Comments on IRS comfort rulings policy, January 20, 1990.

• Author: Burk, William M.

Comments on IRS Comfort Rulings Policy

January 20, 1990

The purpose of this letter is to confirm Tax Executives Institute's previous comments to you and other National Office representatives concerning Revenue Procedure 89-34, Announcement 89-104, and Announcement 89-105 -- all of which relate to the Internal Revenue Service's decision to curtail the issuance of so-called comfort rulings.

Overview

Tax Executives Institute commends the IRS for its willingness to evaluate and fine-tune the tax guidance process and welcomes the opportunity to comment on means by which the IRS can improve the quality and timeliness of its "product": tax guidance. The IRS's reassessment of the "no comfort ruling" policy -- reflected in Announcement 89-104's suspension of Revenue Procedure 89-34 pending the receipt of public comments -- is consistent with the commitment to quality initiated by Larry Gibbs and continued under the leadership of Fred Goldberg.

As you know, TEI has long been interested in streamlining and improving the process by which taxpayers are provided guidance. More than two years ago, in a letter to then-Secretary of the Treasury James A. Baker, III, the Institute set forth a series of recommendations on improving the tax regulatory process. We are pleased that some of TEI's recommendations have already been adopted and that others are under active consideration. The Institute looks forward to working with the IRS as the review process continues.

Concerns about the Process

We would be less than candid if we did not express some reservations over the manner in which the IRS's "no comfort ruling" policy was adopted and announced by the IRS in May 1989. Stated simply, we believe that the quality process should entail bringing the "customer" into the decision-making process much earlier -- clearly before a decision is made or announced. We recognize that broadening the circle of people involved in the review process may slow it down, but suggest that delay can often prove salutary.

Thus, the "firestorm" that developed between the release of Revenue Procedure 89-34 and the release of Announcements 89-104 and 89-105 (manifested most prominently at the June 14, 1989, meeting of the Commissioner's Advisory Group) might well have been avoided, or at least tempered, had taxpayer reaction been tested before the formal issuance of the revenue procedure. It would be a mistake, however, to construe our concern about the process as criticism of the IRS's efforts to develop creative approaches to providing timely and useful tax guidance. Innovation, which almost defintiion entails risk, should continue to be encouraged.

The Limits of the

"Either/Or" Approach to

the Resource Allocation Issue

The stated justification for the IRS's "no comfort ruling" policy is resource allocation: in order to expedite the issuance of regulations and other forms of "public" guidance, the time and money devloted to providing "private" guidance in the form of comfort rulings must be substantially curtailed. TEI certainly appreciates that the IRS's budget is scarcely a never-emptying cornucopia, but we caution against justifying the "no comfort ruling" policy exclusively on resource allocation grounds.

We submit that there are too many variables involved to predict (or promise) that regulations will be issued more promptly if the "no comfort ruling" policy is implemented as announced or, alternatively, that regulatory delays will occur if that policy dies aborning. Thus, although the "either/or," comfort ruling/regulations approach that has been articulated has a mathematical logic to it, we seriously doubt that...