TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, October 17, 2018

Osofsky Reviews Wallace's Centralized Review Of Tax Regulations

Jotwell (Tax) (2016)Leigh Osofsky (North Carolina), Fleshing Out Centralized Review of Tax Regulations (JOTWELL) (reviewing Clinton Wallace (South Carolina), Centralized Review of Tax Regulations, 71 Ala. L. Rev. __ (2018)) (also reviewed by Ari Glogower (Ohio State) (here):

In a new article, Centralized Review of Tax Regulations, Clinton Wallace addresses the timely question of whether and how tax regulations should be subject to centralized review by the Office of Information and Regulatory Affairs (“OIRA”) in the Office of Management and Budget (“OMB”). While OMB review has become standard for “significant” or “economically significant” agency regulations, tax regulations have long avoided review even when they meet this standard, raising, yet again, the question of whether tax should be different than other areas of administrative law. In addition to helping us understand the historical lack of centralized review of tax regulations, Wallace’s paper does the important job of showing the inadequacy of the new framework for centralized review, and pushing us to recognize the complex questions that have to be answered to develop objective criteria for review. ...

In order to provide some guide through this maze of potential approaches to centralized review, Wallace suggests that tax regulations can have different functions: private allocation (incentive provisions), public allocation (revenue raising provisions), and implementation (interpretive rules that involve the exercise of very little discretion by Treasury). While Wallace acknowledges that tax regulations can often serve a combination of these functions, he nonetheless argues that certain types of centralized review can make more sense for some functions. For instance, he argues that robust inter-agency cost-effectiveness analysis would be beneficial for private incentives, Treasury and IRS-driven revenue estimates and distributional analysis would be beneficial for public allocation, and no centralized review should apply to mere Treasury and IRS implementation of congressional mandates.

Wallace recognizes some of the difficulties in distinguishing between these different functions and, in the end of the paper, turns to trying to improve the existing Trump administration framework thresholds for review. The distinctions Wallace tries to draw pose difficult line-drawing problems that present promising questions for further research. The perennial difficulty in distinguishing between legislative and interpretive rules, for instance, suggests that trying to distinguish between what he calls the implementation function and the other functions would be an incredibly difficult task. Wallace’s contribution is to identify and explore the challenge posed by tax regulations doing all sorts of things, many of which have little relation to raising revenue.

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