In a recent report examining the implementation of international business provisions enacted in the Tax Cuts and Jobs Act of 2017 (TCJA), the Government Accountability Office (GAO) found that Treasury and the Internal Revenue Service (IRS) have generally complied with the legal requirements for issuing regulations. However, GAO also found that they are not in full compliance with the Paperwork Reduction Act (PRA).
The PRA was enacted to address a concern that the federal government requires businesses, individuals, and other entities to spend too much time filling out paperwork at the behest of federal agencies. As such, the PRA requires agencies to get approval for each of their information collections (i.e. any form) and to estimate the time and out-of-pocket expense burden imposed on the public.
GAO reports that the IRS did not provide specific estimates of the incremental paperwork burden of the TCJA’s international regulations and instead estimated the total burden for all business tax forms. Moreover, the anticipated economic impacts of the regulations were not quantified, and the IRS did not provide an opportunity for public comment before issuing revenue procedures related to the TCJA’s international provisions.
The report noted why it is so important for the IRS to estimate the cost and time burdens of the tax laws. Agency officials interviewed eight U.S.-based companies to determine how the international tax provisions affected their business planning decisions. According to GAO, “Representatives reported a variety of challenges, including collecting new information from foreign subsidiaries not previously required, hiring additional personnel and consultants, and finding tax preparation and filing software that calculated the required information.”
NTUF has tracked the time and expenses associated with complying with the tax code for many years, and the cost is substantial. According to our analysis of data that the IRS is required to file as a result of the PRA, the net tax compliance burden for 2020 was a staggering $304 billion. Because the IRS represents the vast majority of the government-wide paperwork burden imposed on citizens (63.3 percent of all hourly paperwork compliance burden in the federal government), it is crucial that the agency promulgates transparent and accurate paperwork burden estimates.
To that end, GAO made three recommendations to Treasury and the IRS in order to bolster their efforts in complying with the PRA and increase accountability and transparency. The first is for the agencies to develop more specific paperwork burden estimates for future TCJA regulation, and additionally, GAO recommends that they estimate the time and money required for any reviews that Treasury or the IRS may conduct for regulations already issued. Further, GAO recommended that the Commissioner of the IRS use future regulatory activity and renewals of PRA authorizations to develop more specific paperwork burden estimates related to the TCJA’s international provisions. Finally, GAO recommends the IRS identify ways to provide public comment opportunities for significant guidance when appropriate, in order to remedy previous inconsistencies. Currently, all three of these recommendations remain “open,” meaning that actions to satisfy the intent of the recommendations have not been taken or are still being planned.
It should be noted that the lack of paperwork burden transparency extends to other areas of the tax code, not just the international business provisions examined by GAO. In our most recent tax complexity report, NTUF noted that there are currently 475 IRS paperwork collections with a listed $0 cost. In some cases, the IRS indicated that it does not expect that there are any costs, but there are also many cases where the IRS has failed to account for the estimated cost burden of a form. NTUF urges serious consideration of the GAO recommendations and will continue to monitor the Treasury Department and the IRS’s progress.