Tax Administration:

Standards Adhered to in Issuing Revenue Ruling 90-27

GGD-92-15: Published: Nov 19, 1991. Publicly Released: Dec 23, 1991.

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Pursuant to a congressional request, GAO determined whether: (1) there were any violations of recusal statements, conflict-of-interest laws, or standards of conduct on the part of certain Internal Revenue Service (IRS) officials in connection with Revenue Ruling 90-27; and (2) the procedures IRS used in issuing the ruling were proper.

GAO found that: (1) Revenue Ruling 90-27 stated that IRS would consider auction rate preferred stock (ARPS) to be an equity interest, rather than debt, for tax purposes and that the auction mechanism would not prevent the holders from claiming the dividends-received deduction for tax purposes; (2) there was no evidence of any violations of recusal statements, federal conflict-of-interest law, regulations, or standards of conduct on the part of the IRS Commissioner, Chief Counsel, or former Acting Chief Counsel in connection with the issuance of the ruling; (3) since recusal statements are written so broadly, the Commissioner's and Chief Counsel's statements could lead to the impression that there was a violation, when none occurred; (4) there were no instances in which IRS staff failed to follow established procedures; and (5) IRS primary reliance on one broker for consultations about ARPS and the ARPS market appeared to be ethical, even though that broker had a major interest in the characterization of ARPS as equity for tax purposes.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The IRS Commissioner's and Chief Counsel's recusal statements no longer list former clients, with whom the official has no continuing financial ties. Also, the language of their recusal statements now reflects their agreements on file with the Office of Government Ethics.

    Recommendation: The Commissioner of Internal Revenue and the Chief Counsel, IRS, should, in consultation with the Department of the Treasury's Designated Agency Ethics Official (DAEO) and the Office of Government Ethics (OGE), revise their recusal statements to make the language in them consistent with their ethics agreements.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: The IRS Commissioner's and Chief Counsel's recusal statements no longer list former clients, with whom the official has no continuing financial ties. Also, the language of their recusal statements now reflects their agreements on file with the Office of Government Ethics.

    Recommendation: The Commissioner of Internal Revenue and the Chief Counsel, IRS, should, in consultation with the Department of the Treasury's DAEO and OGE, determine the extent to which recusal statements for the Commissioner and Chief Counsel should list former clients where no current financial interest is involved.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: The IRS Chief Counsel's office has a guideline to seek comments and suggestions from taxpayers and taxpayer groups with respect to proposed publications when such action is justified by special circumstances.

    Recommendation: For matters of broad applicability, the Commissioner of Internal Revenue should, in conjunction with the Chief Counsel, IRS, direct the Chief Counsel staff to seek a range of views and opinions in cases where it is deemed appropriate to contact outside parties for information necessary to issue a revenue ruling. Such views and opinions could be easily obtained by inviting additional people to meetings to discuss proposed rulings or through telephone discussions with other interested parties.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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