[Senate Report 106-153]
[From the U.S. Government Publishing Office]
Calendar No. 273
106th Congress Report
SENATE
1st Session 106-153
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AMENDING PROVISIONS OF LAW ENACTED BY THE SMALL BUSINESS REGULATORY
ENFORCEMENT FAIRNESS ACT OF 1996 TO ENSURE FULL ANALYSIS OF POTENTIAL
IMPACTS ON SMALL ENTITIES OF RULES PROPOSED BY CERTAIN AGENCIES, AND
FOR OTHER PURPOSES
_______
September 8, 1999.--Ordered to be printed
_______
Mr. Bond, from the Committee on Small Business, submitted the following
R E P O R T
[To accompany S. 1156]
The Committee on Small Business to which the bill (S. 1156)
to amend provisions of law enacted by the Small Business
Regulatory Enforcement Fairness Act of 1996 to ensure full
analysis of potential impacts on small entities of rules
proposed by certain agencies, and for other purposes, was
referred, having considered the same, reports favorably on the
bill as amended and recommends that the bill do pass. The bill
(S. 1156) amends provisions of law enacted by the Small
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)
to ensure full analysis of potential economic and other impacts
on small entities of rules proposed by certain agencies, and
for other purposes. An amendment to the bill was offered by
Senator Wellstone during the markup of the bill, and was
accepted by the committee by unanimous consent.
The Committee reported S. 1156 to improve the opportunities
of small businesses to participate in the Federal rulemaking
process and to include the Internal Revenue Service (IRS) of
the Department of the Treasury in the small entity panel review
process established under SBREFA in 1996. This legislation is
in response to concerns raised by small businesses since the
implementation of the SBREFA panel process.
I. INTRODUCTION
In 1996, Congress passed the Small Business Regulatory
Enforcement Fairness Act with the intent of ensuring that small
businesses would be given an opportunity to participate
directly in those rulemakings of certain Federal agencies that
often have the most impact on them, namely those from the
Occupational Safety and Health Administration (OSHA) and the
Environmental Protection Agency (EPA). The signature provision
of the Act was the requirement that OSHA and EPA convene panels
consisting of personnel from the covered agency, a
representative from the Office of Information and Regulatory
Affairs within the Office of Management and Budget and the
Chief Counsel for Advocacy of the Small Business
Administration. In addition, individuals representative of
small businesses affected by the regulation are to be selected
to review the draft regulation and make recommendations to the
panel about the potential impacts of the proposed rule. This
was expected to yield better, more tailored rules, with less
burden on small businesses.
Since the implementation of SBREFA, there have been a total
of 18 rulemakings from OSHA and EPA that have triggered the
requirement to convene review Panels. These rulemakings have
demonstrated the practicality and merits of bringing small
business input into the process at the time it can have the
most impact. The Small Business Advocacy Review Panel Technical
Amendments Act of 1999 will refine that process so that small
businesses will be able to participate to a greater extent and
allow them additional time to review data and materials
submitted to them by the agency during the process. In
addition, the bill will bring the Internal Revenue Service, the
agency that has perhaps the most impact on small businesses,
into the Panel process by mandating the agency to convene
panels for certain proposed rulemakings that will impact small
businesses.
Like the Regulatory Flexibility Act, which it amended,
SBREFA is a remedial statute, designed to redress the fact that
uniform Federal regulations impose disproportionate impacts on
small entities, including small business, small not-for-
profits, and small governments. It is well settled that small
businesses continue to face higher regulatory compliance costs,
as a percentage of their gross revenues, than their big-
business counterparts. With the vast majority of businesses in
this nation being small enterprises, it only makes sense for
the rulemaking process to ensure that the concerns of such
small entities get a fair airing early in the development of a
Federal regulation.
