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July 18, 2013
Who Stands for the Public Tax Interest?
Joseph J. Thorndike

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Cynics say that tax policy is an inside game, dominated by well-heeled lobbyists and the wealthy taxpayers who employ them. Politicians talk long and loud about serving the public interest, but skeptics -- including some lawmakers -- think it's all a fraud.

"It's not about tax policy, it's about benefiting the political class and the well-connected and the well-heeled in this country," insisted Sen. Tom Coburn, R-Okla., in an interview with The Boston Globe earlier this year. "We're benefiting the politicians because they get credit for it. And we are benefiting those who can afford to have greater access than somebody else."

Indeed, the returns to tax lobbying are often huge, leading to a significant increase in the number of paid advocates besieging Congress. According to the Globe, for instance, the number of companies lobbying on tax issues rose 56 percent from 1998 to 2012 (from 1,200 to 1,868; the paper based its figures on data from the Center for Responsive Politics). Recent talk of comprehensive tax reform has almost certainly boosted tax lobbying to even greater heights.

All of which raises a question: Amid all this special-interest lobbying, who stands for the public interest?

This question is not a new one. Observers have been complaining about the influence of lobbyists on federal taxation ever since we had a federal tax system to argue about in the first place. If you think lobbying over the corporate income tax is bad today, you should take a look at the tariff debates of the 19th century.

But the introduction of the income tax in 1913 boosted the visibility of tax lobbyists, and in the century since, lobbying on tax issues has been a constant and growing concern. It's hard to say whether lobbying is worse today than ever before (or what metric we might use to make that sort of assessment). But it's certainly bad enough to be unseemly.

There's also enough lobbying to worry defenders of the public interest. In general, selfless champions are self-identified, and most lobbyists make occasional claims about the coincidence between their client's interests and the public's priorities. But generally speaking, few of the tax lobbyists walking the halls of Congress are there to protect the fisc. They've got smaller fish to fry.

That political reality was a major factor behind the creation of Tax Analysts in the early 1970s. Established in the heady days of public interest law that followed Ralph Nader's rise to national prominence, Tax Analysts was originally two organizations. The first, Taxation With Representation, focused on legislative analysis and congressional lobbying. The second, Tax Analysts & Advocates (TAA), also did its share of analysis but spent much of its energy (and funding) on litigation.

The impulse behind TAA's litigation was obvious: If Congress wouldn't come to the defense of the public interest, perhaps the courts would.

One of the early and most significant cases brought by TAA concerned foreign tax credits for oil producers. In Tax Analysts & Advocates v. Blumenthal, the organization and its founder, Thomas F. Field, sought "a declaratory judgment that certain published and private rulings of the Internal Revenue Service (IRS) allowing tax credits for payments made to foreign nations in connection with oil extraction and production are contrary to the Internal Revenue Code (Code) and therefore unlawful."1

The courts were unconvinced. Or at least unconvinced that TAA had standing. The organization had claimed standing on behalf of its members, who were all federal taxpayers and therefore on the hook (ultimately) for taxes avoided by other taxpayers. Also, Field claimed standing as a competitor, because he had purchased the entire working interest in a currently producing domestic oil well. Ultimately, neither claim to standing proved successful.

This question of standing regarding public interest tax litigation has recently resurfaced in a law review article by Samuel D. Brunson of the Loyola University Chicago School of Law. In "Watching the Watchers: Preventing I.R.S. Abuse of the Tax System," Brunson suggests that Congress grant standing to taxpayers who might be interested in challenging IRS enforcement of the tax law.2

Congress has been vigilant in trying to protect taxpayers from misuse by the IRS, Brunson writes. But lawmakers have been far less interested in protecting the tax law itself from IRS malfeasance. "If the IRS's abuse of the tax system harms one or more taxpayers, those taxpayers may have recourse to challenge the IRS (though they may have limited incentive to do so)," Brunson argues. "But where no taxpayer suffers harm, nothing in the tax law prevents the IRS from misinterpreting or ignoring the law as written."

Brunson provides several examples of IRS "abuse of the tax law" -- a provocative phrase that he defends energetically. And he goes on to consider a variety of possible remedies, including increased congressional vigilance and a reconstituted (and newly empowered) IRS Oversight Board.

But Brunson is most interested in a third mechanism of enforcement: the delegation of oversight activities to taxpayers through a grant of standing that would allow them to bring suit on behalf of the public interest.

Brunson dubs this outsourced responsibility "fire-alarm oversight," in contrast to the "police-patrol oversight" exercised by official bodies like the current IRS Oversight Board or the national taxpayer advocate. Police-patrol oversight requires an official body to constantly monitor agency operations, hoping to discover transgressions whenever or wherever they may occur. Fire-alarm oversight, by contrast, assumes that deputized members of the public will ferret out those transgressions and seek remedies on their own, specifically through the courts.

Fire-alarm oversight is generally cheaper (and less active) than police-patrol oversight, Brunson says. But it's also more effective, especially when it comes to obscure violations of the tax law -- or violations that redound to the benefit of many taxpayers and might be unpopular to challenge. "Because fire-alarm oversight delegates at least some enforcement ability to third parties, legislators never need to get their hands dirty in the enforcement, instead permitting motivated third-parties to ensure that the IRS enforces the law," Brunson writes.

Brunson suggests that Congress grant taxpayers standing to bring suit in the Tax Court on behalf of the public interest. His proposal is designed to sidestep constitutional problems posed by Article III's "case and controversy" requirement, which has generally been the key stumbling block for taxpayers trying to challenge IRS enforcement of the tax law. Because Congress organized the Tax Court under Article I of the Constitution, the standing doctrine of Article III would not constrain taxpayer suits in the Tax Court, he argues.

Brunson is aware that opening the door to taxpayer suits on behalf of the public interest might be problematic. He considers the need to construct both incentives for and obstacles to litigation, because a simple grant of standing might produce either too few or too many suits.

Ultimately, Brunson envisions a rather narrow conception of who might actually ride to battle in defense of the tax system. In particular, he suggests that civic-minded nonprofit organizations might be the best guardians of the public interest, and he lists several candidates, including Tax Analysts, Americans for Tax Reform, the Tax Policy Center, and the Tax Foundation. This is a diverse and intriguing list, comprising overtly political organizations, think tanks, and at least one nonpartisan publisher.

Left to my own devices, I would compile a different list. But Brunson clearly intends his version to be illustrative, not comprehensive. The larger issue is whether restricting the pool of potential litigants (chiefly through filing fees and legal costs) would actually do much to protect the IRS from unbridled attack by antitax organizations. It's easy to imagine a slew of politically motivated suits filed by organizations that would be only too happy to tie the IRS in knots. Brunson offers a few additional suggestions that might help protect the IRS from that sort of legal avalanche, but I'm unconvinced that they would be effective.

Still, Brunson's proposal to outsource IRS oversight holds some promise and certainly deserves consideration. Because one thing seems clear: The kind of oversight we have today, especially from Congress, is abysmal. Legislative oversight has been both inadequate and overzealous at the same time. We've been left with a browbeaten agency that still manages to escape meaningful supervision on issues without political salience. The agency is both overcontrolled and undercontrolled.

And that's bad news for the public interest.


1 Tax Analysts & Advocates v. Blumenthal, 566 F.2d 130 (D.C. Cir. 1977).

2 Brunson, "Watching the Watchers: Preventing I.R.S. Abuse of the Tax System" (Mar. 21, 2013); Fla. Tax Rev., forthcoming, available at