Lack of guidance can be difficult for tax advisers

Iknow that most of you do not read tax regulations. I do, but I do not admit to it in social circles.

Nonetheless, many of you are affected by tax regulations. Laws tend to be poorly drafted so that tax advisers often need regulations to understand the law. I have written about this before. We often hear that businesses hate regulation. Red tape. But tax advisers are an exception — we generally like regulatory guidance. Really, we like guidance. Congress fails to give it, so we fall back on the Treasury Department.

But seemingly led by the current Supreme Court, various courts are rejecting regulatory guidance. The hook to rejecting a regulation is the

Administrative Procedures Act.

Regulations usually have the force of law. This is more than typical interpretations of bodies such as the IRS.

IRS interpretations often are released without any public input. Because of the APA, regulations require public input. This process of regulating creates a more authoritative guidance.

APA requires three steps. First, the regulatory body releases proposed rulemaking. Second, the public is given notice to participate. Third, the regulatory body must consider and respond to each “significant” comment that it receives. The proposal must state the basis for the regulatory guidance and the purpose the guidance intends to achieve.

Courts can then interpret whether the guidance achieves its stated purpose. The regulation can be rejected if it goes beyond the stated purpose.

Before a court can weigh in, various members of the public will give their input. As you might expect, most input suggests changes, or even elimination of specific provisions.

If a tax regulation, it is the Treasury Department that must respond to any “significant” comments.

Responses are included in the “preamble” to the regulations. Officials must read all comments, decide which are significant, and then be sure to comment on each.

Some comments are not significant. But someone must make this determination. A court could later question the decision.

If the comment is to place the regulation in some part of the drafter’s anatomy, that is difficult, or maybe even impossible, to do, it probably is not significant.

Many comments will be similar. The response can then be grouped for efficiency. But this all makes the preamble to regulations very, very long.

Winston Churchill said the length of this document guards well against the risk of it being read. Only oddballs like me attempt to read most regulations.

The Supreme Court has recently attacked regulations drafted by the Environmental Protection Agency and Federal Trade Commission.

These regulations are often understandable to the public at large. The Tax Court followed suit this March by tossing a regulation directed at tax deductions for conservation easements.

The Tax Court found a tax regulation requiring that the conservation use of property be protected in perpetuity to be invalid because of its wording.

The Tax Court had earlier found that exact regulation to be valid. The 6th Circuit Court of Appeals agreed with the earlier Tax Court decision. It turns out that the 11th Circuit Court of Appeals had rejected the regulation that the Tax Court and the 6th Circuit thought was simply fine.

Six weeks ago, the Tax Court said, never mind, we think the 11th Circuit has a better read on this issue. The regulation was tossed because of a failure to satisfy the APA.

What, you say, is your point Hamill! Well, first that regulations are dropping like flies. Many tax advisers rely on regulations to give you advice.

If regulations are tossed based on APA compliance, we tax advisers need to rely on Congress for formal guidance.

Think about what I just said. We need to rely on Congress. That’s the bunch of reality-show actors that film in Washington, D.C.

Members of Congress include Snooki, The Situation, J-WOWW, Vinny and ... oh, wait, that’s Jersey Shore. Well, it’s the same thing, just different location.

I get a lot of emails. I participate in a family group text . It is hard to track and comment on what each person might think is significant.

There was a time when tax advisers just assumed regulations were valid law. It’s not comforting to think that perhaps you have no guidance.