Professor Leslie Book has another great blog on a recent tax court case, Corbalis v. Commissioner, 142, T.C. ___, No. 2 (2014), here. See Corbalis v Commissioner: Tax Court Holds it Has Jurisdiction to Review Interest Suspension Decisions (Procedurally Taxing Blog 1/28/14), here.
The Tax Court's summary of the decision is:
Petitioners seek judicial review of Letters 3477 denying their claim for interest suspension under I.R.C. sec. 6404(g) and stating that the determinations are not subject to judicial review under I.R.C. sec. 6404(h). Respondent has moved to dismiss for lack of jurisdiction.
Held: The Court has jurisdiction under I.R.C. sec. 6404(h) to review denials of interest suspension under I.R.C. sec. 6404(g).
Held, further, the Letters 3477 were final determinations for purposes of I.R.C. sec. 6404(h) even though petitioners' concurrent claims for abatement under I.R.C. sec. 6404(e) were still pending.I refer readers to the Procedurally Taxing Blog entry for a further rounded discussion of the Corbalis decision.
I want to bore down on a subsidiary question addressed in the Corbalis decision -- the deference, if any, to be accorded Revenue Procedures. The Revenue Procedure made a distinction between types of 6404 relief, stating that one type may be entitled to judicial review and not the other, but provided no reasoning. The Court said:
In many cases, we have discussed the deference due to pronouncements of the IRS. See, e.g., Taproot Admin. Servs., Inc. v. Commissioner, 133 T.C. 202, 208-210 (2009) (dealing with a disputed revenue ruling), aff'd, 679 F.3d 1109 (9th Cir. 2012). Revenue rulings are "an official interpretation by the Service". Sec. 601.601(d)(2)(i)(a), Statement of Procedural Rules. By contrast, section 601.601(d)(2)(i)(b), Statement of Procedural Rules, states that "[a] 'Revenue Procedure' is a statement of procedure that affects the rights or duties of taxpayers or other members of the public under the Code and related statutes or information that, although not necessarily affecting the rights and duties of the public, should be a matter of public knowledge." A statement of procedure does not purport to be an official interpretation, and respondent does not argue here that the procedure is entitled to deference as an interpretation of section 6404. The revenue procedure, in respondent's terms, "provides guidance for circumstances" in which taxpayers may file a claim for abatement of interest that should have been suspended. Respondent argues only "an intuitive interpretation" of the procedural guidance.
There is no reasoning in support of the conclusion stated in the revenue procedure, and we discern none for distinguishing between section 6404(e) requests and section 6404(g) requests. Thus, the revenue procedure is not entitled to deference. See Exxon Mobil Corp. v. Commissioner, 689 F.3d 191, 200 (2d Cir. 2012), aff'g 136 T.C. 99, 117 (2011). A procedural pronouncement cannot restrict or revise section 6404(h). See Commissioner v. Schleier, 515 U.S. 323, 336 n.8 (1995); Estate of Kunze v. Commissioner, 233 F.3d 948, 952 (7th Cir. 2000), aff'g T.C. Memo. 1999-344. The wording and context of the statute, supplemented by more general legal principles, control.The Tax Court's reasoning seems to adopt the approach that statements of procedure are not entitled to any deference where the IRS does not state its reasoning. Although not involved in the case, if the IRS were to state its reasoning and the rule goes beyond being merely an internal procedural rule of governing only IRS administration, could the Revenue Procedure be entitled to some form of deference?
Here is my discussion of the general issue from my Federal Tax Procedure text:
g. Deference to Interpretations Other than By Regulation.
What does Chevron and its progeny tell us about the deference to be accorded agency interpretations other than regulations – Revenue Rulings and Revenue Procedures, for example?
The Supreme Court gave some guidance on this question in United States v. Mead Corporation. The Court addressed deference issues in the context of a customs ruling letter. The customs ruling letter has some features of a private letter ruling (“PLR”) which is issued by the IRS to a taxpayer to advise of the treatment the IRS will give a stated transaction. It also has some features of a published Revenue Ruling in the tax arena. The customs ruling letter and the PLR are issued without any notice and comment to the public. Customs ruling letters may be published but need only be made available for public inspection. PLRs are made available for public inspection, and published regularly by several private tax publishers. Customs ruling letters may not be relied upon by other persons, and, similarly, PLRs may not be relied upon by other taxpayers.
The Court held that customs ruling letters are not entitled to Chevron deference. The Court reasoned that Chevron deference arises only where it appears that Congress delegated authority (either explicitly or implicitly) to the agency to make rules with the force of law and the agency interpretation in issue was promulgated in the exercise of such authority. Regulations authorized by Congress are the classic type of agency interpretation entitled to Chevron deference. The Court could not find that the customs letter rulings were issued by the agency in the exercise of its delegated authority to promulgate rules with the force of law. But, the Court held, agency interpretations not qualifying for Chevron deference might still be entitled to some deference. The Court held that agency interpretations such as the customs ruling letter might qualify for Skidmore deference, a type of lesser deference originally articulated in the Supreme Court’s 1944 opinion in Skidmore v. Swift & Co. In Mead, The Court reasoned:
To agree with the Court of Appeals that Customs ruling letters do not fall within Chevron is not, however, to place them outside the pale of any deference whatever. Chevron did nothing to eliminate Skidmore's holding that an agency's interpretation may merit some deference whatever its form, given the “specialized experience and broader investigations and information” available to the agency, 323 U.S. at 139, and given the value of uniformity in its administrative and judicial understandings of what a national law requires, id., at 140. See generally Metropolitan Stevedore Co. v. Rambo, 521 U.S. 121 (1997) (reasonable agency interpretations carry “at least some added persuasive force” where Chevron is inapplicable); Reno v. Koray, 515 U.S. 50 (1995) (according “some deference” to an interpretive rule that “does not require notice and comment”); Martin v. Occupational Safety and Health Review Comm'n, 499 U.S. 144, 157 (1991) (“some weight” is due to informal interpretations though not “the same deference as norms that derive from the exercise of . . . delegated lawmaking powers”).
