True or False: "Treasury and the IRS do not have a great history of complying with APA procedures" (8/5/20; 10/27/22)

I have substantially revised this blog entry to address the issue of Chevron's period of being controversial.  In my original posting, I suggested that, despite claims to the contrary, Chevron was not always controversial.  The modifications here clarify that deference to reasonable agency interpretations of statutory text was not controversial, particularly at the Supreme Court level, pre-Chevron and then post-Chevron until fairly recently.  I provide more nuance on that claim and cite to academic "controversy" much longer than the core concept began certain Supreme Court Justices' recent noisings about Chevron deference.  I indicate in red (sort of like red-lining) the significant revised statements.

As I previously blogged, the Supreme Court granted the petition for writ of certiorari in CIC Services LLC v. IRS, 925 F.3d 247 (6th Cir. 2019), here, reh. den.  936 F.3d 501 (6th Cir. 2019), cert. granted 2020 U.S. LEXIS 2605 (U.S., May 4, 2020).  See Certiorari Granted in CIC Servs on AIA Application to Pre-enforcement Guidance Challenges (Federal Tax Procedure Blog 5/12/20), here.  The question in the Supreme Court is:

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.

Basically, the issue is whether the affected public (generally referred to in a tax context as “taxpayers”) may litigate IRS positions that may have penalty consequences soon after the IRS publishes the positions in some type of guidance document or must await enforcement of the penalties which may be years after publication.  Historically, taxpayers must await enforcement of IRS tax positions because of certain policies related to the need for prompt collection of revenue.  Those policies are most prominently seen in the Anti Injunction Act, § 7421(a), the focus of CIC.

There is a general rule in administrative law that agency positions may be challenged in pre-enforcement litigation.  That general rule may be subject to exceptions.  In the tax arena, that general rule has not applied for fiscal imperatives embodied in legislation, particularly the Anti-Injunction Act, § 7421(a), playing prominently in CIC.  I will not delve further into the merits of the issue the Supreme Court will consider.

But I do want to address something that I think is misinformation in the trajectory of CIC that may bleed into the Supreme Court’s consideration.  The original panel opinion in CIC, here, concluded with something like a lament that it drew from a law review article as follows (pp. 258-259):

The broader legal context in which this case has been brought is not lost on this Court. Defendants "do not have a great history of complying with APA procedures, having claimed for several decades that their rules and regulations are exempt from those requirements." Hickman & Gerska (sic), supra, at 1712-13. And despite the jurisdictional nature of this appeal, Plaintiff has made its thoughts on the merits abundantly clear, emphasizing that "Notice 2016-66's Issuance and Enforcement is an Obvious Violation of the APA." (Reply Brief for Appellant at 4.) But that does not  in and of itself give federal district courts subject matter jurisdiction over suits seeking to enjoin the assessment or collection of taxes. Absent further instruction from Congress or the Supreme Court, such suits are barred by the AIA.

The article cited is Kristin E. Hickman & Gerald Kerska, Restoring the Lost Anti-Injunction Act, 103 Va. L. Rev. 1683, 1686 (2017), here.  (In the quote, the Court does misspell Kerska, which is surprising because it got the spelling right when citing the article earlier in the opinion; and the misspelling may have been corrected by the time the case was printed for F.3d.)

The issue I address is the quoted proposition asserted in the article and apparently accepted by the Sixth Circuit panel.  To repeat that proposition is:  “Treasury and the IRS do not have a great history of complying with APA procedures, having claimed for several decades that their rules and regulations are exempt from those requirements.”  The Sixth Circuit thought the claim so significant that it quoted it in the conclusion to the opinion.  I think the claim is wrong.

The article authors’ claim, as quoted, is in the portion of their article for outline 1.B., titled Why the Conflict Matters, beginning on p. 1713, here.  For the claim as quoted, the authors offer no supporting footnote, but rather, apparently, support the claim in subheading 1, titled A History of Loose Administrative Procedure Act Compliance, at pp. 1713-1717.  Basically, the support is Professor Hickman’s oft repeated claim, based on notions of “force of law,” that regulations (such as Treasury Regulations) that do no more than interpret ambiguous statutory text are legislative regulations rather than interpretive regulations; indeed, Professor Hickman’s claim is that the category of interpretive Treasury regulations just do not exist anymore.  If Professor Hickman’s claim is correct, then the statement in the article that was quoted by the CIC court is correct.

