Not So Special after All: How Mayo Granted the Treasury Unfettered Rule-Making Discretion
Graves, Daniel W., Missouri Law Review
Mayo Foundation for Medical Education and Research v. United States, 131 S. Ct. 704 (2011).
The ability of executive agencies to promulgate rules is an important and vital function in American government. Due to the sheer complexity of so many regulatory issues, it would be impracticable for Congress to legislate, much less anticipate, every possible detail that might arise in a statutory scheme. The often slow pace of legislative approval also can hinder Congressional attempts to respond to changing circumstances. To avoid any problems that might arise from these difficulties, Congress frequently gives the executive branch rulemaking authority via statute. (1) This ability of executive departments to promulgate rules thus fills in the gaps left by Congress.
Often, however, these regulations go much further than merely clarifying details around a framework provided by Congress, and instead address areas to which Congress has not directly spoken at all. (2) When such regulations create undesirable results, Congress can either amend the statute to reverse the agency's position, (3) or a court can overturn the regulation by finding it to be an impermissible interpretation of the underlying statute. (4)
Under the Chevron framework of analysis provided by the Supreme Court of the United States in 1984, (5) a regulation will be overturned only if (1) Congress has either failed to directly address the issue at hand or has left ambiguity in the statute, and (2) the agency's resolution of that omission or ambiguity is "'arbitrary or capricious in substance, or manifestly contrary to the statute.'" (6) Tax regulations promulgated by the Treasury Department, however, are viewed as having something of a "special place" in administrative law, with a less deferential standard for testing those regulations, i.e., the National Muffler framework. (7) Prior to 2011, the Supreme Court of the United States had not distinguished between these competing standards for review of the Treasury Department regulations, and indeed had often cited conflicting doctrines in prior cases. (8) This situation "plagued lower courts for decades," (9) and led to a protracted struggle, particularly in the United States Tax Court, to resolve the conflicting rulings. (10)
On January (11), 2011, the Supreme Court decided Mayo Foundation for Medical Education and Research v. United States, in which it definitively settled on the more deferential Chevron standard for analyzing Treasury Department regulations, finding no justification in treating them differently from regulations of other agencies.11 In doing so, the Court has given the Treasury Department virtually free rein in crafting new regulations and amending those regulations already in existence. Because taxpayer lawsuits were one of the few ways in which Treasury regulations could be overturned, by instructing the lower courts to give such regulations the heightened degree of deference that Chevron prescribes, the Court has greatly reduced the likelihood that these taxpayer suits will be successful. (12)
Although Mayo brings a great degree of clarity to the arena of Treasury regulations, this clarity comes at a price--any given regulation will now be more difficult to counter. Before Mayo, lower courts, and even the Supreme Court, considered a broad array of factors, including consistency with prior regulations and reliance interests, in determining whether a Treasury regulation was a reasonable interpretation of the underlying statute. (13) By removing the courts' ability to consider such factors, Mayo could lead to an emboldened Treasury Department adopting more and broader regulations, all with only a hamstrung judicial check on that power. Because of the broad implications that Treasury regulations carry, Congress should consider amending the Internal Revenue Code to ensure that in deciding the reasonableness of a regulation, courts can consider other important factors beyond merely whether Congress has already addressed the issue and whether the regulation is inconsistent with the statute. …