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Could Trump Corrupt the IRS and Profit From It?

By: Emily Peterson-Cassin & Amit Narang

In the coming weeks, the Trump administration will make an important decision that could allow President Donald Trump to rig the rules at the IRS for his own personal profit. This decision also would slow down important guidance on the new tax law and weaken the independence of key government agencies.

Mick Mulvaney, head of the U.S. Office of Management and Budget (OMB), reportedly wants the U.S. Office of Information and Regulatory Affairs (OIRA), a powerful OMB office that reviews and clears proposed agency rules before they can be published, to extend its review authority to guidance and regulations proposed by the U.S. Treasury Department and the IRS.

OIRA Administrator Neomi Rao and Treasury Department General Counsel Brent McIntosh are likely to be asked about this dangerous proposal at a Thursday morning hearing by the U.S. Senate Subcommittee on Regulatory Affairs and Federal Management.

Applying OIRA review to the IRS is a straightforward power grab by the administration that would weaken the agency’s independence and put a dent in the trust we place in the agency to collect our taxes fairly.

OIRA commonly is referred to as the regulatory “gatekeeper” and “the most important government office no one has ever heard of,” because it wields enormous power over what government agencies produce. OIRA reviews proposed and final regulations, requesting changes from the agency issuing the rule and often refusing to allow the agency to publish the proposed or final rule if such changes are not made.

Since the 1980s, a memorandum of understanding has exempted Treasury from this additional level of review to ensure that political agendas from the White House do not influence IRS rulemaking.

Given OIRA’s broad authority to shape, or even block, agency rulemaking, it makes good sense to exempt certain agencies from its review process to avoid conflicts of interest that could benefit the president. Numerous agencies are independent of the executive branch for just that reason. One of the primary justifications for exempting the IRS from OIRA review was to ensure the White House could not take advantage of it for political purposes.

In the words of former Republican OIRA Administrator John Graham, “The Watergate years taught us the dangers of politicizing the process of tax administration. By deferring to Treasury, each administration since Jimmy Carter’s has insulated itself from the charge that it was using White House review of the IRS for political purposes.”

Trump has shown unprecedented disregard for ethical rules and norms, including those which relate to his personal and business taxes. The president stands to personally profit, to the tune of at least millions of dollars, from the way tax laws are implemented. Additional review by political appointees could twist good guidance for all taxpayers into guidance drafted specifically to benefit Trump and his family. Guidance should be drafted free of White House manipulation, either for policy preference or personal enrichment.

The need to negotiate with OIRA when it comes to issuing guidance also could create unacceptable conflicts of interest for the IRS and deter the agency from enforcing tax laws with respect to the president’s family and friends.

For example, Renaissance Technologies, a hedge fund owned by Trump-ally Robert Mercer, currently has a case before the IRS appeals department involving an estimated $6.8 billion. OIRA review of IRS rules leaves open the possibility that the White House could intervene to ensure changes to IRS rules that directly benefit those close to Trump.

In addition to ethical considerations, there are practical concerns as well. Currently, Treasury employs talented and experienced attorneys to review guidance and ensure it will work for taxpayers. OIRA has no similar expertise, and the Trump administration is unlikely to hire the needed extra staff. If the agency has to look at all forthcoming IRS rules, including those related to the recently enacted tax law, the delays are likely to be extensive.

OIRA has a long history of systemic delay and missed deadlines when reviewing regulations under both Democratic and Republican administrations. A much bigger workload for the agency, without any additional resources, is a recipe for long delays for taxpayers.

Placing the IRS under the thumb of OIRA, and by extension the president, is the very opposite of good government. The possibility that OIRA review of the IRS could be used for political purposes, including to personally enrich the president, has never been greater.

Narang is the regulatory policy advocate for Public Citizen’s Congress Watch division. Peterson-Cassin is the Bright Lines Project coordinator for Public Citizen.