The core claim, however, in my view, is not correct and thus the claim adopted the CIC court is not correct.  I have addressed Professor Hickman’s core claim about interpretive regulations in my article, The Report of the Death of the Interpretive Regulation Is an Exaggeration (last revised 1/25/20), posted on SSRN, here.  Basically, in summary, the Treasury and IRS have long claimed that most Treasury regulations are interpretive regulations (particularly regulations under § 7805(a)) that the APA specifically exempts from the notice and comment and prospectivity required for legislative regulations).  If the Treasury and IRS claim is correct, then, the claim that “Treasury and the IRS do not have a great history of complying with APA procedures, having claimed for several decades that their rules and regulations are exempt from those requirements” is incorrect.  Complying with an exemption from certain APA requirements is compliance with the APA.

That is really the core of my complaint with CIC’s embrace of what I think is an erroneous statement.  I do recognize the issue turn upon whether Professor Hickman and others making the same claim are correct in claim about the death of Treasury and IRS interpretive regulations or my claim that interpretive regulations remain a viable category under the APA.  If Professor Hickman is right in her claim,  the statement embraced by the CIC court is correct; if Professor Hickman is wrong in her claim, that her claim as embraced by the CIC panel is incorrect.

There is one other matter that I think is somewhat related.  The argument in my article relies significantly on the history of deference, including the pre-Chevron history and shows a relatively stable line of support for the core deference concept that a court should defer to reasonable agency interpretations of ambiguous statutory text.  Chevron simply brought that core concept forward with a regularized process (the Chevron two-step, often call Framework) for determining when deference should be accorded.  In my article linked above, I trace the pre-Chevron history, particularly for tax cases, where the Supreme Court held that deference was warranted for reasonable IRS regulations interpretations of ambiguous statutory text.  There is similar pre-Chevron history for other agency interpretations.  For a good treatment of the history, see Craig Green, Chevron Debates and the Constitutional Transformation of Administrative Law, 88 Geo. Wash. L. Rev. 654 (2020), here,   Importantly, no Justice participating in Chevron, a unanimous opinion, including prominently the author (Justice Stevens), thought Chevron was particularly exceptional except in bringing order to via the Chevron Framework .  (Indeed, to the extent that Chevron may be conceptualized as a single step (either Step One or Step Two) to just defer to reasonable agency interpretations of statutory text, that is what the Court said in a number of cases pre-Chevron; Chevron's innovation was regularizing the process for when deference applied,)

[Caveat added 10/27/22:  I have refined Chevron deference rather than requiring deference to reasonable agency interpretations to requiring Chevron deference to reasonable not best agency interpretations.  Best interpretations of the statute need no deference; thus deference is outcome determinative only where a court adopts a not best agency interpretation over the court's own best interpretation determination. See e.g., What is the Best Interpretation for Purposes of Determining a Not Best Interpretation for Chevron Deference? (10/21/22; 10/25/22), here.]

As Justice Scalia (an administrative law scholar not on the Court when Chevron was decided but joining the Court by the time of this statement) said:

It should not be thought that the Chevron doctrine-except in the clarity and the seemingly categorical nature of its expression-is entirely new law. To the contrary, courts have been content to accept "reasonable" executive interpretations of law for some time. 

Antonin Scalia, Judicial Deference to Administrative Interpretations of Law, 1989 Duke L.J. 511 512, here.  

Professor Hickman has claimed on several occasions that “Chevron has always been controversial.”  E.g., Nicholas R. Bednar & Kristin E. Hickman, Chevron's Inevitability, 85 Geo. Wash. L. Rev. 1392, 1397 (2017).  As stated, it would seem that the start date for “always” is the date of the Chevron decision rather than the date of deference to agency reasonable agency interpretations which goes back well into the 1800s.  However, I think that, on the date of Chevron, the claim is incorrect.  At least on the Supreme Court, Chevron was not controversial when Chevron was decided—it was a unanimous opinion with Justices Marshall, Rehnquist and O’Connor not participating in the decision.  No controversy there, so we know that controversy about Chevron deference was not present at the inception of Chevron, at least not on the Supreme Court.  (Of course, Chevron simply brought forward the core concept of deference long-preceding Chevron, hardly a controversial concept pre-Chevron; I won’t get into that history, because I am addressing the claim as stated that Chevron has always been controversial, which would put the start date in 1984.)

Moving past the date of the Chevron decision, can we identify precisely when the core concept of Chevron deference became controversial at least at the Supreme Court level.  I can offer support for the proposition that Chevron deference became controversial on the Court after 1989.  In 1989 (5 years after Chevron), Justice Scalia penned a foundational article supporting the core concept of Chevron deference.  Antonin Scalia, Judicial Deference to Administrative Interpretations of Law, 1989 Duke L.J. 511, here.  To repeat that core concept:  Deference is accorded reasonable agency regulations interpretations of ambiguous statutory text.

