Easing Regulatory Bottlenecks with Collaborative Rulemaking

Despite the chorus of critics who seek to rein in a perceived runaway regulatory state, the backlash against excessive tax regulation has been minimal. In fact, taxpayers and their advisors typically want more regulatory guidance, not less. Treasury regulations are the most authoritative form of administrative guidance for the Internal Revenue Code (IRS). Yet over the years, commentators have noted an ever-expanding backlog of regulatory projects at the IRS. This Article contends that a bottleneck exists in the rule development phase – the phase before public notice-and-comment – at the IRS Chief Counsel's Office, which is primarily responsible for writing tax regulations. Bottlenecks occur when inputs come into a process at greater rates than the next step can convert them into outputs. In the rulemaking context, there are more regulations that need to be written than are being written. One way to unblock a bottleneck is to increase efficiency at the bottleneck. The most direct way to increase efficiency at the bottleneck would be to allocate additional resources to the IRS Chief Counsel's Office, which has suffered a double-digit reduction in its workforce since 2011. Rule development requires a significant investment of the IRS's resources because the agency generally promulgates regulations in a topdown, centralized fashion. The restoration of staffing shortages seems untenable, however, particularly in the current political environment where Congress kneecaps the agency by continually cutting its budget while at the same time meting out increasing responsibility. The decline in funding, coupled with increasing responsibility, makes the IRS's current topdown labor-intensive approach to rulemaking unsustainable. This Article considers whether collaborative governance theory can be applied effectively *586 to tax rulemaking. It does not attempt to develop a high-level theory of rulemaking. Instead, the focus here is much more grounded. It applies existing collaborative governance theory to evaluate whether experts outside the government – namely, the established tax bar – can be leveraged to unblock the regulatory bottleneck. The first part of the Article provides support for the existence of a bottleneck in rule development and Part II draws on this evidence to provide an explanation for the bottleneck. Part III considers ways to unblock the regulatory bottleneck, including greater reliance on experts outside the government. Part IV summarizes the collaborative governance research, both in general and in the tax scholarship. Part V addresses notable criticisms of collaborative governance, including the high noise-to-signal ratio that may result from increased public participation in rulemaking, the critique that collaborative governance will not actually speed up the rulemaking process, and the potential for agency capture as a result of leveraging experts outside the government as surrogate rulemakers. This Article's contention is that the established tax bar's participation in rule development avoids these criticisms. The final part of the Article outlines the recommended features and processes necessary to successfully implement collaborative governance in tax rulemaking. This Article makes three contributions. First, it focuses attention on the rule development phase – the phase before regulations are subject to notice-and-comment under the federal Administrative Procedure Act. Less attention in the scholarship has been devoted to potential delay in rulemaking attributable to the rule development phase. Second, by applying collaborative governance theory to tax rulemaking, the Article fills a gap in the collaborative governance literature. Little collaborative governance scholarship exists that pertains to tax. Of the existing tax scholarship, academics generally focus on the application of collaborative governance theory to issues of tax enforcement or compliance rather than rulemaking. Third, the Article advances the work of scholars who seek to establish the merit of collaborative governance models by responding to three main criticisms of collaborative governance.