With today’s opinion in Mayo Foundation for Medical Education & Research v. United States, No. 09-837 (Jan. 11, 2011), the Supreme Court has finally and decisively rejected the notion of tax exceptionalism in judicial review standards. For years now, the tax community has debated whether Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), or National Muffler Dealers Ass’n, Inc. v. United States, 440 U.S. 472 (1979), provides the appropriate standard of review for evaluating Treasury regulations issued under the general authority of I.R.C. § 7805(a). The question before the Court in Mayo was the substantive validity of Treas. Reg. § 31.3121(b)(10)-2, a general authority Treasury regulation. Unlike previous tax cases before the Court, briefing by the parties and by dueling amici in Mayo clearly raised and thoroughly addressed the question of Chevron versus National Muffler review. In upholding the regulation, the Court clearly and unequivocally chose Chevron and rejected National Muffler as the standard of review for general authority Treasury regulations.
In deciding the case, the Court first concluded that Code § 3121(b)(1) is ambiguous; had it found the statute to be clear on its face, the Court would not have had to resolve the question of Chevron versus National Muffler. The Court went on to resolve that issue with the following observations and conclusions:
- the Chevron and National Muffler standards “call for different analyses of an ambiguous statute”;
- National Muffler factors such as the agency’s inconsistency or the interpretation’s longevity or contemporaneity (or lack thereof) are not reasons for denying Chevron deference to a Treasury regulation;
- whether litigation prompts a regulation is likewise “immaterial” to the question of Chevron-eligibility;
- “[t]he principles underlying our decision in Chevron apply with full force in the tax context”;
- “the administrative landscape has changed significantly” since the Court counseled less deference for general authority Treasury regulations in Rowan Cos. v. United States, 452 U.S. 247, 253 91981), and United States v. Vogel Fertilizer Co., 455 U.S. 16, 24 (1982);
- the determination of a regulation’s eligibility for Chevron deference “does not turn on whether Congress’s delegation of authority was general or specific”; and finally,
- “Chevron and Mead, rather than National Muffler and Rowan, provide the appropriate framework for evaluating” Treas. Reg. § 31.3121(b)(10)-2.
Chief Justice Roberts wrote the opinion on behalf of all eight participating members of the Court; Justice Kagan did not participate in the case. It is hard to see how the Court could have been much clearer in rejecting the National Muffler standard and embracing Chevron and Mead for evaluating tax cases.
The Court’s opinion also offered a short passage with potential implications beyond the standard of review question. In the course of rejecting the National Muffler standard, the Court offered the following statement: “[W]e are not inclined to carve out an approach to administrative review good for tax law only. To the contrary, we have expressly ‘[r]ecogniz[ed] the importance of maintaining a uniform approach to judicial review of administrative action.’” The Court quoted Dickinson v. Zurko, 527 U.S. 150 (1999), a non-tax (patent) case with an extensive discussion regarding Congress’s intent that the Administrative Procedure Act bring uniformity to the otherwise disparate field of federal administrative action. The Court also cited Skinner v. Mid-America Pipeline Co., 490 U.S. 212 (1989), for “declining to apply ‘a different and stricter nondelegation doctrine in cases where Congress delegates discretionary authority to the Executive under its taxing power.’” Other turns of phrase within the Court’s analysis reflect a similar orientation toward equating the tax and non-tax contexts. A number of cases currently pending in the federal courts of appeals challenge Treasury regulations and IRS guidance documents on Administrative Procedure Act grounds. The government’s arguments in those cases generally follow the same “tax is different” theme that taxpayers advanced in the Chevron versus National Muffler debate. It will be interesting to see whether this passage from Mayo will influence the outcomes of those cases and pull the tax community even further toward administrative law norms.