Really, Skidmore "Deference?" (5/31/20; 2/14/21)

Today, I discuss an interpretation “strategy”--that might not be the right word but bear with me--commonly called Skidmore deference, named for the interpretive process described in Skidmore v. Swift & Co., 323 U.S. 134 (1944), here. I provide links at the end of this blog to the pages in the current (2019) editions of my Federal Tax Procedure book (both 2019 editions)  and to key offerings from this blog that readers might want to read to pursue my thoughts on Skidmore, along with others' thoughts cited therein. These offer background and some overlap on what I discuss today.

I start with my definition of deference. This is in the context of Chevron but applies equally to Skidmore:

Deference is a court applying a reasonable agency interpretation of ambiguous statutory text despite the court’s belief that there is a more reasonable interpretation of the ambiguous statutory text.

This is my definition. I don’t think that it is controversial in the context of Chevron. (Nothing in my definition is original to me; the core concept has been expressed frequently and, so far as I am aware, unanimously (at least extrapolating from the small but, I think, representative cases I have read over the years).)

Chevron requires that a court apply a reasonable agency interpretation despite believing that there is a more reasonable interpretation which the court would apply if Chevron did not command deference. That deference is outcome determinative as to the interpretation in issue.  

But does Skidmore demand deference in this sense? Answering that question requires that we actually read Skidmore. here. Since Skidmore is the law, we should always start with the law. (As Justice Frankfurter is reported to have said, the cardinal rules for statutory interpretation are: “(1) Read the statute; (2) read the statute; (3) read the statute!” Henry J. Friendly, Mr. Justice Frankfurter and the Reading of Statutes, in Benchmarks 196, 202 (1967) (quoting Justice Frankfurter); so, where the case is the law, then read the case, read the case, read the case. The Court said in Skidmore (p. 140):

We consider that the rulings, interpretations and opinions of the Administrator under this Act, while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance. The weight of such a judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.

Suspensions of Statute of Limitations Make Collection Suit Timely (5/27/20)

In United States v. Weiss (E.D. Penn Dkt. 19-502 Order dated 5/21/20), here [GS here], the Court denied the taxpayer’s statute of limitations defense in a collection suit where the Government seeks judgment on the assessment.  The issue was whether the Government timely filed its suit to obtain judgment on assessments based on delinquent returns filed on October 10, 1994.  The assessments were made later in October 1994.  Those assessments triggered the 10-year collection statute of limitations under § 6502(a)(1).  The Government brought the collection suit on February 5, 2019, over 14 years after the collection statute would have normally expired on in October 2004.  The devil, of course, is in the word "normally."  The IRS cannot unilaterally extend or suspend the statute of limitations, but the taxpayer can take actions that will do so.  The trajectory of those actions are what caused the collection suit to be timely.

In my view, there is nothing particularly surprising in the way the Court pieced together the events causing the suspensions to apply over the years.  Although not surprising, the trajectory is a good lesson particularly for students trying to understand how suspensions work.  Indeed, I used to teach these in my class, with examples, and then, on the exam, would have a fact pattern starting with a notice of deficiency through the Tax Court proceeding and appeal (including a petition for certiorari) and ask the students to answer the earliest date the IRS could assess and the latest date the IRS could assess.  For each answer I wanted a specific date and then the relevant Code section(s), with any further explanation the student desired.  Usually the Code section(s) would be sufficient to tell me that they had the basis for the answer.

