hickman declined to pinpoint any specific regulatory action that she thinks Treasury ought to take, but she said there’s no shortage of opportunities — if Treasury and the IRS are willing to look for them. “An agency that big, with all the things they do, and all the interactions they have with businesses and members of the public and various sectors of the economy — there has to be things they could do,” she said.
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