Paul L. Caron

Wednesday, December 18, 2019

The Ninth Circuit Jurisprudence On Judicial Review Of IRS Determinations

William Yeatman (Cato Institute), Ninth Circuit Review—Reviewed: A “Hardening Look” Review for the IRS:

Altera Part I: IRS Becoming Less Exceptional in Admin Law

“IRS exceptionalism” continues its slow bleed.

For reasons that escape me, the White House and federal courts historically have treated the IRS differently than other executive branch agencies when it comes to administrative law and regulatory process. But that’s changing. ...

It’s a fascinating case, with big implications for both the economy and, of course, administrative law. For more, I highly recommend Prof. Hickman’s blog, and also coverage at TaxProf Blog.

Altera Part II: Judge Milan Smith Rings Death Knell for Auer ...

Altera Part III: Judicial Disqualification ...

Another Cri de Coeur for Reforming Chevron ...

Scholarship, Tax, Tax Scholarship | Permalink


I read Mr. Yeatman's post a few days ago and wanted to make comments to his post. However, the Yale Notice and Comment blog did not then offer a comment feature (as I understand it the blog operators are moving from one system to another and the comment feature is not yet working). So, I thought I would post my comments here (although I did send them to Mr. Yeatman by email):

I think Mr. Yeatman's post is very good, offering lots to think about.

I offer just a few comments which have to be somewhat cryptic in order to keep this offering to a reasonable length:

1. On tax exceptionalism, at least in the area of deference to interpretive regulations and scope of review for legislative regulations (such as consolidated return regulations), I do not believe that tax exceptionalism ever existed in an outcome determinative sense except in the minds of fervid practitioners who sought to arbitrage imagined differences between Chevron and National Muffler (and its predecessors). That is too long a discussion here, as I have developed it elsewhere.

2. For that reason, I disagree that, as a result of the perceived demise of tax exceptionalism, “Judicial review, too, is becoming more ‘normal’ for the IRS, as the agency increasingly becomes beholden to the same administrative law doctrines that courts long have employed in reviewing other agencies.” For legislative regulations, the administrative law rules (arbitrary or capricious) always applied. And, if there ever were differences for review of interpretive regulations, the tax review (under the imagination of a difference) was looser than the Chevron reasonableness review and thus the imagination should have invited more litigation in the tax exceptionalism period (if it existed). In other words, tax exceptionalism (if it existed) did not result in less judicial review, with judicial review being basically the same before and after Chevron and its tax iteration in Mayo.

3. I agree with Professor Hickman that Altera is a big deal for tax administration. I disagree with Professor Hickman as to why it is a big deal, fully realizing that it is usually a fool’s errand to disagree with Professor Hickman on issues of the interface of tax administration and the APA. In my mind, the final Ninth Circuit panel opinion in Altera (as had the withdrawn panel opinion before it) put the APA discussion back on the rails after the Tax Court had driven it off the rails in its opinion (amazingly a unanimous reviewed opinion). I am not sure what administrative law doctrines she feels were absent from the discussion 10+ years ago. Much of Professor Hickman’s scholarship has been in the context of deference, but deference is not an APA issue. Deference goes back well before the enactment of the APA, and the APA simply did not address deference. Stated bluntly, in my mind, the APA is irrelevant to deference. And, so far as I am aware, the APA 706(2)(A) arbitrary or capricious test always applied to judicial review of legislative tax regulations. (The arbitrary or capricious review is sometimes referred to as the State Farm review.)

4. I am not sure that Judge Smith’s musing on Auer in dissent on rehearing en banc are anything more than a form of dicta in Altera. Auer’s only application (whether before or after constriction in Kisor) is to nonregulatory interpretations of agency (here Treasury) ambiguous regulations, not regulations’ interpretations of ambiguous statutory text. As I understand it in Altera (and repeated by Judge Smith) the regulation interpretation of ambiguous statutory text was in issue. Smith says “In 2003, * * * * Treasury published a rule codifying its decision that QCSA parties should share stock-based compensation costs.” It is that regulations interpretation of § 482 that was in issue and raised only two APA/administrative law issues. First, was the regulations interpretation adopted with sufficient procedural regularity (reasoned decisionmaking) to pass “arbitrary or capricious” review under the APA. This is the § 706(2)(A)/State Farm test. Second, if so, was the interpretation in the regulations a reasonable interpretation of the statutory text. This is the Chevron test. If that is correct, Auer was not implicated at all because the issue did not test nonregulatory guidance against ambiguous regulations’ text.

Posted by: Jack Townsend | Dec 18, 2019 2:40:20 PM