So, this case reminded me of my teaching and examinations.  For students of tax procedure the case is a good read.  I won’t summarize it because it is fairly short and well written.  I will say that the key legal issue is whether a petition for certiorari is an appeal that is within the suspension period for appeals under § 6330(e)(1), here.  So, I offer the facts from the opinion (these are just the facts, with references to Code and Regulations sections, usually in footnotes, omitted).  I invite readers to perform their own analysis of the statute suspensions (Note that I am including in the block quote below only the facts I think pertinent for the analysis and am using the cleaned up technique to eliminate discussion not relevant to the fact trajectory):

Excellent Blog Postings on the State of the Altera Petition for Certiorari (5/22/20)

Readers of this blog may be interested in an excellent cross-posting by Professors Susan Morse (Texas) and Stephen Shay on the state of play and their views on Altera.  See Pending Cert Petition in Altera: Tax Law in an Administrative Law Wrapper (Procedurally Taxing Blog 5/22/20), here and Pending cert petition in Altera: tax law in an administrative law wrapper, by Susan C. Morse and Stephen E. Shay (Notice & Comment 5/22/20), here.  I highly recommend the offerings (reading either of them is obviously sufficient).  The authors contributed to an amicus brief opposing certiorari, so they summarize their view of the case.

JAT Comments:

1. The petition for cert and the S.G.’s brief in opp may be viewed, along with amicus briefs, at the SCOTUSblog site here.  Altera's reply, if any, has not been filed yet.

2. I posted a comment on the Procedurally Taxing Blog posting.  My comment, beside saying that the posting was excellent, was in the form of questions on perhaps side issues that piqued my interest after reading the offering.  Readers can see my comments here.

Article On Justice Scalia's Modest Success and/or Failure to Persuade Other Judges to Reject Legislative History in Statutory Interpretation (5/16/20)

Readers of this blog may be interested in a recent Draft of a Law Review article recently posted to SSRN.  Stuart Minor Benjamin and Kristen Renberg, The Paradoxical Impact of Scalia's Campaign Against Legislative History 157 (SSRN 2020), for publication in Cornell Law Review, Vol. 105, No. 4, 2020, here; see also the SSRN Abstract, here,; and a summary of the article in Stuart Benjamin, In His Advocacy Against Legislative History, Did Scalia Get Half a Loaf, or None at All? (The Volokh Conspiracy 5/15/20), here.

Here is the SSRN Abstract:

Beginning in 1985, Judge and then Justice Antonin Scalia advocated forcefully against the use of legislative history in statutory interpretation. Justice Scalia’s position, in line with his textualism, was that legislative history was irrelevant and judges should not invoke it. Reactions to his attacks among Justices and prominent circuit judges had an ideological quality, with greater support from ideological conservatives. In this Article, we consider the role that political party and timing of judicial nomination played in circuit judges’ use of legislative history. Specifically, we hypothesize that Republican circuit judges were more likely to respond to the attacks on legislative history than their Democratic counterparts, and that judges who joined the bench during or after these attacks were more likely to be influenced than their counterparts who were appointed before the attacks. Utilizing a dataset containing all published federal appellate court majority opinions between 1965 and 2011 (more than 240,000 opinions), we find that, for both hypotheses, the judges whom we would expect to be more influenced by the attacks on legislative history were in fact less likely than their counterparts to cite statements from floor debates or committee hearings, traditionally regarded as among the least reliable forms of legislative history. But they were more likely than their counterparts to cite committee reports, traditionally regarded as the most reliable form of legislative history. The attacks on legislative history thus seem to have had the effect of pushing judges who might be expected to be influenced to (re)examine their treatment of legislative history but not (as Scalia had advocated) to ignore it. Instead, they adopted what had been the consensus approach for most of the twentieth century. Scalia influenced, but he did not persuade.

And here is the Conclusion from the Article (pp. 158-159, footnotes omitted):

Tax Court Sustains Key Conservation Easement Regulation But Wobbles on Legislative/Interpretive Regulation Issue (5/14/20; 5/26/20)

In Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. 180 (2020) (reviewed opinion), here, the Tax Court upheld the Treasury Regulation’s interpretation of § 170(h)(5)’s requirement that the easement be “protected in perpetuity.”  The Court first held (Slip Op. 9-25) that the promulgation process was not procedurally defective, it was not arbitrary or capricious.  The Court next held (Slip Op. 26-33) that the interpretation met Chevron’s Step Two test that it reasonably interpret the ambiguous statutory text and was therefore entitled to deference.

