Paul L. Caron

Tuesday, January 18, 2011

Greenaway: Mayo Foundation Cures Tax Myopia

Following up on last week's commentary on the Supreme Court's unanimous opinion in Mayo Foundation for Medical Education & Research v. United States, No. 09-837 (Jan. 11, 2011):

Thomas Greenaway (KPMG, Boston), Mayo Foundation Cures Tax Myopia:

Last week, the U.S. Supreme Court unanimously decided an important tax case, holding that full-time medical residents are not “students” exempt from FICA taxes. More broadly, Chief Justice Roberts, writing for the Court, cured decades of “tax myopia”[Fn.1] with hsi reasoning. Tax myopia afflicts practitioners who cannot see beyond the self-contained world of tax. In short, the Court concluded that the Chevron two-step approach applies to all ambiguous Code provisions subject to interpretation by Treasury regulations. This decision was a long time coming. The case cuts against taxpayers who take positions contrary to regulations, but the broader implications of the decision are harder to see at this point.

Fn. 1: See Paul Caron, Tax Myopia, or Mamas Don’t Let Your Babies Grow Up to Be Tax Lawyers, 13 Va. Tax. Rev. 517 (1994).

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Again, I think the broader implications are clear: Mayo makes the Tax Court irrelevant when it comes to interpreting the law. If the law is clear and unambiguous, then there is no need for interpretation. If there is room for interpretation, either the Tax Court must follow the Treas Regs (barring the exceptional arbitrary and capricious Reg) or the Tax Court interprets the law in favor of the IRS or the IRS promulgates Regs reversing/overruling the opinion in favor of the taxpayer and the after-the-fact-the-IRS-doesn't-like-the-opinion-of-the-Tax-Court Treas Reg gets Chevron deference which, as stated above, is virtually unassailable.

What purpose do special authority/delegation Regs serve if general purpose Regs get the same weight and are treated the same? How is it that two different things are not different?

If you look at the history of the Tax Court you will see that one of the main reasons for its formation was to be a check on the IRS (Bureau of Revenue) and to make sure the that taxpayers were not subject to an IRS that was the final authority on tax matters. It is like 87 years of history has been turned on its head. Can someone tell me what other Agencies had special courts set up to "oversee" them, especially to ensure taxpayer (individual) rights? (I bet some predecessor of the US Court of Claims or Fed Cir may fit this bill; but the fact that there are so many Agencies and so few courts set up specifically for that Agency must mean something.)

I guess we need the admin lawyers to come in and start offering CLEs to us tax lawyers who had a different world view than they do.

Posted by: tax guy | Jan 19, 2011 6:02:50 PM