Internal Revenue Service: Applicability of the Congressional Review Act to Revenue Procedure 2018-38

B-330376

November 30, 2018

The Honorable Orrin Hatch
Chairman
Committee on Finance
United States Senate

Subject:  Internal Revenue Service: Applicability
of the Congressional Review Act to Revenue Procedure 2018-38

This responds to your request for our legal opinion on whether
Revenue Procedure 2018-38, Returns by exempt organizations and returns by
certain non-exempt organizations, issued by the Internal Revenue Service
(IRS), is a rule for purposes of the Congressional Review Act (CRA). IRS
submitted the revenue procedure to GAO on July 24, 2018, and to both Houses of
Congress on July 26, 2018.  At issue here is the protection of Congress’s
review and oversight authorities when an agency has submitted a rule to
Congress pursuant to CRA and the rule has been transmitted to the committees of
jurisdiction.  The purpose of CRA is to strengthen congressional oversight of
agency rulemaking.  We conclude that in these circumstances, because IRS
submitted the revenue procedure as a rule, Congress is able to fully exercise
its review and oversight authorities under CRA.  We, therefore, take no
position on whether the revenue procedure is a rule otherwise.  

BACKGROUND

On July 16, 2018, IRS announced Revenue Procedure
2018-38, which modifies the information certain tax-exempt entities are
required to report to IRS on their annual returns.  CRA requires that before a
rule can take effect, the agency promulgating the rule must submit to both
Houses of Congress and GAO a report containing a copy of the rule, a concise
general statement of the rule, including whether it is a major rule, and the
proposed effective date of the rule.  5 U.S.C. § 801(a)(1)(A).  Pursuant
to that requirement, IRS submitted the revenue procedure to GAO on July 24, 2018, and to both Houses of Congress on July
26, 2018.  164 Cong. Rec. H7734 (July 31, 2018); 164 Cong. Rec. S5453 (July 30,
2018).  Upon receipt of the rule, the Senate and House Parliamentarians
transmitted it to the committees of jurisdiction, the Senate Committee on
Finance and the House Committee on Ways and Means, respectively. 

IRS’s submission of the revenue procedure triggered
several CRA statutory provisions.  Under CRA, any joint resolution disapproving
of the revenue procedure must be introduced within 60 days of the July 26, 2018
submission.  5 U.S.C. § 802(a).  Further, in the Senate, if the committee
to which a joint resolution has been referred has not reported on the
resolution within 20 calendar days of the agency’s submission, the committee
may be discharged from further consideration of the joint resolution upon a
petition of 30 members of the Senate after which the joint resolution is to be
placed on the Senate calendar.  5 U.S.C. § 802(c).  However, this rule and
other rules limiting debate in the Senate only apply during the 60 session days
following submission.  5 U.S.C. § 802(e)(1).  In the case of Revenue
Procedure 2018-38, a joint resolution of disapproval was introduced on September 24, 2018, and placed on the Senate calendar
on October 12, 2018. 

We received your request concerning Revenue Procedure
2018-38 on September 7, 2018.  Letter from Chairman, Senate Committee on
Finance, to Comptroller General (Sept. 7, 2018).  Our practice when rendering
opinions is to contact the relevant agencies and obtain their legal views on
the subject of the request.  GAO, Procedures and Practices for Legal
Decisions and Opinions, GAO‑06-1064SP (Washington, D.C.: Sept. 2006), available
at www.gao.gov/products/GAO-06-1064SP.  We contacted the Acting Chief Counsel of IRS to
obtain the agency’s views.  Letter from Managing Associate General Counsel,
GAO, to Acting Chief Counsel, IRS (Sept. 18, 2018).  We received a response on October
9, 2018.  Letter from Acting Chief Counsel, IRS, to Managing Associate General
Counsel, GAO (Oct. 9, 2018) (IRS Letter). 

