The Supreme Court this morning denied certiorari in Guedes v. Bureau of ATF, 920 F.3d 1, 7 (D.C. Cir. 2019), here, cert. den. 589 U.S. ___, ___ S. Ct. ___ (3/2/20), here. Guedes is not a tax case, but a case involving the definition of "machinegun" (under the National Firearms Act, 26 U.S.C. 5845(b)), the statutory term with the definition adopted under interpretive authority granted in IRC § 7805(a), through § 7801(a)(2)(A) which delegates authority to the Code’s tax provisions governing firearms to the Attorney General and a parallel delegation to the Attorney General in the Gun Control Act (18 U.S.C. § 926(a)). In adopting the new regulation defining the statutory word machinegun to include “bump stocks,” the Attorney General said that the definition was an interpretation, albeit a new one including bump stocks, of the governing statutory text–machingun and said that the definition was consistent with plain meaning of the text (Chevron Step One) but if not, then Chevron deference would apply (Chevron Step Two). (There is nuance on the Chevron Step Two analysis, see the next paragraph.) On appeal to the D.C. Circuit, the Government relied only on the plain meaning and did not rely upon Chevron deference. (There is also nuance there, see the next paragraph.)
In this regard, Chevron deference is meaningful only at Step Two and then only if the agency adopted interpretation is not persuasive to the court but otherwise within the zone of reasonable interpretations. See generally Townsend, John A., The Report of the Death of the Interpretive Regulation Is an Exaggeration (January 25, 2020). Available at SSRN: https://ssrn.com/abstract=3400489. In other words, if the statutory text is ambiguous at Step One and the court agrees with the agency reasonable interpretation at Step Two, there is no Chevron deference. Chevron deference applies only at Step Two where the court’s interpretation is different than the agency’s reasonable interpretation and the court adopts, by deference (known as Chevron deference), the agency reasonable interpretation. So, the government’s argument could prevail at either Chevron Step One (no ambiguity) or Chevron Step Two (ambiguity but agency definition is persuasive among reasonable interpretations). (I develop the limited scope of Chevron deference in the article by positing five categories of statutory interpretation, see the article breakdown on the categories and relevance to Chevron, with only the Fifth Category relevant to Chevron beginning on p. 65, here; in this regard, others have noted Chevron's limited scope, e.g., Nicholas R. Bednar & Kristin E. Hickman, Chevron's Inevitability, 85 Geo. Wash. L. Rev. 1392, 1398 (2017) ("Rhetoric notwithstanding, Chevron alone does not truly drive the outcome in most of the cases in which courts apply it.").
Taking that as the background, the D.C. Circuit opinion is confusing, to say the least. For a fuller discussion of Guedes, I refer readers to my article on p. 97, here. For present purposes, the D.C. Circuit treated the regulations interpretation as a legislative rule and accorded it Chevron deference although neither party requested Chevron deference for the interpretation. I have noted in my article that regulations interpretations of statutory text are interpretive rules, whether promulgated with notice and comment or not. Moreover, if indeed the rule in question were legislative, then it is tested under Chevron only as to the scope of the authority delegated, otherwise the regulation is the law and not an interpretation of the law. The law in Guedes is not the regulation, but the statutory term machinegun.
It is difficult to read anything, certainly anything meaningful, from a denial of certiorari, particularly on an interlocutory appeal such as Guedes. So, I won’t speculate about that. But, as often the case with cases involve a specter of ideological hot button issues, the denial has a discussion by a Justice with an ideological agenda. The ideological hot button is Chevron. In the immediately preceding blog, I discussed one such Chevron discussion, there a dissent by Justice Thomas to denial of certiorari. Baldwin Cert Denied with Justice Thomas' Rant on Chevron and My Rant on His Rant (Federal Tax Procedure Blog 2/24/20; 2/27/20), here.
I find Justice Gorsuch’s “Statement” in the Guedes's denial of cert confusing and so cryptic that I can offer little on it, other than it continues his stated ideological concerns about Chevron.
I thought it would be helpful to look to the Department of Justice Brief in Opposition, here, for more enlightenment without ideology (although DOJ is not without an ideological bent in some cases, but I doubt seriously that DOJ’s brief was ideological on the points I mention):
1. The regulation in issue was an interpretive regulation rather than a legislative regulation. (See Br. Opp. Pp. 13-14, 20-22.) Thus, DOJ says, for example: "ATF has never proceeded by legislative rule in determining whether particular devices are machine guns, it has not asserted the statutory authority to do so, and it did not do so here." The regulation is interpretive, period. The main thrust of my article linked above was to push against the claim made by a prominent scholar, Professor Kristin Hickman, that: "there are no Treasury regulations that are interpretative rules as that term is understood for purposes of the Administrative Procedure Act." (Article p. 3, here, quoted with permission.) If true, that claim would apply to other general authority agency regulations. I contrast that claim with Justice Breyer's claim in oral argument in Kisor v. Wilkie that "there are hundreds of thousands, possibly millions of interpretive regulations." (Article, p. 5, here.) DOJ is in the Justice Breyer camp on this issue.