Consistent with the overall purpose of the Regulatory
Flexibility Act and SBREFA, the objective of the panel process
is to help agencies develop rules that will be effective while
imposing the least possible burden on the small businesses
affected. To date, the results have been encouraging. Chief
Counsel for Advocacy, Jere Glover, has stated that ``Small
entities have brought extremely valuable information to the
regulatory deliberations of the panels. As a result, major
changes have been made to the agencies' draft regulations. What
is important to note is that these changes were accomplished
without sacrificing the agencies' public policy objectives.
Unquestionably, the SBREFA panel process has had a very
salutary impact on the regulatory deliberations of [OSHA and
EPA].'' (Annual Report of the Chief Counsel for Advocacy on
Implementation of the Regulatory Flexibility Act, Calendar Year
1998, page iv.)
Another provision of SBREFA (Sec. 603(a)) requires the IRS
to generate an Initial Regulatory Flexibility Analysis for
interpretative rules to determine the impact of these rules on
small businesses. However, the Treasury Department has
interpreted this requirement in a way that all but eliminates
its application. If the Treasury Department and the IRS had
implemented SBREFA as Congress originally intended, the
regulatory burdens on small businesses could have been
identified and then reduced, and small businesses could have
been saved considerable trouble in fighting unwarranted
rulemaking actions.
For instance, with input from the small business community
early in the process, the IRS' 1997 temporary regulations on
the uniform capitalization rules could have taken into
consideration the adverse effects that inventory accounting
would have on farming businesses, and especially nursery
growers. See Temp. Treas. Reg. Sec. 1.263A-4T, 62 Fed. Reg.
44542 (1997). Similarly, if the IRS had conducted an Initial
Regulatory Flexibility Analysis, it would have learned of the
enormous problems surrounding its limited-partner regulations
prior to issuing the proposal in January 1997. See Prop. Treas.
Reg. Sec. 1.1402(a)-2, 62 Fed. Reg. 1701 (1997). These proposed
regulations, which have become known as the ``stealth tax
regulations,'' wouldraise self-employment taxes on countless
small businesses operated as limited partnerships or limited liability
companies and also would impose burdensome new recordkeeping and
collection of information requirements.
Therefore, to make sure that the IRS properly considers the
impact of tax regulations on small businesses, S. 1156
specifically requires the Treasury Department and the IRS to
comply with the Regulatory Flexibility Act and SBREFA when
promulgating rules. In particular, the Committee expects that
the IRS will conduct and publish Initial as well as Final
Regulatory Flexibility Analyses. The bill also includes the IRS
in the agencies required to convene Small Business Advocacy
Review Panels as described under SBREFA. Coverage of the IRS
under the panel process and the other technical changes are
strongly supported by the Small Business Legislative Council,
the National Association for the Self-Employed, the National
Federation of Independent Business, the United States Chamber
of Commerce, and many other organizations representing small
businesses. It is also significant that the changes have the
support of the Chief Counsel for Advocacy.
II. DESCRIPTION OF THE BILL
The Small Business Advocacy Review Panel Technical
Amendments Act of 1999 clarifies and amends certain provisions
of law enacted as part of the Small Business Regulatory
Enforcement Fairness Act of 1996.
The bill focuses on Section 244 of the Small Business
Regulatory Enforcement Fairness Act of 1996, which amended
chapter 6 of title 5, United States Code (commonly known as the
Regulatory Flexibility Act). As a result, each ``covered
agency'' (which under current law is only OSHA and EPA) is
required to convene a Small Business Advocacy Review Panel
(panel) to receive advice and comments from small entities.
Specifically, under Section 609(b), each covered agency is to
convene a panel of Federal employees, representing the Office
of Information and Regulatory Affairs within the Office of
Management and Budget, the Chief Counsel of Advocacy of the
Small Business Administration, and the covered agency
promulgating the regulation, to receive input from small
entities prior to publishing an Initial Regulatory Flexibility
Analysis for a proposed rule with a significant economic impact
on a substantial number of small entities. Not later than 60
days after the panel is convened, it produces a report
containing comments from the small entities and the panel's own
recommendations. The report is provided to the head of the
agency, who reviews it and, where appropriate, modifies the
proposed rule, initial regulatory analysis, or the decision on
whether the rule significantly impacts small entities. The
panel report then becomes a part of the rulemaking record.
