Andy Grewal (Iowa), The IRS Gets Handcuffed by the Congress, Yale J. on Reg.: Notice & Comment (May 3, 2017):
The House and Senate recently reached agreement on a comprehensive spending bill and expect to pass it soon. Regarding the IRS, the bill freezes the agency’s budget at $11.2 billion and thus does not, as some feared, make substantial cuts to its funding. Nonetheless, the IRS may face hardships, because its funding remains significantly below its 2010 level ($13.6 billion) while its responsibilities have greatly expanded in recent years, especially because of the Affordable Care Act.
A somewhat strange provision in the spending bill might create further hardships. Under Section 126 of the bill, a carryover from the prior year’s spending bill, the IRS cannot issue any general guidance on the “standard. . . used to determine whether an organization is operated exclusively for the promotion of social welfare” under Section 501(c)(4).* Instead, whether any organization qualifies under Section 501(c)(4) must be made on a case-by-case basis, without the benefit of any new rules or regulations. Although the IRS’s prior regulations under Section 501(c)(4) will remain effective, those regulations, issued in 1959, apparently have “created considerable confusion for both the public and the IRS,” IRB 2013-52 (Dec. 23, 2013), especially regarding the extent to which Section 501(c)(4) organizations may engage in political activities. But under the spending bill, the IRS must follow these regulations and cannot, as is typically the case, modify or revoke its own guidance.
Whatever the wisdom of the prior regulations (or the controversial 2013 proposed regulations), Congress’s approach here does not comport with sound tax administration. It makes little sense to prevent the IRS from issuing national guidance for a statute that it must apply nationally. The existing regulations under Section 501(c)(4) do not address all possible issues, and because of the spending bill, the IRS cannot state, in generally applicable guidance, how it will address new, unresolved issues. Instead, any new agency view must be applied on a taxpayer-by-taxpayer basis. This leads both to waste of administrative resources and problems for taxpayers, who may learn the IRS’s views on an issue only through the audit process and not in advance, while filing their tax returns.