Unpacking the Force of Law

Article excerpt

In 2011, in Mayo Foundation for Medical Education and Research v. United States, the Supreme Court held that general authority Treasury regulations adopted using notice-and-comment rulemaking carry the force of law and thus are eligible for Chevron deference. In the wake of Mayo, courts and scholars are now struggling with its implications for whether temporary Treasury regulations and IRB guidance documents (revenue rulings, revenue procedures, and notices) that lack notice and comment but are enforceable through civil penalties are likewise eligible for Chevron deference and, relatedly, whether these formats are in fact subject to APA notice-and-comment rulemaking requirements. Currently prevailing judicial tests for evaluating these questions do not offer clear or easy answers for the tax context. Ultimately, both questions turn on whether the agency actions in question carry "the force of law." The purpose of this Article is to take a step back from existing doctrinal standards and to sort through the basic administrative law principles and Supreme Court precedents that drive those standards in an effort to develop a coherent approach to Treasury and IRS rulemaking and judicial review thereof.

INTRODUCTION .......... 466

I. TAX ADMINISTRATION IN THE FORCE OF LAW GRAY ZONE .......... 472

A. Legislative and Nonlegislative Rules .......... 473

B. Mead and Chevron .......... 484

C. Tax Administrative Practices .......... 491

1. Temporary Treasury Regulations .......... 492

2. IRB Guidance .......... 502

II. WRESTLING WITH THE DOCTRINE .......... 509

A. The Limits of the "Short Cut" .......... 510

B. Exploring the Delegation Premise .......... 515

C. Penalties as a Key Indicator of Delegation .......... 524

D. Delegation, Penalties, and Tax Administration .......... 526

III. CONFRONTING THE IMPLICATIONS FOR TAX ADMINISTRATION .......... 529

A. Administrative Solutions .......... 532

B. Judicial Solutions .......... 534

1. Open Minds and Harmless Errors .......... 534

2. Chevron Step Two .......... 540

CONCLUSION .......... 542

INTRODUCTION

In its 2011 decision in Mayo Foundation for Education and Research v. United States,1 the Supreme Court rejected tax exceptionalism, holding that the general administrative law standards articulated in United States v. Mead Corp.2 and Chevron USA Inc. v. Natural Resources Defense Council, Inc.3 govern judicial review of U.S. Department of the Treasury ("Treasury") regulations.4 In so doing, the Court admonished, "[W]e are not inclined to carve out an approach to administrative review good for tax law only."5 A few months later, the D. C. Circuit, sitting en banc in Cohen v. United States, reinforced the policy of administrative law uniformity in applying Administrative Procedure Act ("APA") provisions to Internal Revenue Service ("IRS") guidance: "The IRS is not special in this regard; no exception exists shielding it - unlike the rest of the Federal government - from suit under the APA."6 Most recently, in United States v. Home Concrete & Supply, LLC, the Supreme Court considered the validity of a Treasury regulation that contradicted an earlier Supreme Court interpretation of the Internal Revenue Code ("LR. C") and that was issued initially in temporary form, in the midst of ongoing litigation, with only postpromulgation notice and comment.7 While the Court decided that the meaning of the statute was clear, and thus avoided several administrative law questions raised by the briefs and the courts below,8 the Home Concrete litigation and its many administrative law issues were closely followed by members of the tax bar.

Taken together, these cases have given tax lawyers a fresh awareness of administrative law doctrine as relevant to their field.9 The tax bar's new attention to administrative law doctrine has potential implications for administrative law as well. Every area of federal government administration is at least a little different from the others, sometimes because provisions and requirements of organic statutes vary, but just as often simply because each agency develops its own habits and norms in administering the statutes within its jurisdiction. …