Paul L. Caron

Thursday, April 21, 2011

Lederman Presents Deference to Regs, Rulings Issued During Litigation at NYU

Lederman Leandra Lederman (Indiana-Bloomington) presents Hold the Mayo: What Respect Should Courts Accord Tax Regulations and Rulings Issued During Litigation? at NYU today as part of its Colloquium Series on Tax Policy and Public Finance convened by Daniel Shaviro (NYU) and Mihir Desai (Harvard Business School). Here is the abstract:

The question of how much deference courts should accord agency interpretations of statutes is a high-profile and important issue that affects both rulemaking and case outcomes. What level of deference should courts accord an agency regulation or other rule that an agency has issued opportunistically, during the course of related litigation? This important question has arisen in numerous cases, including the 2011 U.S. Supreme Court decision in Mayo Foundation for Medical Education and Research v. United States, a case involving a Treasury regulation.

To answer the question, the Article analyzes the law on judicial deference to tax authorities generally, as well as specific to the context of pending litigation. It concludes that deference under the famous case of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. applies to all Treasury regulations issued in accordance with the requirements of the Administrative Procedure Act. It further argues that Revenue Rulings -- formal guidance issued by the IRS -- should receive deference under Skidmore v. Swift & Co. Following an analysis of the literature and applicable case law, the Article proposes that rulings issued during the controversy receive the applicable level of deference (Chevron or Skidmore), but that the deference inquiry take into account the retroactivity and surprise issues raised by the timing of the agency’s guidance.

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There is no reason that a Revenue Ruling or Revenue Procedure could not receive Chevron deference. For example, section 6015(f) provides "Under procedures prescribed by the Secretary, if—(1) taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either); and (2) relief is not available to such individual under subsection (b) or (c), the Secretary may relieve such individual of such liability.

The IRS has issued a few Revenue Procedures prescribing the procedures for taxpayers to follow in order to obtain section 6015(f) relief. Given the direct delegation of power to prescribe a procedure and the IRS issuing a procedure, how is the Revenue Procedure not entitled to Chevron deference?

Mead, and important part of the chain from Chevron to Mayo, discusses whether a rather low ruling that would be comparable to a PLR is entitled to Chevron deference. It was not the "level" of the guidance, rather the guidance did not receive Chevron deference because of the lack of notice and comment. It is entirely possible for the IRS have notice and comments on a topic and then issue guidance in a form other than a Treas. Reg. Assuming all the other Chevron factors are met, and there has been notice and comment, regardless of the form that the guidance comes out in it is entitled to Chevron deference.

Posted by: tax guy | Apr 22, 2011 1:03:22 PM