Tax Reform And IRS Resistance

Wall Street Journal:  Tax Reform and IRS Resistance, by Kimberley A. Strassel:

With all the good news about the new Republican tax law, you may be surprised to learn that the fight isn’t over. Behind the scenes, reformers face a new challenge: Navigating the IRS swamp.

It’s a little-known fact that for 35 years the Internal Revenue Service has exempted itself from the most basic regulatory oversight. When the Labor Department or the Small Business Administration create “major” or “significant” rules or guidance, they are required to submit them for centralized review. That ensures regulations are consistent with the law and with White House priorities and that they’ve been analyzed for costs, benefits and flexibility.

But in 1983, the Treasury Department signed a memorandum with the Office of Management and Budget that largely exempted the IRS from submitting its rules to White House review via OIRA, the Office of Information and Regulatory Affairs. The memo still stands today. In the face of congressional attempts at oversight, the IRS issued a 1996 opinion claiming that tax statutes are in and of themselves responsible for any costs or inflexibility—that the IRS’s rules are, by definition, pure distillation of law. ...

[T]he IRS is already playing games with the GOP tax reform.

Just a week after passage, the IRS rushed out guidance declaring that most taxpayers couldn’t deduct prepaid 2018 property taxes on their 2017 returns to claim that benefit before the new law kicks in. The IRS decided this with no input from the White House or other agencies. IRS bureaucrats—many of them implacably opposed to his White House and bitter over recent congressional oversight—will have plenty of opportunity to cause trouble with its interpretations of a complicated tax reform. ...

The swamp is rarely drained, for the simple reason that it takes rare and extraordinary governance. It requires leaders who are willing to offend institutions and top advisers, expose internal abuse, and willingly surrender unjustifiable powers. Today’s Justice Department and Federal Bureau of Investigation are examples of what happens when those leaders follow the far more common route of succumbing to the natives.

Mr. Mnuchin’s Treasury can make the successful rollout and implementation of the Trump tax reform a priority, or it can roll to an IRS bureaucracy. That ought to be an easy call.