In 1996, SBREFA expressly included the IRS under the
Regulatory Flexibility Act directing the agency to conduct and
publish Initial and Final Regulatory Flexibility Analyses.
However, the Treasury Department has interpreted the law
essentially to exclude the Treasury Department and the IRS from
being covered. The Small Business Advocacy Review Panel
Technical Amendments Act of 1999 clarifies which interpretative
rules involving the Internal Revenue Code are to be subject to
compliance with SBREFA, and thus with the Regulatory
Flexibility Act. In addition, the IRS would be required, under
the bill, to convene a Small Business Advocacy Review Panel for
rules that would have a significant economic impact on a
substantial number of small entities in the same way as OSHA
and EPA have been doing since SBREFA went into effect. The
Committee is confident that the IRS will be able to implement
the panel process as required under the bill without
jeopardizing tax administration just as OSHA and EPA have been
able to implement the process without sacrificing their policy
objectives.
Specifically, the bill strikes the language in Section 603
of title 5 that included IRS interpretative rules under the
Regulatory Flexibility Act, ``but only to the extent that such
interpretative rules impose on small entities a collection of
information requirement.'' The Treasury Department has
misconstrued this language in two ways. First, unless the IRS
imposes a requirement on small businesses to complete a new
OMB-approved form, the Treasury Department determines that the
Regulatory Flexibility Act does not apply. In so doing, the IRS
has failed to consider the burdens imposed on small business
taxpayers of complying with new IRS regulations. Second, in the
limited circumstances where the IRS has acknowledged imposing a
new reporting requirement, the Treasury Department has limited
its analysis of the impact on small businesses to the burden
imposed by any new tax form with which a taxpayer must comply.
As a result, the Treasury Department and the IRS have turned
Regulatory Flexibility Act compliance into an unnecessary,
second Paperwork Reduction Act.
To address this problem, S. 1156 revises the fifth sentence
in Section 603 to read as follows:
In the case of an interpretative rule involving the
internal revenue laws of the United States, this
chapter applies to interpretative rules (including
proposed, temporary and final regulations) published in
the Federal Register for codification in the Code of
Federal Regulations.
The remaining provisions of the bill address the mechanics
of convening a panel, the selection of the small entity
representatives invited to submit advice and recommendations to
the panel, and the publication of the panel reports.
This bill would lengthen, by 30 days, the time that small
entity representatives, participating in the panel process,
have to review the usually technical and voluminous materials
to be considered during panel deliberations. The Committee is
concerned that this task would be almost impossible for the
average small businessperson who spends most of his or her time
actually running a business. For those small business owners
who would like to participate but do not have a great deal of
time to review technical data, the bill requires OSHA, EPA and
IRS to prepare detailed summaries of background data and
information, if a small entity representative requests that
they do so.
The bill would also allow a small entity representative, if
he or she chooses, to make an oral presentation to the panel.
The Committee is aware that many small entity representatives
expressed a desire to make oral presentations, and learned that
this opportunity was not available. This bill would make it
clear that agencies are to provide this opportunity.
Many small entities have expressed their interest in
reviewing the panel report before the rule is proposed. This
bill would require the panel report, including any written
comments submitted by the small entity representatives, to be
printed in the Federal Register with the proposed rule, or as
soon as practicable but not later than 180 days after the date
the head of the agency receives the report.
The role of the Chief Counsel for Advocacy in the selection
of small entities to serve on the panels is enhanced by
specifying that the selections are to be made by the agency
promulgating the regulation ``in consultation'' with the Chief
Counsel. The original bill language required that the Chief
Counsel ``concur'' with the agency's selections. That language
was changed to the ``consultation with'' language under an
amendment submitted by Senator Wellstone. The Committee
realizes that it is the agency who convenes these panels and
appoints the small entity representatives who will participate.
