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July 21, 2012
Smith: The APA's Arbitrary and Capricious Standard and IRS Regulations
Patrick J. Smith (Ivins, Phillips & Barker, Washington, D.C.), The APA's Arbitrary and Capricious Standard and IRS Regulations, 136 Tax Notes 271 (July 16, 2012):
The Supreme Court’s Mayo decision and the D.C. Circuit’s Cohen decision have made clear that principles of administrative law generally, and the Administrative Procedure Act (APA) in particular, apply to tax law and the IRS just as they do to all other federal agencies. The APA’s arbitrary and capricious standard provides a powerful but seldom-used tool for taxpayers in challenging IRS regulations, because the IRS seems unaware of the requirements imposed by the standard and even instructs its personnel to draft preambles to regulations in a way that is inconsistent with what thestandard requires.
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If this is an argument that a Reg doesn't get "Chevron" deference, has National Muffler been overruled? I mean, if National Muffler still is good law, it is better than being stuck with Skidmore. Even so, Skidmore does not mean that TPs win and Regs are automatically "bad" when challenged. The Skidmore standard just has to be met.
Be careful what you wish for. If the public wants air tight APA, admin. law practices applied to tax just imagine what it will be stuck with. Virtually any pronouncement by Treasury (they are Treasury Regulations, not IRS Rgulations -- the IRS does not issue regulations, Treasury does) will be Gospel.
For that matter, every notice and comment prononcement made by the IRS most likely will be too. Look at Mead which started this whole mess. The "ruling" in Mead was something akin to a PLR-ish level ruling. If you read the opinion, and the side opinions carefully, if the ruling had received notice and comment it would have received Chevron deference.
Now, lots of guidance issued by the IRS is subject to notice and comment. I am shocked that the bar wants to play Mead and its progeny and folllow the A-P-A road. That road leads to a lot of guidance that courts used to look as non-binding (such as a Rev. Rul.) and turns them into authorities that must be given Chevron deference. But if that is what the tax bar wants . . .
Posted by: tax guy | Jul 21, 2012 9:22:51 PM
The segment of taxprofs and tax bar that clamors for judicial oversight of Treasury regulations has yet to come to grips with a lot of black letter APA law, i.e., Overton Park, Vermont Yankee, Camp v. Pitts, etc.
Posted by: Jake | Jul 22, 2012 7:06:27 PM
Thank you for commenting. I'd be interested in hearing more from you, Tax Guy and Jake. Maybe Treasury testing the outer limits of Chevron will help improve admin law generally.
Posted by: Eric Rasmusen | Jul 23, 2012 11:19:38 AM