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IRS to Let Lawyers Write Rules

This piece from New York Times, IRS Letting Tax Lawyers Write Rules (3/9/07), reports on a controversial pilot project by the IRS that would allow tax lawyers and accountants who create tax shelters and exploit loopholes to write some of the IRS' new tax rules. On the surface, the IRS proposal makes sense. After all, who better to make tax regulations loophole-proof than the professionals whose clients pay them top dollar to find lawful ways around IRS regulations? And others argue that allowing the private sector to write rules will speed up the time for issuing regulations and will formalize the now ad hoc system of providing guidance through requests for letter rulings.

But there's a drawback to asking the private sector to draft regulations. Experts quoted in the article expressed concern that lawyers would skew new regulations in favor of their clients: 

“It’s not the fox guarding the hen house; it’s the fox designing the hen house,” said Paul C. Light, a professor of political science at New York University, who studies the federal work force.

And executive director of OMB Watch asked: 

“Why don’t we just privatize Congress and outsource the development of our laws?” he asked.  “People would chuckle at letting the U.S. Chamber of Commerce or OMB Watch write the laws,” he went on, “but that is what is being done by this administration, which keeps outsourcing more and more regulation work.”

I'm not sure how the IRS proposal would work in practice. If the IRS intends to set up a formal arrangement with private attorneys to draft regulations, I would think that some type of conflicts check would need to be established. And if there's no formal arrangement, then I'm not sure how the IRS proposal differs from how many other agencies engage in rulemaking, either collecting extensive data from participants through Notice of Advanced Rulemaking or setting up stakeholder groups that draft a proposed rule that is then submitted to the agency and issued for notice and public comment. 

Posted by Carolyn Elefant on March 9, 2007 at 04:41 PM | Permalink | Comments (0)


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