However, it is the Committee's expectation that the Chief
Counsel's views on the selection of participants for a panel
will be respected. The Committee wishes to emphasize the
importance of effective, meaningful consultation between
covered agencies and the Chief Counsel on the selection of
small entity representatives for a panel. The Committee intends
for covered agencies to rely on the Chief Counsel as a resource
for identifying small entity representatives to participate in
the process and to accommodate suggestions from the Chief
Counsel for panel participants, if possible. The Chief Counsel
has significant and specific expertise with SBREFA, and
therefore, his opinions and suggestions should carry
significant weight.
The bill also expands the definition of a small entity to
make clear that an organization that ``primarily represents the
interests of 1 or more small entities'' may participate in the
Panels. Through another amendment offered by Senator Wellstone,
this expansion was clarified to provide that only those
organizations that ``primarily'' represent small businesses
would qualify to participate in the panel process. This
amendment addressed a concern that organizations that are
dominated by large entities could have been considered small
entity representatives under the original bill language.
Individuals representing ``primarily'' small entities are also
permitted to participate in the panel process.
The Committee's intention is to ensure that the small
entities and businesses that are affected by regulations from
OSHA, EPA, and IRS have the opportunity to participate directly
in the rulemaking process at the point when their views can
have the most effect. In short, the bill is intended to
continue and expand on the early success that EPA and OSHA have
shown this process has for small businesses.
III. COMMITTEE VOTE
In compliance with rule XXVI(7)(b) of the Standing Rules of
the Senate, the following vote was recorded on July 15, 1999.
After a quorum was established pursuant to Committee rules,
amendments offered by Senator Wellstone were adopted under
unanimous consent, and then a motion by Senator Bond to adopt
the Small Business Advocacy Review Panel Technical Amendments
Act of 1999, S. 1156, as amended by Senator Wellstone, was
approved unanimously with the following senators voting to
approve: Bond, Kerry, Burns, Coverdell, Bennett, Snowe, Enzi,
Fitzgerald, Crapo, Abraham, Levin, Harkin, Lieberman,
Wellstone, Cleland, Landrieu, Edwards.
IV. EVALUATION OF REGULATORY IMPACT
In compliance with rule XXVI(11)(b) of the Standing Rules
of the Senate, it is the opinion of the Committee that no
significant additional regulatory impact will be incurred in
carrying out the provisions of this legislation. There will be
no additional impact on the personal privacy of companies or
individuals who utilize the services provided.
V. COST ESTIMATE
In compliance with rule XXVI(11)(a)(1) of the Standing
Rules of the Senate, the Committee estimates the cost of the
legislation will be equal to amounts indicated by the
Congressional Budget Office in the following letter.
U.S. Congress,
Congressional Budget Office,
Washington, DC, July 26, 1999.
Hon. Christopher S. Bond,
Chairman, Committee on Small Business,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 1156, the Small
Business Advocacy Review Panel Technical Amendments Act of
1999.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Mark Hadley
and Cynthia Dudzinski.
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
S. 1156--Small Business Advocacy Review Panel Technical Amendments Act
of 1999
CBO estimates that implementing S. 1156 would cost between
$13 million and $15 million a year over the 2000-2004 period,
assuming appropriation of the necessary amounts. S. 1156 would
not affect direct spending or receipts; therefore, pay-as-you-
go procedures would not apply. The bill contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act and would not affect the budgets
of state, local, or tribal governments.
Under the Small Business Regulatory Enforcement Fairness
Act of 1996 (SBREFA), the Environmental Protection Agency (EPA)
and the Occupational Safety and Health Administration (OSHA)
must convene panels, prior to publishing regulations, to
analyze the potential impact of those regulations on small
businesses. Panels consist of employees of the agency proposing
the regulation, the Small Business Administration (SBA), and
the Office of Management and Budget (OMB). Panels collect
advice from representatives of the small businesses that would
be affected and submit a report to the agency proposing the
regulation.
