TaxProf Blog

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

Wednesday, September 20, 2017

Perkins: The Threat of Law — Is Treasury Using Regulatory Blackmail Or Responding To Congressional Inaction?

Rachelle Holmes Perkins (George Mason), The Threat of Law: Regulatory Blackmail or an Answer to Congressional Inaction, 65 Kan. L. Rev. 621 (2017):

In light of the obstacles affected taxpayers are up against in the face of regulations of dubious authority, Treasury is able to wield what I term an effective “threat of law.” While certainly less binding than an actual legitimately exercised “force of law,” the effects (at least in the nearterm) can be identical. For example, with respect to the Inversion Notice, taxpayers could either comply with Treasury’s Inversion Notice or potentially face a myriad of negative consequences. When faced with these options, while some taxpayers rolled the proverbial dice and found ways to structure around the Inversion Notice, others declined to play this game of tax chicken with Treasury and called off their transactions.

In this Article, I will explore the contours of this so-called “threat of law” that Treasury can employ even in the absence of legitimate congressional authority to do so.

Part II of this Article gives a brief background of the history of the regulation of corporate inversions in the United States. Part III discusses Treasury’s generally broad regulatory powers, including its ability to issue retroactive regulations. Part IV discusses the justiciability obstacles that taxpayers face in bringing suit against Treasury, including I.R.C. section 7421 and the Declaratory Judgment Act (“DJA”). It also discusses the impact of the Supreme Court’s ruling in Mayo and the level of deference Treasury regulations are afforded. Part V then examines the implications that Treasury’s regulatory powers, Chevron deference, and litigation standing safeguards have on its use of the threat of law. Specifically, it will explore the efficacy this threat of law can have on Treasury’s ability to act swiftly in response to emerging tax challenges. Moreover, it will address the implications this threat has for Treasury’s statutory retroactivity powers, traditional notions underlying Congress’s perceived delegation of authority to Treasury, and to the justiciability protections these actions should be afforded. Part VI concludes.

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