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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, January 12, 2011

More Mayo: Johnson on the Demise of Tax Exceptionalism

Johnson Following up on yesterday's post on the Supreme Court's unanimous opinion in Mayo Foundation for Medical Education & Research v. United States, No. 09-837 (Jan. 11, 2011), from Steve Johnson (UNLV):

Mayo does several good things.

First, it clarifies that Chevron provides the analytical standard for judging general authority tax regs under ยง 7805 (a) (at least those promulgated through the APA notice-and-comment procedures), not just specific authority tax regs. This had been the trend of the law, but was resisted by some (including most Tax Court judges). Mayo ends that debate. [Congratulations to Carlton Smith, whose amicus brief on the issue is addressed, though not followed, by the Mayo opinion.]

Second, relatedly, Marty McMahon, Larry Zelenak, Boris Bittker, I, and others have expressed doubt about the validity or utility of the conventional notion that general authority regs receive less deference than do specific authority regs. The Mayo opinion largely discards that conventional notion.

Third, Mayo quashes the misuse of the National Muffler factors. Some judges had taken the National Muffler factors as swords by which regs could be attacked. This was wrong. Those factors are better understood as being reasons for extra deference when present, not reasons for diminished deference if absent. Mayo accepts the erroneous idea that National Muffler is less deferential than Chevron, and says that Chevron, not National Muffler, provides the standard. Though I don't like the road, I do like the destination -- Mayo means that the National Muffler factors can no longer be misused to undercut regs. In particular, Mayo said that the following are not reasons to withhold deference: the fact that the current position of Treasury/IRS is inconsistent with its earlier position, the fact that the current position is not of long standing and wasn't contemporaneous with the statute, and the fact that the reg is contrary to pre-reg case law.

Fourth, C.J. Roberts' opinion for the Court in Mayo frames the Chevron Step One inquiry (whether the statute is ambiguous) in terms of statutory text and structure. I have more of a textual orientation than many in the tax academy, so I like this emphasis. Those who lean more towards purposivism need not despair, of course. The next time a Chevron opinion is written by a purposivist justice, the Step One discussion will be framed more broadly than it was in Mayo. This is the dynamic one sees comparing the Step One treatments of Justice Stevens writing for the Court in Chevron with Justice Thomas writing for the Court in Brand X. Moreover, nontextualists might take some comfort in the fact that the taxpayer's "dictionary definition" argument persuaded no one on the Court.

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Well, so much for Skidmore and judicial review. Now the IRS can do anything it wants. When it doesn't like judicial opinions that interpret the code, the IRS can simply write Regs on the issue, as it is open to interpretation, and the Regs get Chevron deference. So the Regs functionally are the law.

Although I do not have the figure handy, I will hazard a guess that only an infinitesimal number of Regs subject to Chevron deference have been found to be invalid. Chevron renders the IRS , not the courts, the ultimate judge on the meaning/interpretation of ambiguous laws via issuing Regs.

To what end do the courts serve any function in statutory interpretation if the court's interpretation can be done away with by Regs issued via notice and comment rule making? Isn't this functionally reversing Marbury v. Madison? Emasculating the role of the courts in the interpretation of an ambiguous statute is a dangerous slope.

Posted by: tax guy | Jan 13, 2011 8:03:00 PM