A recently published law journal article cites statistical evidence for what a law professor believes shows significant noncompliance by Treasury with the Administrative Procedure Act (APA).
Hickman's analysis focused on 232 separate regulatory projects for which Treasury published Treasury Decisions or notices of proposed rulemaking (NPRMs) in the Federal Register between January 1, 2003, and December 31, 2005. Of particular concern to Hickman in looking at the agency's released rules were: the steps Treasury followed in promulgating regulations, discussion in each regulation preamble whether an exception from APA procedural requirements applied for that regulation, and the source of authority Treasury relied on in issuing each regulation.
The results of Hickman's study throw into question Treasury's compliance with its procedural obligations. She ultimately concluded that "Treasury often fails to adhere to APA rulemaking requirements and thus leaves many of its regulations, including some of its most complex and controversial efforts, open to legal challenge on that basis."
In the typical procedural process, Treasury should issue an NPRM along with proposed regs, followed by final regs after public notice and comment. However, that process was followed in only 59 percent of the studied projects; 36 percent of the cases involved temporary regulations issued with the NPRM, while final regs were issued without notice and comment in 11 cases (5%).
Out of the 232 reg projects analyzed, Hickman found that in 212 of them (91%), Treasury claimed the APA did not apply, and in 82% percent of projects, it offered no basis other than a conclusory statement outlined in the Internal Revenue Manual. Exceptions from the APA's public notice and comment requirements occur if the agency acts to implement an interpretative rule, procedural rule, or for good cause.
In the area of tax regulations, Treasury has authority to issue legislative and interpretative regulations. The APA requirements apply only to legislative regulations. ... The IRM states that most regs are considered interpretative rules (if issued under section 7805) exempt from public notice and comment procedures, but it claims that Treasury "usually" publishes NPRMs in the Federal Register and seeks public comment anyway.
Hickman takes exception to the IRM's claim that most regs are issued as interpretative rules and exempt from the APA's notice and comment requirements on that basis. She notes that under current interpretation, rules that "bind both the government and regulated parties are legislative, whether promulgated pursuant to specific or general statutory authority." As a result, Hickman argues, Treasury's pretense that the APA doesn't apply to section 7805 regs is misguided and exacerbates its noncompliance.
Another problem brought to light in the study is how the government frequently violates APA rules when it issues temporary regulations. Temporary regs were issued in 84 projects, and in 79% of those projects, Treasury claimed the APA was inapplicable but gave no reason. More than half the temporary regs cited specific authority as the source of authority for Treasury taking action. Hickman thinks that the promulgation of temporary regs without prior public comment is "potentially problematic" and foresees numerous regulations as "open to legal challenge" as a consequence of inconsistent application of the APA's requirements.
Treasury spokesman Andrew DeSouza took issue with the report's findings. "We disagree with Ms. Hichman's assessment that we are not following APA guidelines," he said, and added that "Treasury and the IRS take the APA very seriously and fully comply with it and all other procedural requirements when issuing regulations and other published guidance." DeSouza said Treasury and the IRS "have, and will continue, to follow our long-standing practices, but we certainly welcome comments on how the guidance process can be improved."
The Treasury Department and the Internal Revenue Service have a strange relationship with Administrative Procedure Act notice-and-comment rulemaking procedures. Treasury acknowledges the general applicability of APA procedural requirements when it promulgates regulations interpreting the Internal Revenue Code. Treasury also maintains that most Treasury regulations are exempt from the APA's public notice and comment requirements. Nevertheless, Treasury purports to utilize those same procedures anyway in promulgating most Treasury regulations.
This Article documents a study of 232 separate Treasury regulation projects for which Treasury published Treasury Decisions and notices of proposed rulemaking in the Federal Register between January 1, 2003, and December 31, 2005. In connection with this study, this Article compares Treasury's actual practices and exemption claims with current doctrinal trends in courts evaluating compliance with APA requirements across administrative agencies.
The Article documents the study's finding that, in 40.9% of the projects studied, Treasury failed to follow APA notice and comment requirements. The Article also concludes that, as interpreted by the courts, established exceptions from those requirements generally do not apply to excuse this noncompliance. Consequently, among other implications, many Treasury regulations, including some of Treasury's most complex and controversial rulemaking efforts, are susceptible to legal challenge for failure to adhere to APA rulemaking requirements.