2. As a result of being interpretive, the regulation does not have the “force and effect of law,” because “the only source of legal force for the prohibition on bump stocks is Congress’s statutory ban on new machineguns, not the rule itself.” (Id., p. 21.) Of course, the Government was not arguing for Chevron deference but interpretive rules may qualify for Chevron deference; the key point is that promulgation of an interpretive rule by notice and comment regulation does not give it the force of law because, as with all interpretive rules, the statutory text is the law. And that is true for interpretations in interpretive regulations given Chevron deference. I discuss the force of law distraction in my article beginning at p. 38, here.
3. “The agency issued the [interpretive] rule using notice-and-comment procedures, but that does not transform it into a legislative rule.” (Id., p. 21.) I discuss the notice and comment distraction in my article beginning at p. 44, here. DOJ cites no authority, but the proposition is so obvious that it saw no need to. It would be anomalous indeed if an agency could transform an interpretation valid only if reasonable with the scope of the ambiguity in statutory text (Chevron deference) into legislative rulemaking by simply adopting the interpretation in a notice and comment regulation. Keep in mind that legislative rules, which must be specifically authorized in the statute with an "intelligible principle" limiting the authority granted, make the law rather than just interpret the law and thus do actually have the force of law. So, if notice and comment regulations made them legislative regulations, the IRS through administrative legerdemain could give its interpretations much greater authority through its unilateral action. That, in my opinion, is not the law, just as DOJ asserts.
4. DOJ’s argument does get less crisp as it progresses in the Brief in Opp, but the foregoing were unequivocal statements totally consistent with the Traditional Understanding as I have discussed in the article and, I suspect, DOJ did not intend its subsequent discussion to be inconsistent with its earlier statements.
Finally, it is interesting that Justice Gorsuch apparently was unable to convince other Justices to join his Guedes "Statement." That phenomenon was also true of his most famous anti-Chevron sound bite: "There's an elephant in the room with us today." Gutierrez-Brizuela v. Lynch, 834 F.3d 1142, 1149 (10th Cir. 2016) (concurring), here. In Gutierrez-Brizuela, then-Judge Gorsuch wrote the panel opinion and the concurring opinion. He apparently wrote the concurring opinion because he wanted to say things he could not convince the other panel members to join. He starts the concurring opinion with the elephant in the room comment as a predicate to attacking Chevron and its step-child, Brand X. That sound bite has played well with those fearing the imagined evils of the administrative state, including those nurturing his nomination to the Supreme Court. See my article, p. 109 n. 422, here.
Added 3/5/20: Professor Hickman has written on the Justice Gorsuch's Guedes Statement in a joint posting on Notice and Comment and on Hickman's own blog, Of Interest. The post is: Kristin E. Hickman, Justice Gorsuch and Waiving Chevron (Notice & Comment 3/3/20), here, and (Of Interest 3/2/20), here. Professor Hickman's views are always worth considering. She doesn't address the issues I discuss above. She does discuss, obviously, Chevron waiver, and the intersection, if any, of Chevron and lenity. On both of those issues, I am somewhat agnostic without belief (at least belief worthy of belief) either way. I do sense, however, that the claims about inconsistency of Chevron and lenity are muddy. My notion, at least roughly, is that, while Treasury cannot through Chevron-entitled interpretive regulation under § 7201 change the definition of tax evasion, it could through Chevron-entitled interpretive regulation change a substantive provision of the Code (e.g., as in Correll, the away from home business expense) that could then form the basis for tax evasion--a known and knowable (a la James) legal duty the violation of which could be prosecuted as evasion. So, merely saying that an interpretation can have penal consequences does not mean that a Chevron-entitled regulation is invalid or violates the rule of lenity. And, when civil penalty consequences are considered, I think, for example, Treasury is empowered to affect by interpretive regulation how the accuracy related penalty in § 6662 applies. The § 6662(a) penalty applies to "Negligence or disregard of rules or regulations." All of the key terms in quote need some definition/interpretation. Most immediately, what are rules or regulations that can draw the penalty? Aren't interpretations required for that to properly apply. And, of course Treasury has regulations on that subject.
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