TAX POWERS: You would be forgiven for missing the development last week amidst all the drama over a government shutdown, but the Senate Finance Committee had a long-awaited hearing last week to take up President Joe Biden’s nominee to be the IRS’s top lawyer.

The IRS chief counsel, as the position is known, falls under the Treasury department and is one of only two roles at the IRS that needs approval by the Senate, other than the agency’s commissioner.

If approved, Biden’s nominee Marjorie Rollinson would not only serve as senior legal counsel to Treasury and the IRS, but also direct a cadre of lawyers at Treasury responsible for issuing all-important tax regulations — on everything from the Inflation Reduction Act’s clean energy credits and crypto reporting rules to Democrats’ dauntingly complex 15 percent minimum book tax.

The office wields considerable power in the tax world. That’s because when the tax law is unclear (as it all so often is), it has fairly broad discretion to interpret and fill in the blanks within the tax code when providing guidance to taxpayers.

Conservatives, however, have of late been increasingly critical of Treasury’s latitude to interpret tax provisions. And that in turn has spawned interesting new legal and political challenges to Treasury’s rule-making authority, made all the more threatening by the Supreme Court’s rightward shift.

BACK IN A MOMENT: And before you go any further, you should really take a read of our Brian Faler’s story describing how the Justice Department finally managed to catch the culprit allegedly responsible for the leaking of tax returns belonging to Donald Trump and thousands of the nation’s wealthiest people.

This is a big deal. Republicans have long complained that the IRS hasn’t done enough to safeguard taxpayer data and that the administration has slow-walked an investigation into the massive leak of tax data to ProPublica.

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TROUBLING TRENDS: Although Rollinson insisted at the Finance hearing that her priority would be to fairly and impartially enforce laws passed by Congress, GOP tax writers said that Treasury has been improperly using its authority to solve political problems and that they were concerned about Rollinson being subject to improper political pressure as chief counsel.

Here’s ranking member Mike Crapo (R-Idaho): “One of the troubling concerns that I’ve seen is a recent trend that, from my perspective, is a willingness of the IRS and Treasury to ignore the plain language in enacted statutes when issuing regulatory guidance.”

“The IRS has simply disregarded statutory deadlines for implementing new Democrat-led provisions,” Crapo added.

To name but one example, a tax provision implemented by the American Rescue Plan that would have increased reporting for users of apps like Venmo, PayPal and Stubhub — and is unpopular among both Democrats and Republicans — was delayed for one year by the IRS in December 2022.

That law was supposed to go into effect for the 2023 tax season, but e-commerce and third-party marketplace companies lobbied heavily against it.

Crapo also cited Treasury’s interpretation of EV credits implemented by Democrats’ climate, health and tax legislation, which conveniently helped placate some U.S. trade partners who were previously rankled by the credits while taking an expansive view on how many vehicles could be eligible for the credits.

It’s worth noting that Sen. Joe Manchin (D-W.Va.) has also been livid about these interpretations, and other Democrats protested that the Biden administration improperly circumvented Congress to get its preferred policy outcomes.

THE PUSHBACK: For some Republicans, part of the problem may lie in how tax regulations are reviewed: namely, the Biden administration in June reversed a Memorandum of Understanding originally issued under the Trump administration that required the Office of Management and Budget to review tax rules made by Treasury.

Some tax experts have said the reversal was a good thing, asserting that OMB doesn’t have the expertise to review highly technical tax statutes and that the additional bureaucratic hurdle slowed down the issuance of much-needed guidance to the tax community.

However, Sen.James Lankford (R-Okla.) made it clear at the hearing that he thought the decision was a bad one.

“No agency should have the ability to make up new rules or guidance without following the Administrative Procedure Act and the law,” Lanford said of the lack of OMB oversight.

Treasury’s powers could also be tightly constrained by a case set to be taken up by the Supreme Court this term, as our Josh Gerstein reported yesterday.

The case will involve a challenge to a precedent known as the Chevron doctrine, which holds that courts should defer to agencies when it comes to reasonable interpretations of ambiguous laws (and even if a court believes there is a more reasonable interpretation to be made than the one expounded by the agency).

Needless to say, overturning the doctrine would have far-reaching consequences for tax law, ranging from regulations governing international tax regimes to procedures that the IRS must follow to assess penalties on taxpayers claiming oversized deductions.

Opposition to federal agencies’ broad rulemaking power would make sense in the context of anti-deep state attitudes running through the Republican party under Trump, as Jasper L. Cummings, Jr. wrote in a 2019 Tax Notes article. The former president “successfully married his anti-Deep-State rhetoric with other culture war issues” as well as “traditional Republican deregulation efforts,” Cummings noted.

THE REVOLVING DOOR: Sens. Elizabeth Warren(D-Mass.) and Rep. Pramila Jayapal (D-Wash.) wrote a September 27 letter to IRS Commissioner Danny Werfel following up on a 2021 investigation by the New York Times into revolving door practices between Treasury and the world’s largest accounting firms.

The lawmakers said they were pleased that the IRS agreed to move forward with watchdog recommendations to mitigate potential conflicts of interest at the agency but insisted that more needs to be done — especially in light of the fact that, between 2017 and 2021, 15 percent of the IRS’s workforce received income from large companies or accounting firms before, during or after working at the agency.

Reuters: “Global minimum tax comes home to France to hit farm cooperatives”

The Guardian: “UK Treasury minister defends tax plans in face of biggest rise on record”

CNN: “US condemns Vietnam’s jailing of prominent climate activist on tax charges”

Tax Notes: “Moore, Part 4: The Moores’ Mistakes, Misstatements, and Possible Misfiling”

Boston Globe: “The $1 billion tax reform package is a big win for Governor Maura Healey”

CBS: “Bureaucratic blunder leads to bigger tax bills for West Sacramento homeowners”

FT: “How UK inheritance tax compares internationally”

The Guardian: “PwC tax leak scandal not isolated to Australia, senators claim”

Bloomberg: “Argentina Seeks to Tax Lithium Boom to Avoid Region’s Resource Curse”

Monday, 9 am: The Washington International Trade Association holds its virtual 2023 Intensive Trade Seminar, including talks on international tax policy. Register at: https://www.wita.org/events/2023-wita-virtual-intensive-trade-seminar/

Let Weekly Tax know about your future events: [email protected].

Sean Penn said he originally blew his audition to play surfer, stoner high school student Jeff Spicoli in Fast Times at Ridgemont High.