The IRS is Thwarting the Will of Congress | Opinion

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The Internal Revenue Service building is viewed in Washington, DC, on April 18, 2018. JIM WATSON/AFP/Getty Images

There’s a long-standing paranoid strain in American politics, as one political scientist famously noted. It’s fueled many a populist rebellion, and over the years has been embraced by the fringe both on the right and on the left to explain the seemingly unexplainable.

Most people don’t find the idea there’s a “deep state” credible. They’re probably right, but it causes far too many people—including some on Capitol Hill who ought to know better—to overlook the problem caused by the permanent government. The Washington bureaucracy makes up its own rules and doesn’t really consider itself accountable to anyone but itself.

This is not what the founders intended nor is it what contemporary politicians think is going on. But when you consider that even Ronald Reagan, arguably the most conservative president since Calvin Coolidge (from a limited government perspective) was only able to slow the growth in the size of government rather than roll it back, it’s sensible to concede something’s awry.

Consider the tax bill Congress passed and the president signed with great fanfare. It took the corporate rate down to 21 percent from what had been the highest in the industrialized world. It included incentives for businesses to expand and has led to increased economic activity and growth, wage hikes for workers, a strong stock market and the payment of bonuses and other benefits.

It’s been very good for America. Unfortunately, the U.S. Internal Revenue Service, the archetype of a permanent government agency, is thwarting the will of Congress. It’s deliberately misinterpreting a key provision of the tax bill in a way that’s creating problems for a host of U.S. based multi-national corporations.

These companies had been sheltering overseas profits in countries where they were both earned and taxed to avoid having them taxed again when they were repatriated. Under the new law accumulated offshore earnings and profits that had been deferred and not yet taxed in the U.S. must be repatriated brought home and taxed but, and this is the important point, the companies were explicitly given eight years to pay off their total liability.

Many of those impacted by the change didn’t have the cash flow to pay such a big chunk of tax all at once, so the eight-year schedule for payment worked to their advantage and was welcome. What the IRS did effectively forces companies to pay the tax all at once by applying any overpayment to tax liabilities deferred rather than refunding it.

This deprives companies of badly needed cash flow which, in many cases, they were depending upon to fuel new spending on new plants and equipment, awarding bonuses, and increasing employee hourly wages.

According to attorneys specializing in tax law, the Section 965 tax amount is reported and paid separately from the regular income tax return and regular tax payments, including estimated tax payments. That makes it easy for the IRS to single it out for such confiscatory treatment. According to the IRS, there’s a court case on the books that requires any overpayment of estimated tax attributable to the regular income tax to be applied to future Section 965 installments rather than refunded as Congress intended when it changed the policy. A company could have timely and fully paid the first installment of 8 for the Section 965 tax but if it overpaid estimated taxes that overpayment gets applied to the second of 8, even though it isn’t due until next year.

It’s complicated, but the agency’s administrative interpretation of what it’s allowed to do is conflicts with what the policymakers accountable to the people intended. Congress is already going at the problem and has included a fix in legislation being promoted by House Ways and Means Committee Chairman Kevin Brady, R-Texas, in the lame duck session—but that shouldn’t be necessary.

The intent of Congress when it changed the rules for the transition tax was clear. The IRS has decided on its own to hold back refunds on the theory that once it gets money from a taxpaying entity it is up to the agency and only the agency to decide if a refund is issued.

This is bad policy, something that Treasury Secretary Steve Mnuchin and acting IRS Commissioner David Kautter should have had the opportunity to block before it went into effect. Since this is all IRS interpretation and procedure, and the intent of the statute clearly seems to be to allow taxpayers an extended time to pay the Section 965 tax, it seems that this whole situation could be resolved by the IRS changing its policy and that legislation is not necessary.

In the meantime, to strike a blow for accountability in government and the principle that elected officials determine policy on behalf of the voters who sent them to Washington, Mnuchin and Kautter need to find the person responsible for this gross misinterpretation of the rules, and transfer them to Alaska.

Newsweek contributing editor Peter Roff is has written extensively about politics, culture, and the media for U.S. News and World Report, United Press International, and various other publications. He can be reached by email at RoffColumns@GMAIL.com. Follow him on Twitter @PeterRoff

The views expressed in this article are the author's own.​​​​​

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