No doubt there is a lot of dirty bathwater in the Treasury Regulations, codified in title 26 of the Code of Federal Regulations (CFR). The upside of the current administration’s anti-regulation focus is that it is allows Treasury to prioritize scrubbing unneeded regulations. Treasury reported on its progress in October noting that “the IRS Office of Chief Counsel has already identified over 200 regulations for potential revocation, most of which have been outstanding for many years.”
To be sure, it’s a small upside. Some regulations become outdated because they are simply overtaken by statutory changes. For example, Treas. Reg. 1.217-2(b)(1) allows taxpayers to deduct the cost of meals when moving to start a new job. That was fine under the statute Congress originally enacted in 1969, but it became obsolete when Congress modified the statute in 1986 to specifically disallow meal expenses as a deductible item. And now, of course, Congress has repealed the moving expense deduction entirely, but the regulations will still be there.
Other regulations become outdated because of societal change. My favorite example is former Treas. Reg. 1.162-6 which started off this way: “A professional man may claim as deductions the cost of supplies used by him....” To modern eyes, that regulation obviously denied deductions to taxpayers not in the trade or business of being a “professional man” ...such as anyone who was only a man as a hobby and not as profession. Think Victor, Victoria. Treasury nuked that reg in 2011.
The scrubbing effort carries a small upside because outdated regulations generally do little harm. I tell my students that is why you have to read the actual statutory language first. In real life, of course, tax practitioners rely on the commercial services like BNA, CCH or RIA to summarize the rules and those services keep current. Taxpayers reporting their 2017 taxes are unlikely be blindsided by the moving regulations into trying to deduct meal expenses in a move. Likewise, taxpayers reporting their 2018 taxes are unlikely to try and deduct moving expenses at all, much less in reliance on the regulations.
But the focus on throwing out the bathwater presents an obvious danger to the baby. The ham-fisted 2-for-1 requirement of Executive Order 13711 is not just focused, it’s myopic. Another danger is posed by the myopic thinking that the word “regulation” has the same meaning for all agencies and that the Administrative Procedure Act (APA) applies in lock-step to all agencies. Both myopias ignore the vast difference in purpose of regulations issued by different agencies.
Last week’s Tax Court opinion in SIH Partners LLLP, et al. v. Commissioner, 150 T.C. No. 3, January nicely illustrates the purpose and use of tax regulations. In it, the taxpayer tried to invalidate a 45 year old regulation for failing to meet APA requirements. The Tax Court has a nice opinion applying the APA with sensitivity to the tax regulation process and suggests a clearer view of what makes tax regulations different from those of many other agencies.
More below the fold.
January 22, 2018 in Bryan Camp, IRS News, New Cases, Tax, Tax Practice And Procedure | Permalink
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