In Justice Scalia’s article, Justice Scalia does state that some of the nuance of Chevron deference is subject to “lively debate” on the Court, but the debate he identified went to nuance in the application rather than debate about the core concept that courts defer to reasonable agency interpretation of ambiguous statutory text.  Justice Scalia thus said that the debate centered “largely on the question whether it applies with full force (as I believe it does) when the controversy involves a ‘pure question of statutory construction.’” Id. at 512, here.  In the supporting footnote (fn. 6), Justice Scalia discusses Justice Stevens’ majority opinion and Justice Scalia’s concurring opinion in INS v. Cardoza-Fonseca, 480 U.S. 421 (1987).  Readers will recall that Justice Stevens was the author of Chevron and that Justice Scalia was the only administrative law scholar on the court.  Those majority and concurring opinions establish only that there were disagreements in the application of Chevron, but those disagreements did not go to the core concept, before and after Chevron, that courts defer in some cases to reasonable agency interpretations of ambiguous statutory text rather than approach each interpretive issue de novo with no tilt in favor of or against agency interpretation.

My understanding is that controversy about the core Chevron concept (really the core concept of deference pre-Chevron) did not begin at the Court until after the 2010s.  To be sure, some scholars began noising around before and after Chevron was decided about possible inconsistencies of deference to agency interpretations with other core concepts, such as:  (i) Justice Marshall's statement in Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177 (1803), that “[i]t is emphatically the province and duty of the judicial department to say what the law is;" (ii) the APA requirement in 5 USC § 706 that "decide all relevant questions of law, interpret constitutional and statutory provisions;" and (iii) nondelegation.  E.g., Cynthia R. Farina, Statutory Interpretation and the Balance of Power in the Administrative State, 89 Colum. L. Rev. 452 (1989), here; and Thomas W. Merrill, Judicial Deference to Executive Precedent, 101 Yale L.J. 969 (1992), here.  But the current commotion, involving some Justices on the Supreme Court, is "surprisingly recent."  Craig Green, Chevron Debates and the Constitutional Transformation of Administrative Law, 88 Geo. Wash. L. Rev. 654 (2020). The problem is that the Justices knew and have known of those concerns (certainly Justice Scalia did) and I think it fair to infer that the others did as well) and have long concluded that deference was consistent with those other concepts.  

Justice Kagan said it even stronger in the context of Auer deference (but analytically the same as Chevron deference for testing § 706 (Kisor v. Wilkie, ___ U.S. ___, 139 S.Ct. 2400, 2419-2420  (2019)):  

    And even when a court defers to a regulatory reading, it acts consistently with Section 706. That provision does not specify the standard of review a court should use in "determin[ing] the meaning" of an ambiguous rule. 5 U.S.C. § 706. One possibility, as Kisor says, is to review the issue de novo. But another is to review the agency's reading for reasonableness. To see the point, assume that a regulatory (say, an employment) statute expressly instructed courts to apply Auer deference when reviewing an agency's interpretations of its ambiguous rules. Nothing in that statute would conflict with Section 706. Instead, the employment law would simply make clear how a court is to "determine the meaning" of such a rule—by deferring to an agency's reasonable reading. Ibid. Of course, that is not the world we know: Most substantive statutes do not say anything about Auer deference, one way or the other. But for all the reasons spelled out above, we have long presumed (subject always to rebuttal) that the Congress delegating regulatory authority to an agency intends as well to give that agency considerable latitude to construe its ambiguous rules. See supra, at 2411-2414. And that presumption operates just like the hypothesized statute above. Because of it, once again, courts do not violate Section 706 by applying Auer. To the contrary, they fulfill their duty to "determine the meaning" of a rule precisely by deferring to the agency's reasonable reading. See Sunstein & Vermeule, The Unbearable Rightness of Auer, 84 U. Chi. L. Rev. 297, 306 (2017) (If Congress intends "that the meaning of a regulation turns on the agency's interpretation of its meaning," then courts comply with Section 706's command to "`determine the meaning' [of the regulation] by deferring to that view"); cf. Arlington, 569 U.S. at 317, 133 S.Ct. 1863 (ROBERTS, C. J., dissenting) (similarly addressing why Chevron deference comports with Section 706). Section 706 and Auer thus go hand in hand.

    That is especially so given the practice of judicial review at the time of the APA's enactment. Section 706 was understood when enacted to "restate[] the present law as to the scope of judicial review." See Dept. of Justice, Attorney General's Manual on the Administrative Procedure Act 108 (1947); see also Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 435 U.S. 519, 546, 98 S.Ct. 1197, 55 L.Ed.2d 460 (1978) (noting that this Court gives some deference to the Manual "because of the role played by the Department of Justice in drafting the legislation"). We have thus interpreted the APA not to "significantly alter the common law of judicial review of agency action." Heckler v. Chaney, 470 U.S. 821, 832, 105 S.Ct. 1649, 84 L.Ed.2d 714 (1985) (internal quotation marks omitted). That pre-APA common law included Seminole Rock itself (decided the year before) along with prior decisions foretelling that ruling. See supra, at 2411. Even assume that the deference regime laid out in those cases had not yet fully taken hold. At a minimum, nothing in the law of that era required all judicial review of agency interpretations to be de novo. Cf. Manning, Constitutional Structure and Judicial Deference to Agency Interpretations of Agency Rules, 96 Colum. L. Rev. 612, 635-636 (1996) (arguing that courts before the APA used "flexible, common law methods to review administrative action"). And so nothing suggests that Section 706 imposes that requirement. Or otherwise said: If Section 706 did not change the law of judicial review (as we have long recognized), then it did not proscribe a deferential standard then known and in use. 

This quote from Kisor opinion is from Kagan's plurality opinion, with this portion joined by Justices Ginsburg, Breyer and Sotomayor.  Tellingly, the two administrative law scholars on the court--Justices Kagan and Breyer, agreed with the statement.  

Given that four Justices agree with that portion of the Kisor opinion, the reference at the end of the first quoted paragraph to Justice Roberts' opinion in City of Arlington v. FCC, 569 U.S. 290, 317 (2013) means that a majority of the Court is on record rejecting the claimed inconsistencies of deference with Marbury, § 706 and, by inference, nondelegation.  In City of Arlington, Justice Roberts was clear that Chevron deference was not contrary to either Marbury or § 706 because, under Chevron's construct, Congress had delegated the interpretive power to the agency.  Id., citing and quoting Henry P. Monaghan, Marbury and the Administrative State, 83 Colum. L. Rev. 1, 27-28 (1983) (“the court is not abdicating its constitutional duty to ‘say what the law is’ by deferring to agency interpretations of law: it is simply applying the law as ‘made’ by the authorized law-making entity”). 

To be sure, Chevron is now controversial, playing prominently in conservative/libertarian political dogma railing against the administrative state.  I advert to that in my SSRN  article linked above as follows (p. 75 n. 296, here): 

In the current political environment, many view Chevron deference (and related Auer deference) with suspicion, indeed making it a scapegoat for perceived ills of the administrative state. E.g., Jeremy W. Peters, Trump’s New Judicial Litmus Test: Shrinking the Administrative State (NYT 3/26/18) [here]; and Cass R. Sunstein and Adrian Vermeule, The Unbearable Rightness of Auer, 84 U. Chi. L. Rev. 297, 299 (2017) (asserting that “the issue of Auer deference appears to be a stalking horse for much larger game—namely, a wholesale critique of the administrative state.”). Principally, the articulated concern is that, through deference, Chevron empowers the Executive branch agencies to take over responsibilities  constitutionally assigned to either Congress or the Courts. Some jurists, principally of the conservative/libertarian persuasion, have groused about Chevron and Auer. Not to be left out, some legislators have introduced bills to weaken or eliminate Chevron deference. 

It is interesting to me that those Justices (and many scholars) now claiming that there is some basic problem with deference are those who pledge fealty to some form of original public meaning in applying controlling text, whether constitutional or statutory.  We can't have an original public meaning as to the relation of deference to the constitutional claims (Marbury and nondelegation), because there was no concept of deference when the Constitution was adopted.  We have no way of knowing what the framers or any hypothetical public reader (or hearer) of the Constitution would have thought about the role of the administrative state as we now know it, so crucial to how our country operates, and whether deference might fit in.  But we do know that deference was well-known when the APA was enacted and, as I develop in my article and Justice Kagan notes in Kisor, deference survived the APA without being affected.  There is no reason to believe that the drafters of the APA or any hypothesized reasonably informed public reader (such as the Attorney General in the authoritative report shortly thereafter) imagined that APA § 706 abandoned the well established deference concept that preceded the APA.  Indeed, if the APA were intended to preclude deference, it is quite unimaginable that the problem did not surface early on when courts, including the Supreme Court, were applying deference as usual.