There is room at least to raise a Skidmore claim here, where the regulatory scheme is highly detailed, and Customs can bring the benefit of specialized experience to bear on the subtle questions in this case: [classification distinctions omitted]. A classification ruling in this situation may therefore at least seek a respect proportional to its “power to persuade,” Skidmore, supra, at 140; see also Christensen, 529 U.S. at 587; id., at 595 (STEVENS, J., dissenting); id., at 596-597 (BREYER, J., dissenting). Such a ruling may surely claim the merit of its writer's thoroughness, logic and expertness, its fit with prior interpretations, and any other sources of weight.
So, Skidmore seems to stand somewhere between no deference and Chevron deference. What does it mean that deference is accorded by the power to persuade? If the position set forth is intrinsically persuasive (including the indicated touchstones of thoroughness and consistency), does it need any deference in order to carry the day? Presuming the Court meant something in paying homage to Skidmore deference, perhaps it means that a court must give slight tilt in favor of an agency interpretation when it does not rise to the level required for Chevron deference.
What does Mead tell us about the other types of pronouncements? The Court said:
It is, of course, true that the limit of Chevron deference is not marked by a hard-edged rule. But Chevron itself is a good example showing when Chevron deference is warranted, while this is a good case showing when it is not. Judges in other, perhaps harder, cases will make reasoned choices between the two examples, the way courts have always done.
Mead made clear that regulations promulgated with notice and comment are not the only types of agency pronouncements entitled to Chevron deference. The Court said that, if the agency has been granted authority (either explicitly or implicitly) to make interpretations and is acting pursuant to that authority, then its interpretations will be entitled to Chevron deference. Where those conditions are not present, Skidmore deference may apply.
Let’s go back to Revenue Rulings? In the usual context where the taxpayer seeks to avoid the application of a Revenue Ruling and the IRS seeks to apply it, courts have adopted varying approaches. Let’s address that issue under the Chevron/Mead approach. Are Revenue Rulings entitled to Chevron deference? It is true that they are not subject to notice and comment, the hallmark of the traditional regulation. But a regulation is not required for Chevron deference. Can it be said as to Revenue Rulings, as the Court said in Mead, that: “It is difficult, in fact, to see in the agency practice itself any indication that Customs ever set out with a lawmaking pretense in mind when it undertook to make classifications like these?” Certainly, the IRS does provide guidance via Revenue Rulings. On the other hand, in issuing Revenue Rulings, the IRS purports only to state its position with respect to the assumed fact pattern and does not purport to be issuing an interpretation binding on taxpayers. Should therefore only Skidmore deference apply? I think it is a close case that can ultimately go either way, although the tilt now seems to be in favor of the more limited Skidmore deference.
For that reason (at least I suppose), DOJ Tax has announced that it will not assert Chevron deference for Revenue Rulings. It logically follows that the IRS will not assert Chevron deference for lesser authority IRS pronouncements (such as PLRs and other written determinations). Practitioners should not be lulled, however, because Skidmore deference may carry the day for the IRS.
Let’s consider Revenue Rulings and Revenue Procedures, the most formal forms of pronouncement short of Regulations. Here is my best cut to date as to the deference rules based on the assumption that Revenue Rulings and, by extension, Revenue Procedures are not entitled to full bore Chevron deference:
Substantive interpretations of the law in Revenue Rulings should receive Skidmore deference. Procedural rules in Revenue Procedures should be given at least Skidmore deference and perhaps even Chevron deference; substantive interpretations of the statute stated or assumed in Revenue Procedures should be given Skidmore deference only if it is clear that the IRS intended to state a substantive interpretation of the law as opposed to merely guiding agents on administratively processing audits. n261
n261 See Exxon Mobil Corp. v. Commissioner, 689 F.3d 191, 200 (2d Cir. 2012) (joining other courts rejecting Skidmore deference for a Revenue Procedure applying the interest netting statute that incorporate a substantive interpretation of the statute to require that both periods of limitation be open for netting; Skidmore was rejected not because Skidmore could or should not apply to such a substantive interpretation in a Revenue Procedure but because the Revenue Procedure stated no reasoning for the interpretation; Skidmore requires reasoning for deference); and Corbalis v. Commissioner, 142, T.C. ___, No. 2 (2014). See also Kathryn Sedo and Katrina Wessbecker, Should Courts Ever Give Deference to Revenue Procedures?, 134 Tax Notes 225 (Jan. 9, 2012) (arguing that Skidmore deference rather than Chevron deference is more appropriate for revenue procedures, particularly those that may state substantive rules). For an illustration of Revenue Procedures that some have interpreted as stating an interpretation of the law as opposed to just providing agent guidance as to when to raise the issue, see my Federal Tax Procedure Blog entry, Are Revenue Procedures Influential In Interpreting the Law: Of Profits / Carried Interests and Administrative Billion Dollar Largess (9/7/12) [here].
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