In reaching its conclusions, the majority opinion treated the regulation as a legislative regulation.  I think the Court was wrong in doing so and will summarize my reasons.  But, I think that if the Court had properly treated the interpretation as an interpretive regulation, it would have gone through the same process–i.e., it would have found the promulgation of the interpretive regulation to be procedurally proper and it would have found the interpretation a reasonable interpretation of the statute under Chevron Step Two.

So, my quibble over the proper characterization of the regulation interpretation of the “protected in perpetuity” statutory requirement would not, if correct, reach a different result.

What the Court did not find and could not find was an express congressional delegation of legislative rulemaking authority such as, in the quintessential tax example, the delegation of authority in § 1502 to promulgate consolidated return regulations that are the law.  Section 1502 is a delegation to the IRS to make the law and not just to interpret the text of § 1502.

Rather, all the Tax Court could find was (i) ambiguity in the statutory term “protected in perpetuity” and (ii) a regulation fleshing out details of that statutory text in a way the Court found reasonable in Chevron Step Two (although presenting the Chevron analysis as arbitrary and capricious review).  In this respect, the regulation interpretation of “protected in perpetuity” is like one of the classic interpretive regulations approved by the Supreme Court in United States v. Correll, 389 U.S. 299 (1967) where the regulation interpreted the statutory term “away from home” for business expense deduction to require sleep or rest.

The Court’s reasoning, after positing glittering generalities about the difference between legislative and interpretive regulations was (Slip Op. 17):

Because the regulation imposes a requirement not explicitly set forth in the statute, it is appropriately treated as a legislative rule.

Tenth Circuit Wobbles on Legislative / Interpretive Distinction (5/13/20)

In Aposhian v. Barr, 374 F. Supp. 3d 1145 (D. Utah 2019), here, the Court consider a challenge to the bump-stock rule similar to the challenge rejected in Guedes v. Bureau of ATF, 920 F.3d 1 (D.C. Cir. 2019), cert. den. 589 U. S. ____ (2020), ___ S.Ct. ___ (2020).  In part relevant to what I want to discuss, the district court said (pp. 1150-1151, footnote omitted and emphasis supplied):

Mr. Aposhian argues that the Final Rule was issued in excess of statutory jurisdiction because the NFA does not vest the Attorney General or the ATF with rulemaking authority. In response, the defendants argue, and the court agrees, that the Final Rule does no more than interpret undefined statutory terms. Although the Attorney General and ATF promulgated their interpretations through the more laborious, formal notice-and-comment process, the use of that procedure does not alter the Final Rule's interpretive character. And Mr. Aposhian does not dispute that the ATF, under the direction of the Attorney General, is empowered to interpret and administer both the NFA and the GCA. See Pl.'s Mot. for Prelim. Inj. (ECF No. 10 at 6); 18 U.S.C. § 926(a); 26 U.S.C. § 7801(a)(2); Guedes v. ATF, 356 F.Supp.3d 109, 129 n.3 (D.D.C. 2019) (rejecting challenges to the Final Rule's interpretations and the ATF's interpretive authority, noting the "ATF's clear authority to interpret and administer" the relevant statutes).

I think the district court was correct in its understanding that using the notice and comment procedure for interpretative rulemaking (as opposed to legislative rulemaking) does not transform an interpretive rule into a legislative rule.

Aposhian has been affirmed on appeal.  Aposhian v. Barr, 958 F.3d 969 (10th Cir. 5/7/20), GS here.  But in a way that seems to reject the reasoning of the district court that I discuss above.  Here is where I think the Court of Appeals wobbles in its analysis (958 F.3d at 980-981):

Initially, the applicability of Chevron depends on what kind of rule the Final Rule represents. There is a "central distinction" under the APA between legislative rules and interpretive rules. Chrysler Corp. v. Brown, 441 U.S. 281, 301 (1979); see 5 U.S.C. § 553(b), (d). Legislative rules generally receive Chevron deference, whereas interpretive rules "enjoy no Chevron status as a class." United States v. Mead Corp., 533 U.S. 218, 232 (2001). 

