A battle is brewing in Washington over the Regulatory Flexibility Act, which requires federal agencies to prepare analyses of rules they think will have an impact on small businesses. The primary issue is which rules are subject to "regflex" review and which are exempt.

The Internal Revenue Service, for instance, maintained in its first regflex agenda that only 2 of its 287 proposed rules were subject to regflex analysis. The IRS claims the other 285 rules interpret congressional intent and therefore are not subject to regflex analysis, which is required only for "legislative" rules issued by agencies -- rules considered substantive additions to the law. The Department of Defense, the General Services Administration, the Office for Procurement Policy, and the National Aeronautics and Space Administration also have claimed that their procurement regulations aren't covered by the act.

Regflex, passed last fall, was designed to force federal agencies to consider the impact their rules would have on small businesses. Under the act, agencies are required to identify which of their proposed regulations will affect small businesses and to assess in a separate report exactly what the effect will be.