|
Oral Testimony
of
Dan R. Mastromarco
in Re
GUIDANCE ON REPORTING OF DEPOSIT INTEREST
PAID TO NONRESIDENT ALIENTS
on Behalf of the
NATIONAL SMALL BUSINESS UNITED
(December 5th, 2002)
Please accept my sincere thanks for hearing the views of the National Small Business United.
NSBU is distinguished as the nation's oldest small business organization, but it is also unique in representing both individual small business owners and state and local small business organizations at the Federal level. Our views represent the small businesses we serve.
Now that I have appropriately thanked you, let me quickly disingratiate myself.
Today, I join the chorus opposing this rulemaking.
To begin with, we associate ourselves with the arguments against the rule that have already been made. Quite frankly, the rule makes small firms tax collectors for Europeans who want to impose double taxation on investment in the U.S. Now, it is true that small firms are used to being tax collectors and paying agents, but not for other nations. Having said that our primary concern goes to a more fundamental infirmity – the utter failure of the rulemaking to do more than acknowledge the requisite legal process.
In an elegant hop-scotch over the law – laws designed to protect small firms -- the Service has determined this rulemaking is not a "significant regulatory action", requires no regulatory assessment, no cost
benefit analyses and for good measure, is so trivial it is merely "interpretive."
NSBU shares the views of the SBA that the rule is a blatant violation of the Regulatory Flexibility Act. But let
me be blunter than a Federal agency.
This rule could be a poster child for small business groups that care about the efficacy of procedural protections because it violates virtually every protection developed to
protect small firms, and worse, it does so to formalize bad policy.
Let me start with your claim the rule is merely "interpretive." Tax lawyers recognize the term "interpretive" as the ubiquitous yet
obligatory password the Service uses to excuse itself from the Administrative Procedure Act.
That is because if a rule is truly "interpretive" the discretion the agency exercises is not wide enough to subject the rule to the notice and comment requirements, and hence to the stricture of the RFA. Tax etymologists know the term "interpretive" has been used on virtually every Service regulation since 1981, which not so coincidentally, was the year the RFA was enacted.
But does anyone on this panel believe that this rule is truly interpretive? Or are there some that believe the Service has crossed the line into policymaking?
The truth is -- as most of
the testimony points out – that this rule does change policy. The very fact that the comments today literally center on policy issues indicates the rule is more than interpretive. And it changes policy
to such a degree that, if properly considered by the Congress, the policy assumption that it is Treasury's new role to help tax collectors of foreign nations tax investments made in the US would be rejected.
Or look to the genesis of the rule, the EU "Savings Directive" or the OECD's "Harmful Tax Competition Initiative." The primary difference between these unquestionably pure policy choices and this rulemaking is
that the former have been passionately rejected by Administration policymakers. This rule is a reincarnation of a policy debate begun in the Clinton Administration and which many thought was settled.
Consider the very weighty consequences the "interpretive" moniker implies.
If this rule is really merely interpretive, it means no notice, no hearing, and no comment would need to be provided today. The rule could be retroactively enforceable. In fact, the requirements it imposes seem to be embodied in a regulatory format merely to satisfy the perfunctory legal restriction that Form changes be issued through rules.
The Service is now in the throes of preparing its recent report on compliance with the RFA as mandated. That report is not yet public, but when it is made so, it will be interesting to see how the
Service defines the word "interpretive," if that word retains any meaning at all.
In the hope the authors of that report are searching for guidance on how to handle the term, allow me to propose a useful
acronym –"WWRD"?
What would Roscoe do? I propose this idea in half jest because former IRS Commissioner Roscoe Egger offered words to Congress on the difference between the nature of rules that ought to be edifying to this panel. He said the difference between legislative and interpretive rules is a question of "the degree of discretion that the Service has in applying rules." Not surprisingly, that is the standard courts have applied. It is the standard small firms wished existed today.
Does anyone on the panel believe the Service had no discretion but to issue this rulemaking?
But what is most troubling is this. The new phraseology that "the regulations do not impose a
collection of information on small entities" and hence "the RFA does not apply" appears to be the way the Service wants to inoculate itself from recent legislative changes to the regulatory processes meant to close
the "interpretive" loophole.
Can anyone really argue that the heart and soul of this rulemaking is not to impose collection of information requirement?
Let us examine that argument.
Under Title 5 U.S.C. §601(7) the term 'collection of information' means "the … causing to be obtained … of facts … regardless of form or format, calling for … recording requirements imposed on 10 or more persons." In the Paperwork Reduction Act section of the proposal, the Service itself estimates respondents would number 2,000.
In the Service's own words, "The "collection of information is mandatory". "The Service specifically requests comment on how the quality … of the information to be collected may be enhanced; [h]ow the
burden of complying with the proposed collection of information may be minimized."
Worse still, for those with institutional memories long enough to recall the SBREFA debate, one might remember that the
Service argued assiduously that it should be exempted from the Briar Patch of normal RFA procedures unless there is a collection requirement. The Service requested this method of tightening the regulatory
processes, and their request was simply granted.
If the Service is able to claim that this rule is "interpretive," even as the entire regulatory hearing is based policy; and if the Service is able to argue
that this rule does not impose a collection requirement, when the very essence of the rule subjects banks to reporting, then the Service has effectively exempted itself from the legal process protections installed
to protect small firms.
Add two more procedural defects starting with the question of whether this action is ultra vires.
How is this rule "required to determine if taxpayers have properly reported amounts received as income?" How is it even a "needful rule for enforcement of the Code" as required under 7805(a)? Can the Service explain how this rulemaking is needed to improve compliance with US tax law when the interest that is the subject of the reporting is not taxable, especially in light of the apparent rejection of two European initiatives providing for reciprocal reporting by foreign nations on beneficial payments to US taxpayers that would be taxable? Where are the studies that led the Service to conclude that current law was enforceable? If payments to nonresidents are not taxable, then why is the amount paid to them important? Must we really ask foreign governments to determine American residency status?
Finally, does this rule really have a rationale basis?
If this rule is an improvement over the January 17th where does it incorporate the lessons learned? For what reason has the Service concluded that an American tax evader is more likely to falsely claim European residency, than say, Chinese, Middle Eastern, or South American? Is it simply coincidental that the Nations chosen are the same EU Nations seeking information exchange?
CONCLUSION
For the same reasons the administration rejected the EU Savings Directive and the OECD Harmful Tax Competition initiative, the Service should reject this, unilaterally adoption of the "US
Anti-Savings Directive" -- as this rulemaking may be called. The Service's regulatory authority may be wide, but it is certainly not infinite.
OUTLINE
OF
Oral testimony
of
Dan r. mastromarco
in re
GUIDANCE ON REPORTING OF DEPOSIT INTEREST
PAID TO NONRESIDENT ALIENTS
on
behalf of the
NATIONAL SMALL BUSINESS UNITED
(December 5th, 2002)
I.Introduction: About NSBU
II.General Position Opposing Rulemaking
III.Specific Concerns to NSBU: Concerns over Due Processes Requirements
A.Breach of the Regulatory Flexibility Act
B.Ultra Vires
C.A Dubious Rationale Basis
IV.Conclusion
|
|