A legislative rule is one that "is promulgated pursuant to a direct delegation of legislative power by Congress and . . . changes existing law, policy, or practice." Rocky Mountain Helicopters, Inc. v. F.A.A., 971 F.2d 544, 546 (10th Cir. 1992). A legislative rule affects individual rights and obligations, and, if it is "the product of certain procedural requisites," it has the force and effect of law. Chrysler Corp., 441 U.S. at 301-02. An interpretive rule, on the other hand, "attempts to clarify an existing rule but does not change existing law, policy, or practice." Rocky Mountain Helicopters, 971 F.2d at 546-47. An interpretive rule simply "`advise[s] the public of the agency's construction of the statute and rules which it administers.'" Sorenson Commc'ns, Inc. v. F.C.C., 567 F.3d 1215, 1222 (10th Cir. 2009) (quoting Shalala v. Guernsey Mem. Hosp., 514 U.S. 87, 99 (1995)). 

The government contends—and the district court found—that the Final Rule is merely interpretive. See Aple. Br. at 37-38; Aplt. App. at 176. But "[t]he agency's own label for its action is not dispositive." Sorenson, 567 F.3d at 1223. Instead, "[t]he court must rely upon the reasoning set forth in the administrative record and disregard post hoc rationalizations of counsel." Id. at 1221. Here, "[a]ll pertinent indicia of agency intent confirm that the [Final] Rule is a legislative rule." Guedes v. Bur. of Alcohol, Tobacco, Firearms & Explosives, 920 F.3d 1, 18 (D.C. Cir. 2019) (reviewing the Final Rule under the Chevron framework).

Certiorari Granted in CIC Servs on AIA Application to Pre-enforcement Guidance Challenges (5/12/20)

I have previous written on CIC Services LLC v. IRS, 925 F.3d 247 (6th Cir. 2019), reh. den.  936 F.3d 501 (6th Cir. 2019).  See CIC Servs Petition for Rehearing En Banc Petition Denied with Hyperbolic Concurring and Dissenting Opinions (Federal Tax Procedure Blog 8/29/19; 8/31/19), here.  The Supreme Court granted certiorari in May 4, 2020 to consider the following issue ((See SCOTUSBLOG page on the case, here):

Whether the Anti-Injunction Act’s bar on lawsuits for the purpose of restraining the assessment or collection of taxes also bars challenges to unlawful regulatory mandates issued by administrative agencies that are not taxes.

I have not spent a lot of time on this blog addressing the Anti-Injunction Act (“AIA”), § 7421(a), or the parallel tax exception to the Declaratory Judgment Act, 28 U.S.C. § 2201, which generally is interpreted coterminously with the AIA.  With this acceptance of certiorari, the AIA will likely be a large topic of interest in the near future, although a decision will not likely appear until 2021.

For the time being , I cut and paste some excerpts from the current working draft of my Federal Tax Procedure Book (footnotes omitted, but the footnotes are offered in a pdf version here):

Excerpts from Working Draft of Federal Tax Procedure Book, for August 2020 Publication.

a. Litigating IRS Interpretations and Other Guidance.

For most agency guidance, particularly guidance in a binding format such as legislative regulations, affected parties have an opportunity to raise procedural challenges in court under the APA upon promulgation of the guidance and before the agency attempts to enforce the guidance against the affected parties.  The statute of limitations for such review is the general six-year statute of limitations in 28 U.S.C. § 2401(a).  However, for Treasury guidance documents (both regulations and subregulatory), such pre-enforcement litigation challenges are prohibited under the Anti-Injunction Act (“AIA”), § 7421(a), and related statutory and common law prohibitions (discussed below starting on p. ?) which have historically channeled tax litigation, including challenges to agency guidance, into post-enforcement litigation venues such as deficiency, refund or collection suits. Those post-enforcement venues have their own statutes of limitations triggered by the enforcement being challenged (e.g., a deficiency notice, denial of a claim for refund, or collection action).  Accordingly, historically, litigation challenging IRS agency guidance has not been allowed for pre-enforcement procedural challenges. If § 2401(a) were applicable, post-enforcement review would not be adequate for APA procedural challenges in tax litigation because, in most cases, the six-year statute would have expired before IRS enforcement action made the case ripe for the traditional tax challenge venues.  As a result, the general six-year statute of statute of limitations in § 2401(a) has not barred procedural challenges to IRS guidance in post-enforcement cases outside the six-year period in § 2401(a).