DISCUSSION

Prior GAO opinions related to
the CRA only have concerned agency actions that had not been submitted to
Congress.  In those cases where the agency action was a rule, CRA’s purpose of
providing Congress with an opportunity for review before a rule can take effect
was frustrated by the agency’s failure to submit the rule.  Agency submission
of a rule is the triggering event for Congress’s review and oversight powers
under CRA.  5 U.S.C. §§ 802(a), (c), (e).  Failure to submit a rule could have
deprived Congress of the ability to exercise these powers.  However, Congress has
opted to treat the receipt of a GAO opinion concluding that an agency action is
a rule as triggering the statutory provisions that otherwise would have been
triggered by the agency’s submission.  Thus, Congress has used GAO opinions to cure
the impediment created by the agency’s failure to submit the rule, protecting its
review and oversight authorities. 

By requiring that agencies
submit all actions that meet the CRA’s definition of a rule to Congress before
they can take effect, CRA gives agencies the primary responsibility for determining
which agency actions meet CRA’s definition of a rule.  5 U.S.C. §§ 801(a)(1)(A),
804(3).  In this case, IRS submitted the revenue procedure to Congress as a
rule pursuant to CRA.  IRS’s submission triggered Congress’s review and
oversight powers under CRA, starting with the transmittal of the rule to the
committees of jurisdiction.  When an agency submits a rule under CRA, as IRS
did here, Congress suffers no deprivation.  There is no impediment to
Congress’s exercise of those powers that could be cured by an opinion from GAO.
The purpose that a GAO opinion might serve otherwise was superseded by IRS’s
submission of the revenue procedure as a rule under CRA.

In its response to our Office, IRS stated that it
believes Revenue Procedure 2018-38 is exempt from the CRA but that it generally
submits revenue procedures to Congress pursuant to CRA “out of an abundance of
caution” to (1) allow Congress to decide whether it is a rule by consulting GAO
and (2) protect IRS in case something it thinks is not a rule is later
determined to be a rule.  IRS Letter, at 1.  However, as the Court of Appeals
for the Second Circuit held in NRDC v. Abraham, agencies “cannot have it
both ways.”  355 F.3d 179, 205 (2d Cir. 2004).  In that case, the court addressed
a Department of Energy position that the rule in question was a substantive
rule for purposes of one issue in contention and a procedural rule when
analyzing whether the notice-and-comment requirements of the Administrative
Procedure Act (APA) applied.  Id.  The court held that the agency could
not benefit from simultaneously arguing that the rule in question was both
substantive and procedural.  Id.  Similarly, IRS here cannot claim both
the benefit of protection from the consequences of failure to submit a rule
while also shielding the rule from congressional review and oversight under CRA
by arguing that it should not have submitted the rule in the first place. 

Further, the description of IRS policy as described in
the IRS Letter is inconsistent with IRS policy as set forth in the Internal
Revenue Manual (IRM) and IRS’s observed practice.  IRM states that IRS
determines whether each revenue procedure it issues is or is not a rule under
CRA on a case-by-case basis and documents that determination in the legal
file.  IRM § 32.2.8.2(5). Consistent with IRM, the Congressional Record
shows that IRS submits some revenue procedures to Congress pursuant to CRA, but
not all.  Of the over 50 revenue procedures issued by IRS between January and
October of 2018, 13, or approximately 25 percent, were not submitted to
Congress.  IRS’s policy and practice are inconsistent with its position that it
submits all revenue procedures to Congress pursuant to CRA.

CONCLUSION

For the forgoing reasons, we
conclude that IRS’s submission of Revenue Procedure 2018‑38 to Congress
pursuant to CRA obviates the need for a GAO opinion.  In these circumstances,
unlike when an agency has failed to submit a rule, an opinion by GAO would not
further the purposes of CRA by protecting Congress’s CRA review and oversight
authorities.  As Congress is not deprived of exercising its powers under CRA,
there is no impediment to those powers that a GAO opinion might cure.  We,
therefore, take no position on whether the revenue procedure is a rule
otherwise. 

If you have any questions
about this opinion, please contact Julie Matta, Managing Associate General
Counsel at (202) 512-4023 or Shirley Jones, Assistant General Counsel at (202)
512-8156.

Sincerely,

Thomas H. Armstrong
General Counsel