Today’s blog post is the first of a several-part interview that provides valuable insight from Willard (Bill) Yates, who recently retired from the Office of Associate Chief Counsel (International), Internal Revenue Service after 31 years of service. During his tenure as a Chief Counsel Attorney, Bill was the recipient of 10 awards, including the Albert Gallatin Award, Treasury’s highest career service award. The Gallatin is awarded only to select federal employees who served twenty or more years in the Department and whose record reflects fidelity to duty. Bill received the Gallatin award for his work throughout his IRS career, including his work on implementation of some of the compliance requirements of the Foreign Account Tax Compliance Act (FATCA).
Most of Bill’s career at IRS focused on offshore compliance, including his participation in a massive overhaul of outdated foreign trust reporting requirements Bill was the principal drafter of the regulations under section 679, covering foreign trusts with US beneficiaries, Notice 2003-75, RRSP and RRIF Information Reporting and Notice 2009-85, Guidance for Expatriates Under Section 877A.
Our focus today will be on Bill’s experience as part of the three-person team charged with the responsibility for creating Form 8938 concerning reporting of so-called “specified foreign financial assets”, as well as gleaning his overall opinion about FATCA , from a policy and practical perspective.
Jeker: Bill, one of the most important aspects of your work as an IRS attorney in the Office of Chief Counsel (International) was drafting Treasury Regulations and other forms of
Yates: In general, regulations have the force and effect of law. Regulations are created through a process known as “rulemaking,” which is governed by the Administrative Procedure Act. They are subject to review by courts for constitutionality, as well as to whether a particular “rule” exceeds the limits the authority delegated to the agency by Congress. Regulation “projects,” as they are referred to, are assigned to individual attorneys or teams of attorneys. The rulemaking or guidance process begins with a draft of a regulation or other guidance. Hopefully, there is legislative history that will provide guidance as to the intent of Congress and what the regulation should look like. If there is no legislative history, such as committee reports, analysis by legislative counsel, committee hearings, floor debates, and histories of actions taken, then the drafting process is much more difficult.
The levels of review required in any kind of guidance project make the process extremely frustrating and difficult. Once a project is assigned to an attorney or team of attorneys at the “branch,” or first level, it is subject to review by the branch reviewer assigned to the project. Once a project is “signed off on” at the branch level, it is subject to review by the appropriate Associate Chief Counsel, e.g. the Associate Chief Counsel (International). The project is also reviewed by all of the branches in the Associate Chief Counsel’s office that has been assigned the project.
By this time, or even before sign off by all of the branches in the Office of Associate Chief Counsel, a Treasury attorney from the Office of International Tax Counsel at Treasury has become involved. The Treasury attorney will have input that must be considered. Then, if all of the parties involved agree, the project will be circulated to all of the Associate Chief Counsel offices for comments.
After all comments from these offices are considered, the package will go over to Treasury for signature.
This is a general overview; more detail can be found in Part 32.1.6 of the Internal Revenue Manual. Suffice it to say it a long and sometimes excruciating process, requiring endless meetings By the time an attorney finally gets a project “dropped” at the Federal Register for publication, he or she is about ready to “drop,” as well.
Jeker: You worked on providing guidance under Section 6038D – Information with respect to foreign financial assets, which eventually resulted in the creation of Form 8938, “Statement of Specified Foreign Financial Assets” and instructions. Do a form and instructions have the force and effect of law? Did you have any legislative history to guide you on that project?
Yates: In answer to your first question, the answer is “no,” a form and its underlying instructions are not law. However, as a practical matter, they are the backbone of our compliance system and, in the case of Form 8938 and instructions, we knew that practitioners and taxpayers were grasping for anything that would help them comply with FATCA.
The answer to your second question is also “no,” there was no legislative history. But, it was understandable. The regulations under section 6038D were to be legislative, rather than interpretative regulations. When regulations are to be “legislative” it means Congress wanted to give IRS great latitude in drafting the rules. Our job was not to provide an interpretation of the new legislation; it was to provide a set of rules to make the statute “effective.” In other words, we had to make the statute work.
The three of us assigned to the Form 8938 project read Section 6038D a few times and, decided that our project to create a form didn’t look too bad after all. That was the kiss of death, but of course, we didn’t realize it at the time.
Yates: Well, we all knew the reason for section 6038D. Section 6038D was enacted in order to put the kind of foreign bank account reporting required by Form 90-22.1, Foreign Bank Account Report (FBAR), under Title 26, the Internal Revenue Code. FBAR reporting is required pursuant Title 31, the Bank Secrecy Act. Because of this, IRS could not initiate an audit of a taxpayer based solely on an FBAR filing. The taxpayer being examined had to have an underlying Title 26 issue. Only with a Title 26 issue could IRS use account information found on an FBAR in furtherance of an audit or exam of the taxpayer. Hence, Congress gave IRS section 6038D, Title 26 of the Internal Revenue Code. In short, Congress gave IRS its own FBAR.
Jeker: By the way, where are all of these FBARS kept, anyway?
The answer to this question and more of the interview will be posted Friday, July 12, 2013.
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