Notwithstanding the foregoing, in 2020, the Supreme Court accepted certiorari in CIC Services LLC v. IRS, 925 F.3d 247 (6th Cir. 2019), reh. den.  936 F.3d 501 (6th Cir. 2019) to address the following question:

Whether the Anti-Injunction Act’s bar on lawsuits for the purpose of restraining the assessment or collection of taxes also bars challenges to unlawful regulatory mandates issued by administrative agencies that are not taxes.

The IRS “regulatory mandate” in question was Notice 2016-66 designating section 831(b) micro-captive transactions” as transactions of interest, thereby imposing a reporting requirement on all such transactions and their advisors. The Notice was not issued with notice and comment.  CIC sought to challenge the Notice in advance of any actual enforcement against CIC. There will undoubtedly be more learning on this subject in the next edition of this Book.

Tax Court Conflates Standards for Testing Interpretive and Legislative Regulations (5/7/20; 5/11/20)

In Whirlpool Financial Corp. v. Commissioner, 154 T.C. ___ No. 9 (2020), here, the Tax Court (Judge Lauber) held that income from a foreign manufacturing and sales structure was foreign base company sales income (FBCSI) under § 954(d).  Whirlpool’s tax shenanigans to avoid that result failed.  I won’t get into the details of the underlying tax issues.  I focus here on the Court’s explanation of how it applied Chevron to approve a regulation interpretation that was important to the result.

The Court discusses the Chevron analysis at Slip Op. pp. 54-62.  The regulation in question interpreted § 954(d)(2).  Although the Court did not state whether the regulations were interpretive or legislative regulations, it seemed to treat the regulations as interpretive regulations, testing the regulations under “the familiar two-step test of Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984).”  (Slip Op. p. 54.)  As I have noted before, Chevron applies to an interpretive regulation, ultimately testing the reasonableness of an agency interpretation of ambiguous statutory text.  The questions are (i) is the interpretation within the scope of the statutory ambiguity and (ii) is the interpretation reasonable (sometimes called permissible).  By contrast, legislative regulations (such as the consolidated return regulations) are the law within the scope of the delegation and are not interpretations of the law, so testing a legislative regulation for reasonableness of the interpretation is an oxymoron.  Rather, legislative regulations are tested under the arbitrary, capricious or manifestly contrary to the statute standard under 5 U.S.C. § 706(2)(A); and Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983), focusing on the procedural regularity of the regulations promulgation process.  Questions I sometimes ask to those I engage on the subject are:  Do courts defer to statutes (deference being meaningful only to interpretations of statutes)? Since legislative regulations within the scope of the authority granted are the law just as if they were statutes and are not interpretations of the law, how exactly does a court defer to the legislative regulation?

As other courts have misread Chevron and subsequent cases, the Court conflated the two standards.  But, they are not the same standard, and the two standards do not apply to the same type of regulation.  I cite readers to my article, John A. Townsend, The Report of the Death of the Interpretive Regulation Is an Exaggeration (SSRN 1/25/20), here.  (Caveat, the main theme of the article and the points I make in this blog are rejected by many, if not most, scholars addressing the issue, as I note in setting up the discussion in the article; if error there be in my view, I still stick with it.)

These are the parts of Judge Lauber’s opinion that I think improperly conflate (or at least confuse) the two standards: