Articles on Federal Courts Role in Making Tax Law (12/5/12)

Lederman, Leandra, What Do Courts Have to Do With It?: The Judiciary's Role in Making Federal Tax Law (October 31, 2012). National Tax Journal, Vol. 65, No. 4, December 2012; Indiana Legal Studies Research Paper No. 216. Available at SSRN: http://ssrn.com/abstract=2169491

Ms. Lederman is Professor of Tax Law at Indiana University Maurer School of Law.  Her bio page at that law  school is here.

Here is the Introduction to the Lederman article.

I. INTRODUCTION 

The Internal Revenue Code (Code) generally is the fi rst place to look when confronting a federal tax question, but it is important to recognize that much federal tax law is not statutory. The U.S. Department of the Treasury (Treasury) promulgates regulations, and the Internal Revenue Service (IRS) issues important guidance, such as Revenue Rulings, Revenue Procedures, and Notices (Hickman, 2009). Federal courts interpret all of these authorities. In order to understand and apply federal tax law, it is important to appreciate the role that federal trial courts, Courts of Appeals, and the U.S. Supreme Court play in developing the law. This essay provides an overview of federal tax litigation, discusses the deference courts give to guidance issued by the Treasury and IRS, and discusses when taxpayers have “standing” to challenge the tax laws in court. The essay also discusses cases in which Congress may step in to amend the Code following a court decision.

A related article is:

Matthew H. Friedman, Reviving National Muffler: Analyzing  the Effect of Mayo Foundation on Judicial Deference as Applied to General Authority Tax Guidance, 107 Northwestern U. School of Law Law Review Colloquy 115 (2012)

Here is the Introduction to the Friedman article:

INTRODUCTION 

The topic of judicial deference arises each time a court reviews the legitimacy of an opinion or regulation by an administrative agency to which Congress has delegated some rulemaking authority. Determining the appropriate deference standard is important because it sets limits on an agency’s quasi-legislative power and informs taxpayers and practitioners on the likelihood of challenging seemingly invalid administrative rulings. Noting the importance of the deference issue, Professor Kristin E. Hickman,  one of the foremost authorities on administrative law in the federal income tax context, wrote that “[d]rawing fine distinctions among deference standards may seem a purely academic exercise . . . [but] deference standards matter.”
For thirty-five years, the 1944 case of  Skidmore v. Swift & Co. presented the primary method for judicial review of administrative guidance created under Congress’s general grant of rulemaking authority.  In 1979, a new standard was created in what became known as the tax-specific deference standard of  National Muffler Dealers Association v. United States. Five years later, the Supreme Court held in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. that a separate and much more deferential standard should apply to final regulations drafted pursuant to a  general grant of authority. 

The  Chevron decision cast doubt upon the viability of both  Skidmore and  National Muffler since it was unclear whether the decision applied to all regulations promulgated pursuant to general grants of authority and whether it applied to tax-related guidance. This confusion persisted until the Court decided two cases in 2000 and 2001 that distinguished  between  Skidmore and  Chevron  deference.  Unfortunately, the Court’s distinction did not provide specific or uniform direction for the treatment of all general authority guidance and to this day the Court has failed to give clearer instruction. 

In early 2011, the Court took a step closer to addressing the treatment of non-regulation general authority guidance by considering final regulations in the tax context. In Mayo Foundation for Medical Education and Research v. United States, the Court conclusively answered the question concerning which standard (Chevron or National Muffler) applies to final Treasury regulations promulgated pursuant to the general grant of authority.  The Court concluded—without attempting to overturn or replace National Muffler—that all final regulations should be reviewed under Chevron. However, the court failed to address the still unsettled question of which standard to apply to guidance other than final regulations, which can come in many forms and accounts for the vast majority of guidance available to taxpayers. Presently, the default review standard is  Skidmore, but National Muffler provides a more balanced approach that can be applied to all forms of general authority regulations rather than just non-regulation guidance. 

This  Essay explores the various standards of deference the Supreme Court has applied to general authority guidance over the past sixty-eight years and concludes that the Court should revive National Muffler as the dominant standard in the tax context. Part I discusses the role that deference plays in deciding tax-related issues in court, specifically presenting the current application of final Treasury regulations for background.  Part II examines the path the Supreme Court followed in establishing and applying judicial deference from  Skidmore through  Mayo. Part III discusses the necessity of the  Mayo  decision, analyzes its holding, addresses the weaknesses of the existing standard for general authority guidance, and proposes a broad application of the former tax-specific standard from National Muffler. Part IV offers concluding remarks.