S. 1156 would amend SBREFA to include the Internal Revenue
Service (IRS), thus requiring that agency to convene panels to
analyze the regulations it intends to issue, including
interpretive rules involving U.S. internal revenue laws. The
bill also would change the panel process by allowing small
business representatives to make oral presentations to panels,
extending the period of review, requiring agencies to print
reports by panels in the Federal Register, and making agencies
provide more information.
Based on the number of regulations the IRS expects to issue
each year and the experiences of EPA and OSHA, CBO estimates
that implementing S. 1156 would cost the IRS about $13 million
in 2000, and similar amounts in subsequent years. Annual costs
would rise gradually to about $15 million by 2004. We expect
that the bill would apply to about 50 IRS regulations each
year. In addition, CBO estimates that implementing the changes
to the panel review process would cost EPA, OSHA, OMB, and SBA
less than $500,000 a year.
On May 28, 1999, CBO transmitted an estimate for H.R. 1882,
the Small Business Review Panel Technical Amendments Act of
1999, as ordered reported by the House Committee on Small
Business on May 25, 1999. CBO estimated that bill would cost
about $2 million each year over the 2000-2004 period. H.R. 1882
would not apply to interpretive rules issued by the IRS;
therefore, CBO expects that it would apply to fewer than 10
regulations each year.
The CBO staff contacts are Mark Hadley and Cynthia
Dudzinski. This estimate was approved by Robert A. Sunshine,
Deputy Assistant Director for Budget Analysis.
VI. SECTION BY SECTION
Section 1. Short title
This Act may be cited as the ``Small Business Advocacy
Review Panel Technical Amendments Act of 1999.''
Section 2. Findings and purposes
This section sets forth Congressional findings on the
impact of regulations on small businesses and the early
successes of the Small Business Regulatory Enforcement Fairness
Act.
Section 3. Ensuring full analysis of potential impacts on small
entities of rules proposed by certain agencies
This section clarifies the process for selection of the
small entity representatives and the timing of the panel's
activities. Small entity representatives affected by the draft
proposal are to be identified by the covered agency in
consultation with the Chief Counsel for Advocacy. The number of
days provided for this process is extended from 15 to 30 days.
The panel is to be convened not earlier than 30 days after the
covered agency transmits information to the identified small
entity representatives. Small entity representatives may
request the opportunity to present their comments orally. The
panel report is to be printed in the Federal Register within
180 days after the date the agency head receives the report or
as part of the publication of the notice of proposed
rulemaking, whichever is earlier.
Section 4. Definitions
This section expands the definition of a ``covered agency''
to include the Internal Revenue Service. Currently, only EPA
and OSHA are included. The definition of a ``small entity
representative'' eligible to participate on a Panel is also
specified as a small entity, or an individual or organization
that ``primarily represents the interests of 1 or more small
entities.''
Section 5. Collection of information requirement
This section deletes language that limited the scope of IRS
interpretative rules covered by The Regulatory Flexibility Act.
It amends Section 601 to strike the definitions for
``collection of information'' and ``recordkeeping.'' Also, the
section amends the fifth sentence in Section 603(a) to read:
In the case of an interpretative rule involving the
internal revenue laws of the United States, this
chapter applies to interpretative rules (including
proposed, temporary and final regulations) published in
the Federal Register for codification in the Code of
Federal Regulations.
Section 6. Effective date
This section provides that the Act will be effective 90
days after the date of enactment.
VII. CHANGES IN EXISTING LAW
In the opinion of the Committee, it is necessary to
dispense with the requirement of Section 12 of rule XXVI of the
Standing Rules of the Senate in order to expedite the business
of the Senate.