Academic journal article Emory Law Journal

Legislation and Comment: The Making of the § 199a Regulations

Academic journal article Emory Law Journal

Legislation and Comment: The Making of the § 199a Regulations

Article excerpt


In December 2017, Congress passed a major overhaul of the Internal Revenue Code (the "Code") at warp speed.1 The hastiness of the process meant that the new legislation contained numerous errors, poorly designed provisions, and ambiguities.2 Once the public furor surrounding legislative passage had died down, it fell to the Treasury Department ("Treasury") to issue regulations clarifying and implementing the new law.3

Administrative law provides that, to make regulations, an agency must issue a notice of proposed rulemaking, followed by an opportunity for the public to comment.4 These so-called "notice-and-comment" procedures are meant to infuse the unelected agency's rulemaking with democratic legitimacy.5 But, in the wake of the 2017 tax legislation, many sophisticated actors did not wait until Treasury had issued a notice of proposed rulemaking in order to comment. Rather, they went to Treasury right away with comments designed to influence the regulations.6

In this Article, we study the regulatory aftermath of the 2017 tax reform by conducting an empirical examination of the making of the Code Section 199A regulations.7 Section 199A is a new tax deduction for pass-through entities and sole proprietors and is widely regarded as one of the most important provisions enacted in the 2017 tax legislation.8 Hence, its potential problems and ambiguities were widely analyzed and criticized in the lead-up to enactment,9 and, after enactment, scholars and practitioners eagerly awaited proposed regulations clarifying and interpreting the statute.10 Finally, on August 8, 2018, Treasury released its highly anticipated notice of proposed rulemaking.11 That release kicked off the notice-and-comment period, the official opportunity for the public to comment on the proposed regulations. As required by the Administrative Procedure Act (APA), the official notice-and-comment period lasted at least 30 days (in this case lasting until October 1, 2018),12 and Treasury held a public hearing on the proposed regulations on October 16, 2018.13 On January 18, 2019, Treasury released the § 199A final regulations and issued corrected final regulations on February 1, 2019.14 Our study examines the making of the § 199A regulations from the time of legislative enactment through their January 18, 2019 finalization.

In its August 8, 2018 notice of proposed rulemaking, Treasury took the unusual step of explicitly acknowledging comments it had received from taxpayers and practitioners prior to the official notice-and-comment period and repeatedly referred to those comments in explaining the positions it took in the proposed regulations.15 Based on our review of previous proposed regulation preambles, this appears to be a new phenomenon.16 Treasury did this even though these early-received comments were not made publicly available on, in contrast to comments received during the official comment period. By examining these Treasury acknowledgements, and by mining private subscription databases, government databases, and the tax press to locate comments that had been submitted early, we were able to gain insight into a critical part of the regulatory process often hidden from view: the influences on Treasury in the post-enactment period, prior to release of the notice of proposed rulemaking and the start of notice and comment. In this way, we were able to examine empirically how the rulemaking process actually unfolded and what voices tried to shape the regulations by commenting immediately after the legislation.

Our study yielded some distinctive observations about influence into the regulatory process prior to as well as during notice and comment:

First, our study provided a window into regulatory influences prior to notice and comment. In its notice of proposed rulemaking, Treasury repeatedly referred to and gave weight to comments it had already received to justify positions it took, even though the official notice-and-comment period had not actually begun. …

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