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Federal Regulations Advisor Insight and Commentary on U.S. Government Regulatory Affairs

Monday Morning Regulatory Review – 4/24/17: Buy and Hire American; Rethinking Tax Regulations Review Exceptionalism & Executive Order Law

Posted in Executive - OMB Review, Regulatory Process

dawn over the capitol aocExecutive Orders dominated last week in regulatory practice, with one policy redirection and a second that has potential for doctrinal change.  A limited executive and interagency review docket, Congressional recess ahead of a budget showdown, and judicial review being held in abeyance in most challenges to regulations leave little more to discuss, but a summation of law of “Executive Orders” may be appropriate.

Buy and Hire American:  Simple first, the President of the United States (POTUS) directed agencies to revise their policy stance in Executive Order 13788, Buy American and Hire American, issued last Tuesday and published in Friday’s Federal Register, to more directly favor American goods and services.  “Buy America” laws are nothing new, and the Executive Order merely reinforces them.  The Executive Order also instructs, in typical fashion, all of the agencies that play a role in immigration policy and variously administer the Immigration and Nationality Act (INA) – the Department of State (DOS), Department of Justice (DOJ), Department of Labor (DOL), and Department of Homeland Security (DHS) – to “propose new rules and issue new guidance, to supersede or revise previous rules and guidance if appropriate, to protect the interests of United States workers in the administration of our immigration system, including through the prevention of fraud or abuse.”

►  The Executive Order sets in motion a new round of one of the most contentious issues to face any Administration.  The Executive Order addresses substance, consistent with the regulatory process.  Interest here may lie in how the agencies may approach inter-agency jurisdiction that has been nettlesome in the past.  Recall that some DOL jurisdiction was found wanting after the multiple agency transfers of immigration jurisdiction.

Rethinking Tax Regulations Review Exceptionalism:  On Friday, POTUS issued the second Executive Order (that should be published this week as Executive Order 13789), Identifying and Reducing Tax Regulatory Burdens, that orders the Secretary of the Treasury to review, in familiar terms, recent regulations of the past Administration, “all significant tax regulations issued by the Department of the Treasury” (DOTr).  The Executive Order requires the Secretary, in consultation with the Administrator of the Office of Information and Regulatory Affairs (OIRA), Office of Management and Budget (OMB), to identify all such regulations that:

  1. impose an undue financial burden on United States taxpayers;
  2. add undue complexity to the Federal tax laws; or
  3. exceed the statutory authority of the Internal Revenue Service (IRS).

The Executive Order additionally requires the Secretary to report specific actions “to mitigate the burden imposed by [those] regulations” and “take appropriate steps to cause the effective date of such regulations to be delayed or suspended, to the extent permitted by law, and to modify or rescind such regulations as appropriate and consistent with law, including, if necessary, through notice and comment rulemaking.”  In short, a tax policy and regulation review Executive Order.

The Executive Order, moreover, directs also that the Secretary and the Director of OMB “shall review and, if appropriate, reconsider the scope and implementation of the existing exemption for certain tax regulations from the review process set forth in Executive Order 12866 and any successor order.”  In minutiae, the Executive Order even directs the Secretary to revise, if necessary, the specific section of the Internal Revenue Manual (IRM) addressing Executive Order 12866 reviews.

►  The first substantive provisions of the Executive Order directs to now-typical review of tax regulations for compliance with an Administration-stated policy.  More interesting from a process point of view, the Executive Order requires a reconsideration of the exceptional “exemption” for tax regulations that Treasury eked out of OMB from executive and interagency review under Executive Order 12291 and its successors, including Executive Order 12866 – Treasury has released at least some of the memoranda of understanding under the Freedom of Information Act (FOIA).  Reconsideration of this historic exemption reflects a hopeful sign that the Administration is less likely to suffer “tax exceptionalism.”

Tax exceptionalism is the simple notion that tax is different – that tax regulatory and enforcement processes grew through a different path from administrative law.  But as the United States Supreme Court (SCOTUS) noted in Mayo Foundation, a decision that applied Chevron deference to tax regulations, absent some specific justification, “we are not inclined to carve out an approach to administrative review good for tax law only.”  Even the specialized Article I Tax Court has applied the Administrative Procedure Act (APA) and regulatory doctrine to declare a tax regulation invalid (e.g. Altera).

The same now may soon hold true for executive and interagency review.  Exceptions to the APA must be explicit because the APA contains a statutory rule of interpretation.  The Internal Revenue Code (IRC) contains specific retroactivity provisions that differ from the prospective nature of APA rulemakings, and Treasury does have some valid concerns about “tipping its hand” as to how it will treat future and current tax-year transactions to limit evasion (and avoidance) that can be narrowly addressed.  A blanket exemption a.k.a. exceptionalism is not the answer and the Administration should eliminate this “exemption” from executive and interagency review.

Executive Order Law:  A summary may be helpful because of the predominance of Executive Orders as a management tool of the current Administration.  DOJ’s Office of Legal Counsel (OLC) has authoritatively opined (binding within the Executive Branch) that there is no legal difference between an Executive Order, a directive, or a memorandum by the President – substance matters, not form.  Most Executive Order are no more than a management directives – hence the common disclaimer that:

Nothing in this order shall be construed to impair or otherwise affect … the authority granted by law to an executive department or agency, or the head thereof ….

and

This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

Executive and interagency review is premised on management, not law.  Very few Executive Orders have independent legal effect premised on statutory authorization, but they do exist in specific areas.  Executive Orders, management directives, etc. remain effective until amended or rescinded, which may explain the breadth of policy that this POTUS inserts into his Executive Orders that are published and compiled into a relatively permanent public form.  Indeed many more exist than 13,789 – compilation did not begin until the 1860s, is incomplete until, perhaps, the 1930s, and refers only to denominated Executive Orders.