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Hunting foxes in the hen house

Irs_logo_208 Everybody needs some tax help now and then. Even the IRS.

The agency has announced that, in certain situations, it plans to seek help from outside sources in writing tax rules.

Don't get too excited. Tax officials aren't looking for advice from you and me on issues related to our personal returns. Rather, the help requests will typically be on very specific guidance projects. The pilot project deals with "a recent request for an expansion of the permitted types of modifications to loan obligations held by a real estate mortgage investment conduit."

The IRS has, of course, always solicited public comment, but usually after much of the work on a procedure, policy or form is done. Hearings are held, adjustments made, then the regulation or procedure is implemented.

And, as noted in this New York Times story on the proposal, it's not unusual for the IRS to hire contractors to provide research and technical advice on regulations.

But this latest outsourcing plan is a bit different. Essentially, the agency is looking for free help in crafting regs, and that's raised some eyebrows. While these advisers might share their thoughts with the IRS for free, they have to make a living somehow.

And it wouldn't be a surprise if the folks who are actually handing out paychecks to these IRS assistants also have an interest in the precise wording of a particular tax rule.

Esoteric assistance: The IRS is playing down the proposal. It says when it comes to specific guidance projects, especially in narrow, technical areas of the tax law, the input of those affected will help the IRS issue rulings in "a more timely and efficient manner."

OK. We're all for timely and efficient. But isn't this a little like letting you grade your midterm when you were in school? Or fill out your job performance review and set your annual raise? We'd all like to do that. It certainly would speed both processes along. But we also have that nagging feeling that something's not quite right.

That's the reaction of the Senate Finance Committee. Chairman Max Baucus (D-Montana) and ranking minority member Charles Grassley (R-Iowa) sent letters to Treasury Inspector General Russell George and IRS Chief Counsel Don Korb questioning the IRS' plan.

Baucus's concern: "What's best for taxpayers should be the IRS's number-one concern when they make new rules for administering tax policy. I want to make sure that outside groups don't skew the IRS's view. In the end, the IRS needs to run the IRS."

And Grassley told the IRS, "We don't need K Street lawyers writing enforcement regulations to help their clients create tax shelters."

Good for the Senators for taking a stand here. But Baucus, Grassley and their other concerned colleagues might want to keep a close eye on any decision the IRS comes up with. I'm sure the legislators don't want it to have the same kind of loopholes that have appeared in recently passed limits on lobbyist access to Capitol Hill.


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