The Internal Revenue Service (IRS) has no choice but to exercise discretion in administering the tax law. It oversees a vast system that affects nearly everyone. The law is often hideously complex and sometimes requires the IRS to draw impossibly fine lines. The IRS must also make choices about how to allocate its limited resources when interpreting, applying, and enforcing the law. To perform its Augean task with constrained resources, the IRS must be allowed to exercise discretion.
Having accorded the IRS some amount of discretion, we must also try to promote the fair and efficient exercise of such discretion, which we do in a variety of ways. When the IRS issues rules and regulations under the Administrative Procedure Act (APA), the APA provides for transparency and public participation in the rulemaking process, and the courts provide additional assurance that those rules faithfully implement the tax laws. But the IRS’s discretion is not limited to APA rulemaking; the IRS also exercises discretion informally in myriad ways. For example, it decides which areas of tax law in which to issue regulations or other guidance, how to allocate enforcement efforts among various activities or groups, and whether to litigate or appeal specific issues. The exercise of discretion in these informal ways is subject to oversight by congressionally created bodies such as the U.S. Treasury Inspector General for Tax Administration (TIGTA), the Taxpayer Advocate Service and the U.S. Treasury IRS Oversight Board, and congressional committees such as the House Committee on Government Oversight and Reform, and the House Ways and Means Subcommittee on Oversight.