Wednesday, August 20, 2014

Final Tax Whistleblower Regulations Were Recently Issued

      I’m experiencing the thrill of influencing national policy--- something Law-and-Econ-Blogger Gamage is well acquainted with, since he worked on government health care regulations.  It’s a modest thrill, though. The regulations for whistleblowers who provide information on tax underpayment for a reward have just been issued. The IRS is notoriously hostile to whistleblowers (Congress forced the program on them in 2006), but these regulations are an improvement over the transition period. Lots of law firms and lawyers submitted detailed public comments, as did I, on both practical and policy matters.  I’ll use this post as a way to talk about the comment process in administrative law, as something I can have my undergraduates read when I teach them about regulation starting two weeks from now. I’ll just talk about one comment in this post, and maybe write a second post once I’ve read through the entire regulations and reminded myself of what my other comments were. 

   My thrill comes from definitely improving the regulation, even though the IRS didn’t do exactly what I suggested.

One part of my comment, submitted via the standard computerized system, was this:

1. Using the term “claimant” instead of “individual”.


§301.7623-1  General rules, submitting information on underpayments of tax or violations of the internal revenue laws, and filing claims for award....

(b) Eligibility to file claim for award.  (1) In general.  Any individual, other than an individual described in paragraph (b)(2) of this section, is eligible to file a claim for award and to receive an award under section 7623 and §§ 301.7623-1 through 301.7623-4.


        These regulations will refer to the individual who files the claim as “the claimant”. 

    I suggest that the word “claimant” be used instead of “individual” when referring to the whistleblower.

Explanation:  “Whistleblower” would be the best word except that it’s four syllables long.  “Claimant” is shorter, and will avoid possible confusion of the individual whistleblower with an individual taxpayer.    I realize that “individual” is used in the statute, but  I think it’s okay to use a synonym in the regulation.

     Below is the IRS response.   The final regulations start with a very long discussion of the public comments and the changes made from the draft regulations.  This discussion is important, because a major reason for Chevron deference is that regulations have been through the notice-and-comment process and the agency is supposed to have paid attention to the public comments. Page 9 of the final regulations says:

 The proposed regulations used both the term “individual” and the term “claimant” in various respects. Generally, the terminology in the proposed regulations was designed to mimic the statute’s use of the term “individual(s).” One commenter suggested that the final regulations should use the term “claimant” throughout and eliminate all references to the term “individual.” The final regulations recognize, however, that not all individuals who submit information to the IRS regarding tax non-compliance become award claimants. To achieve consistency with Treas. Reg. §301.6103(n)-2 and reduce any confusion caused by the use of several terms, Treasury and the IRS changed almost all of the references to “individual” or “claimant” to “whistleblower” in the final regulations. In some instances, however, the final regulations still use the term “individual” to mimic the statute. These changes are not intended to be substantive in nature.

  I will reveal the identity of “one commenter”. It was me!  So I made a difference.

   Now, you may be thinking that this is not all that stupendous of a triumph: “whistleblower” instead of “individual”.  That’s true. All I did was point out some confusing language and a way to clarify it without changing the meaning (indeed, to help pin down the meaning). But little improvements like that in technical details are a major reason for the public comment process.  As I tell my students, lobbyists aren’t just trying to get things for their clients at the expense of citizens. Rather,   government career officials listen to lobbyists because the lobbyists tell them how to avoid doing stupid things that hurt everybody, client and citizenry alike. Spotting unintended consequences is a major skill of both economists and lawyers, in different ways, but the government doesn’t have an infinite number of its own economists and lawyers. The government officials know they are making tricky decisions in too short a time for them to notice problems, and they are glad when outsiders offer them real help. They aren’t interested in a commenter who just says, “Pay whistleblowers more,” but they are interested in comments on the use of “individual” vs. “whistleblower”.

     Note, too, that the IRS did not adopt my suggestion because it was made by the great Eric B. Rasmusen. An undergraduate could have made the same comment and had the same effect. Possibly they read it a little more closely because I am a professor at Indiana, but I expect they started out thinking that anything an economics professor submitted was likely to be useless. (That’s not true for submissions by private whistleblower lawyers, but academics often have no sense when it comes to practical policy.)  I did present my comment clearly, though, and I am sure that helped. Note, from the formatting I used above, that I did not present my idea in the most dignified and formal way possible. I sacrificed those things (which are good things, in themselves) for clarity, because I knew I had no weight as an authority and my ideas had to speak for themselves.  

   For professional comment on the regulations (though not on this particular issue!) see Erica L. Brady's  Final Regulations Are Here!!!, an August 8 post at Tax Whistleblower Report. 


Update: See the next post on the blog for more. Also, I later realized that I do have one possible source of special access--- economist Mark Mazur is an important figure in the IRS now. I interviewed him when he was on the rookie job market years ago, and though he's probably forgotten that, he would probably know of my academic work. 

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