OPPORTUNITY IS KNOCKING: A New and Novel Regulatory Review Process Is under Way, and IMA Encourages Its Members to Submit Ideas

By Kuba, Jim | Strategic Finance, November 2017 | Go to article overview

OPPORTUNITY IS KNOCKING: A New and Novel Regulatory Review Process Is under Way, and IMA Encourages Its Members to Submit Ideas


Kuba, Jim, Strategic Finance


ONE OF THE RESPONSIBILITIES of the IMA[R] (Institute of Management Accountants) Small Business Financial and Regulatory Affairs Committee (SBFRC) is to comment on government rules and regulations that impact small and medium-sized businesses. This year there weren't many new regulations requiring comment, but it has been a very busy year nonetheless. Why?

The onset of a new presidential cycle brings a Regulatory Review. The review generates Executive Orders (EOs), which typically lead to new rules and regulations, but this year it's different. A number of new EOs call for a reduction in the number of rules and regulations, especially those that have a negative economic impact.

Historically, the Internal Revenue Service (IRS) is the rule and regulation leader. The National Taxpayer Union notes, "Undergirding the complex Tax Code are the 22 volumes of Title 26 of the Code of Federal Regulations. These provide 'the official interpretation of the Tax Code by the U.S. Department of the Treasury.' The current volume racks up to 16,426 pages. The Tax Foundation estimates that it includes 7,655,000 words." (http://bit.ly/2hV30AA).

The complexity of the Tax Code has a substantial cost. Early in 2017, the IRS Taxpayer Advocate (TPA) noted that "businesses spend about six billion hours a year complying with the code's filing requirements-if tax compliance were an industry, it would be one of the largest in the United States." (http://bit.ly/2z4c75I). In the same report, the TPA also noted that complexity "rewards taxpayers who can afford expensive tax advice and discriminates against taxpayers who cannot."

A distinction must be made between written statutes, which are passed by Congress, and tax regulations, which are standards and rules adopted by the IRS that govern how laws will be enforced. Lobbying for Statutory Tax Code changes is beyond the purview of the IMA SBFRC. But participating with the regulation drafting process isn't. This year, the EOs generated from the Regulatory Review actively encourage participation.

To identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance, the IRS prepares a Priority Guidance Plan (http://bit.ly/2kqftwK). It invites public comment through an invitation published in the Federal Register (http://bit.ly/2yNwp 2E). In a typical year, only lobbyist and tax professionals respond. But this year's invitation noted that "the Service recognizes the importance of public input in formulating a Priority Guidance Plan that focuses resources on guidance items that are most important to taxpayers and tax administration.... This input is of particular importance in light of Executive Order 13771 (82 FR 9339) and other recent executive orders that may affect the number or type of guidance projects that can be issued during the 2017-2018 plan year."

Normally, the SBFRC reviews the IRS Priority Guidance Plan, but this is the first year we entered an official comment in the Federal Register. The SBFRC usually reacts to newly published regulations. We wished we could draft a broad letter covering multiple tax regulations that impact small business, but, unfortunately, resources are limited. Writing a good comment letter typically involves 40-80 staff hours of work. The SBFRC is a volunteer committee, staffed by small business professionals working hard in their respective small businesses (their day jobs). Based on the personal experience of some SBFRC members, we decided to focus on IRS rules and regulations relating to the worker classification "employee or independent contractor" (http://bit.ly/2xn6Mo4).

WORKER CLASSIFICATION

The SBFRC isn't alone in recognizing this issue. A June 2017 Strategic Finance article ("Risk Management: What You Don't Know May Be Costing You! …

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