Tax Administration:

Process Used to Revise the Federal Employment Tax Deposit Regulations

GGD-95-8: Published: Dec 29, 1994. Publicly Released: Dec 29, 1994.

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Pursuant to a congressional request, GAO reviewed the revised federal employment tax deposit regulations issued by the Department of the Treasury and the Internal Revenue Service (IRS) on September 24, 1992, focusing on: (1) whether the Treasury and IRS developed the regulations by applying principles from the IRS Compliance 2000 initiative; (2) how the revision process could be improved; and (3) how Treasury and IRS officials know when their efforts to develop and revise regulations result in regulations that are sufficiently simple and easy to follow.

GAO found that: (1) the new tax deposit regulations are considered to be significantly simpler and easier for stakeholders to understand and comply with than the proposed regulations; (2) the new regulations provide most employers with a fixed deposit rule that they can follow for an entire calendar year; (3) in keeping with Compliance 2000, IRS obtained stakeholders' input throughout the revision process; (4) although stakeholders are satisfied with the final employment tax deposit regulations, certain stakeholders are dissatisfied with various aspects of the regulatory development process; (5) although Treasury and IRS officials are not always able to interact with all stakeholders to the extent the stakeholders desire, Treasury and IRS officials could improve their future communications with stakeholders by directing drafters' attention to stakeholders' concerns; and (6) IRS officials used some measures to gauge the simplicity of the revised regulations and to balance simplicity with other regulatory objectives while revising the employment tax deposit regulations.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: IRS is considering revisions to the preamble of its regulations that would more explicitly state its assessment of the applicability of statutory and executive guidance to those regulations.

    Recommendation: To help forestall stakeholder confusion and frustration regarding the applicability of statutory and executive guidance to tax-related regulations, the Secretary of the Treasury should direct that when such guidance is not applicable the text accompanying the publication of proposed and final regulations should contain a complete explanation why this is so.

    Agency Affected: Department of the Treasury

  2. Status: Closed - Not Implemented

    Comments: IRS is considering changes to its internal procedures to require that regulation drafters document their consideration of the factors specified in statutory or executive guidance on regulation development.

    Recommendation: The Secretary of the Treasury should require that regulation drafters document internally, when time constraints permit, their consideration of the factors provided in such statutory and executive guidance to better ensure that tax regulations reflect stakeholders' needs.

    Agency Affected: Department of the Treasury

  3. Status: Closed - Not Implemented

    Comments: Although IRS sees clear benefits to being better informed about the business realities and technical concerns of particular groups, it is also concerned that contacts with such groups should not create a perception that certain taxpayers or practitioners have unfair access to IRS personnel. IRS believes that its procedures properly balance its needs for information with safeguards to prevent unfair access.

    Recommendation: To maximize the value of informal communications with stakeholders, the Secretary of the Treasury should encourage regulation drafters to meet with selected stakeholders to work through implementation issues associated with draft tax regulations before publishing the regulations for notice and comment.

    Agency Affected: Department of the Treasury

  4. Status: Closed - Not Implemented

    Comments: IRS officials are reviewing their attempts to measure simplicity when promulgating regulations.

    Recommendation: To better ensure that a well-informed basis exists for Treasury and IRS officials to make judgments concerning whether simple, yet effective, regulations have been designed, the Secretary of the Treasury should require regulation drafters to develop key measures of simplicity for tax regulations. Officials should use these measures to help judge whether existing regulations are too complex and whether regulations under development are sufficiently simple.

    Agency Affected: Department of the Treasury

 

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