The push for the unification of administrative law and tax law had, as its animating force, a push for greater democratic values in the development of tax rules. Indeed, much of administrative law focuses on processes and procedures to provide democratic legitimacy to the administrative state consisting of unelected people. Critiques of tax exceptionalism from scholars like Kristin Hickman have rightly focused on the failure of tax to follow key administrative procedures like the Administrative Procedures Act (APA). They argue that the reliance on tools like temporary regulations, which have the force of law without the full APA notice and comment rulemaking procedures, not only violate the law but undermine these core democratic values of the APA. What the IRS and Treasury should then do is put their rulemaking and other guidance development procedures in line with that of other agencies and hew toward the APA’s framework of noticed and comment.
Thus, if Treasury follows the APA and other administrative law procedures, tax law will better exemplify core democracy principles. Wallace and Blaylock identify these as the values of transparency, participation, responsiveness, accountability, and the rule of law. But while consistency with the norms of administrative law can help, the authors argue that consistency itself cannot be the main goal. In some instances, the default rules and procedures of the APA may undermine democracy. Context is then important. Indeed, Congress itself, in enacting the APA, allowed for in time statutes could create procedures that deviated from the APA’s default rules in certain circumstances.
The bulk of the contribution of the article is in the painstaking collection of data that Wallace and Blaylock undertook. They analyzed almost every piece of administrative guidance within a two-year period around the two most recent major tax reform efforts, the Tax Reform Act (TRA) of 1986 and the Tax Cuts and Jobs Act (TCJA) of 2017. They also examined the much smaller set of guidance from the 2001 tax cuts. Much of this data involved painstaking data entry and summaries by hand, which the authors placed in an appendix.
The main results of their data collection raise some interesting points. First, while the number of guidance documents were lower after TCJA 2017 than they were after TRA 1986, the overall volume of guidance, in terms of pages produced, was about the same. This result meant that guidance has gotten longer. The authors note that they do not have enough information to draw conclusions. On the one hand longer guidance may inhibit democracy by tamping down on participation by parties who do not have the bandwidth or sophistication to process these documents. On the flip side it could enhance transparency by showing more of Treasury’s reasoning.
But what is more striking is that the makeup of the types of guidance is different. TCJA 2017 spawned only one Temporary Regulation in a two-year period compared to 57 after TRA 1986. Other subregulatory guidance, like Revenue Rulings and Notices also fell between the two periods. These changes make some sense. A great deal of the critiques of tax exceptionalism focused on how these forms of guidance short-circuited the democracy enhancing procedures of the APA. But most striking is that the use of informal guidance, like FAQs, increased dramatically after TCJA 2017. That bodes poorly for democratic values. If more is done through informal guidance, the ability for participation and responsiveness diminishes. This is especially true for those taxpayers who are not well-connected to the IRS and Treasury.
Finally, Wallace and Blaylock provide a defense of the use of Temporary Regulations as potentially democracy enhancing. The use of Temporary Regulations as binding law without notice and comment is perhaps one of the greatest critiques by scholars like Hickman, and the process post-TCJA 2017 shows Treasury internalized these criticisms. But the authors note that Congress, in 1988, explicitly provided a procedure that deviated from the APA for promulgating Temporary Regulations with binding force. That law allowed Treasury, under certain circumstances, to issue Temporary Regulations without Notice and Comment so long as the Temporary Regulations expired after three years, and Treasury also issued Proposed Regulations for notice and comment that were of the same substance as the Temporary Regulations issued. To address concerns that even under these circumstances that these Temporary Regulations may just get serially reissued and thereby circumvent notice and comment entirely, the authors argue that Congress and the courts should step in to prohibit the practice. These guardrails then allow Temporary Regulations to actually be democracy enhancing.
More disconcerting is that instead of using Temporary Regulations, the authors found that much of the action has just moved toward notices and informal guidance. Many of these Notices and informal guidance delay the issuance of proposed and final regulations, and when those regulations appear, they often apply retroactively to the date of the initial Notice or informal guidance. Thus, it seems in solving one problem, another larger problem has arisen.
Wallace and Blaylock reveal an intent-effect gap. The intention of those, including myself, that support greater adherence to the APA for tax regulations, was to draw on the democracy enhancing measures therein. The authors’ data and arguments cause me then to pause and think what the best route may be to bring tax guidance more in line with democratic values. They also raise a question not just of tax exceptionalism, but also the notion of one size fits all transsubstantive administrative procedures. Perhaps there needs to be more context specific and congressionally mandated deviations from the default rules of the APA for other parts of the regulatory state.
Additionally, the article, along with other pieces, should also cause us as tax people to engage even more deeply with administrative law and political science regarding democratic legitimacy. Indeed, there is a great deal of discussion among many scholars about the best ways to develop and innovate means to promote democratic values in all areas of our society. The authors’ article then should serve as a rallying cry and starting point for more of these discussions and contributions.
Overall, this article is a valuable contribution and a fascinating read. It should force us all to think about how we who are involved in tax, can design procedures and processes that enhance democracy. That in the end should help not only create greater support for the tax system, but potentially also help bolster democracy during these times.