In The Inequity of Informal Guidance, Josh Blank and Leigh Osofsky recontextualize the IRS’s use of informal guidance as a social justice issue. Adding to the substantial literature on subregulatory guidance in tax law—as well as their own deeply researched work on simplexity, automated legal guidance, and the tax legislative process—Blank and Osofsky highlight the systemic inequities and access to justice issues created by what they describe as a “two-tiered system of [tax] law.” Through agents such as tax attorneys and other advisors, certain groups benefit from planning and structuring mediated by traditional bodies of formal authorities, which offer robust protections should any controversy arise. Others are left with informal guidance: IRS publications, FAQs, and online widgets that often provide a misleading gloss of the real stuff and always give limited support in audit or litigation. To remedy this systemic inequity, Blank and Osofsky propose a slate of reforms addressing the treatment of both formal and informal law.
Blank and Osofsky generally characterize formal law as the purview of the advantaged, with the historically marginalized pushed or relegated to reliance on informal law (or, perhaps, “law,” depending on one’s positivist priors). These are the two tiers present in tax law, and they both reflect and complicate other dichotomies of substance, application, and enforcement in criminal law, immigration law, and elsewhere. Bringing the formal-informal dynamic to bear on structural inequities is heady work, and Blank and Osofsky’s project, alongside longstanding work by Dorothy Brown and many others, provides an excellent platform for future lines of inquiry. Not only do race, class, and gender deserve renewed emphasis in tax policy; tax policy also warrants more airtime in conversations about structural and systemic discrimination.
When talking about tiers and structural inequity, however, there may be something of an ouroboros effect for informal guidance. While certain informal guidance truly disadvantages taxpayers along predictable demographic lines, other informal practices reinforce and expand the power conferred by access to expert interpretations of formal law. I’m thinking of “no names” phone calls to high-ranking officials at the IRS, or the “revolving door” between Treasury and elite private practice. One could go further: some highly bespoke, tightly negotiated private letter ruling processes have a flavor of informal law. The subject taxpayer buys comfort that derives from both the narrow strictures of the ruling’s text (which the taxpayer’s advisors may have drafted) and a broader sense of “blessing” conferred by engagement and conversation with the IRS. One could call this blending of formal and informal guidance a third tier of tax law, available only to a hyper-exclusive set of taxpayers and with its own challenges for equity and justice.
Another perspective might emphasize the role of business entities in our two-tiered system of tax law. Public companies, for example, are heavy users of formal law and the sophisticated advising process that Blank and Osofsky rightly identify as a driver of inequity. The incidence of these advantages is not necessarily straightforward. For example, tax-minimizing legal interpretations may serve labor to the extent it bears some portion of the corporate-level tax at equilibrium. Similarly, aggressive positions with respect to fringe benefits, employment taxes, and employee-independent contractor status may inure to the benefit (some) workers. These potential outcomes are, of course, contested and nuanced. Any linear narrative about incidence is complicated by occupational segregation by race, gendered patterns of work, and transition effects that may allow management or holders of capital to capture the value of tax planning. More broadly, should this entity-level use of formal law qualify as “access” for the beneficiaries? My sense is that there’s significant value in the direct deployment of law that Blank and Osofsky highlight in their normative recommendations—perhaps in terms of democratic norms or perceptions of fairness.
Finally, although Blank and Osofsky focus on equity with respect to tax law, much of their argument could be said to advance equality. Our two-tier tax system creates unequal regimes that, on their face, deny parity of access to all citizens. Many of Blank and Osofsky’s reform proposals improve access to formal law (or the benefits of formal law), and, if implemented, these reforms would be incredibly meaningful. But from the perspective of restorative justice, we might do more. For example, the penalty protections afforded to formal law (and advice) could be curtailed for historically advantaged taxpayers. (Other aspects of Blank’s concept of progressive tax procedure might serve similar functions.) Alternatively, the IRS could provide limited safe harbors for certain prepacked planning vehicles geared towards lower-income taxpayers. These types of equity-oriented, ex post interventions may complement a broader implementation of equality of access to tax law.
Overall, Blank and Osofsky’s article is an important contribution to the study of tax law’s consequences with respect to race, class, and gender. They expose crucial disparities in the way law works for different groups, with serious implications for questions about for whom our tax and legal systems are designed. Policymakers and scholars, inside and outside of tax, would do well to attend to Blank and Osofsky’s detailed research and careful arguments.