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A memorandum signed by the OMB and Treasury on the review of tax regulations may create new opportunities for people seeking changes to the rules, a lobbyist and former government officials say.
“I think the OMB review process gives lobbyists a second bite at the apple,” said tax lobbyist Ryan Ellis. “If ‘Dad’ at Treasury says no, ask ‘Mom’ at OMB,” Ellis, who previously worked as chief tax policy director for Americans for Tax Reform, said in an email.
That being said, the Office of Management and Budget will probably try to “pick their battles” and may not be as helpful as lobbyists might hope right now, he said.
The April 11 agreement with the Treasury Department, which came after months of tense negotiations between the two bodies, will allow the OMB’s Office of Information and Regulatory Affairs to approve major tax rules, reversing a 35-year-old arrangement that designated very few tax regulations for additional scrutiny. Under the new deal, OIRA has the power to review tax rules for 45 days before publication. For certain rules implementing the 2017 tax act (Pub. L. No. 115-97), Treasury can designate a 10-day fast-track as long as OIRA consents.
“Anytime you introduce a new player to the regulatory equation, I think obviously it gives practitioners another avenue by which they can raise their concerns,” Jorge Castro of Castro Strategies LLC in Washington told Bloomberg Tax. Castro is a former counselor to the Internal Revenue Service commissioner and a former congressional tax counsel.
While the new agreement could give people an opportunity to appeal to OIRA if they think Treasury hasn’t listened to them, lobbying shouldn’t be a concern, said Susan Dudley, director of the George Washington University Regulatory Studies Center and OIRA’s administrator from 2007 to 2009 under President George W. Bush. OIRA can only hold meetings when a regulation is under review and has to follow strict rules when meeting with the public, she said.
For the rules outlining the procedures that OIRA must follow when meeting with the public on regulations it’s reviewing, Treasury pointed Bloomberg Tax to Section 6(b)(4) of Executive Order 12866.
The executive order requires, among other things, that the office invite Treasury to any meetings—held over the phone or in person—between OIRA personnel and external persons with respect to department regulations. OIRA keeps a public log of those meetings on its website, Reginfo.gov, and discloses the names of participants, their affiliations, and any material they present during the meeting.
OIRA must also provide Treasury with copies of any written communications between the office and “any person who is not employed by the executive branch of the Federal Government” concerning a regulation under review within 10 days.
Following correspondence with external groups or individuals, OIRA and Treasury can discuss the validity of the requests that have been made and decide a path forward, Dudley said.
OIRA didn’t respond to requests for comment.
But Gregory F. Jenner, who served at Treasury under Bush as both acting assistant secretary for tax policy and deputy assistant secretary for tax policy, said he fears the new agreement between the OMB and Treasury “opens the door to potential mischief.”
If OIRA becomes “a political pressure point” for lobbying above Treasury and the IRS, the agreement “will significantly politicize a process that is now relatively free from those influences,” Jenner, a partner at Stoel Rives LLP in Washington, said. This possibility will depend largely on how the new agreement is implemented, he said.
Jenner and other former Treasury officials have made the case that while Treasury is led by political appointees, its top leaders generally defer to the department’s nonpartisan career staff on tax regulations.
There are also safeguards in place to shield the department from being directly influenced by the president, Jenner said. In general, the White House and other agencies within the executive branch aren’t permitted to go directly to Treasury’s Office of Tax Policy and the IRS, but must make a request through the White House counsel to Treasury’s deputy secretary, he said.
Jenner said he fears the OMB, as part of the Executive Office of the President, is less insulated from those pressures.
Dudley told Bloomberg Tax—before the new regulatory review agreement was made public—that there is a small risk of political influence, but that such occurrences would be rare. The OIRA review process “does pull in the political folks in the White House” because the office’s staff works closely with the White House Domestic Policy Council and the National Economic Council, she said. But in the vast majority of cases, the political staff would defer to the analytical expertise of OIRA’s apolitical career employees, she said.
“There are times when politics will override,“ she said. “But in my experience that was very rare.”
Interagency review and coordination is an important function that OIRA performs, Dudley said April 16. And that doesn’t just mean bringing in White House staff. OIRA allows other agencies with an interest in the regulations to be involved, she said, using the example of the Health and Human Services Department and the Affordable Care Act tax rules.
Reading through the lens of EO 12866, the new agreement between Treasury and the OMB seems to suggest that OIRA’s role in the review process focuses more on cost-benefit analysis, rather than substantive tax policy issues, said Lisa Zarlenga, a partner with Steptoe & Johnson LLP in Washington who worked at Treasury as tax legislative counsel under President Barack Obama.
If that’s the case, it’s unlikely that lobbying on tax rules will change much, she said. Lobbyists could argue that a rule is too costly or “imposes such a compliance burden that something’s got to change,” Zarlenga said. But they wouldn’t have much recourse to question the policy approach in the regulations, she said.
Castro, however, had a broader reading of the agreement. A tax regulation is now subject to OIRA review if it is likely to “create a serious inconsistency or otherwise interfere with an action taken or planned by another agency,” “raise novel legal or policy issues,” or “have an annual non-revenue effect on the economy of $100 million or more.”
The first two measures “strike me as fairly broad,” Castro said. “Clearly this is beyond the cost-benefit analysis.”
A tax lobbyist who agreed to speak on the condition of anonymity said from a substance standpoint, OIRA is never going to match Treasury with respect to the policy and technical aspects of tax rules.
Neomi Rao, the current OIRA administrator, said at an April 12 Senate Homeland Security and Governmental Affairs regulatory subcommittee hearing that the office is hiring additional staff with tax expertise. OIRA may be able to recruit enough people to understand the nuances of the tax code, but that would be surprising, the lobbyist said.
For this reason, the first—and perhaps last—stop for lobbyists will likely be Treasury, the lobbyist said. Maybe some people will go to the OMB if they think the department is being overbroad, but those instances will probably be rare, the lobbyist said.
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