I recently wrote on the Sixth Circuit’s important decision in Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700 (6th Cir. 2022), CA9 here and GS here. See Sixth Circuit Creates Circuit Conflict with Eleventh Circuit on Conservation Easement Regulations (Federal Tax Procedure Blog 3/15/22). I was reading today Bryan Camp’s great discussion on this case in Lesson From The Tax Court: Penalty Approval In Conservation Easement Cases (Tax Prof Blog 4/4/22), here. In concluding the post, Professor Camp offered this comment:
Comment: I said Judge Guy’s concurrence in Oakbrook was “ironic.” Here's why. Judge Guy thought the regulation was what is called a "legislative" regulation and was not an "interpretive" regulation. While Treasury had followed the proper APA process for issuing an interpretive regulation, that process was not proper for issuing a legislative regulation. So Judge Guy said the regulation was inoperative because it had not been validly issued. Ok so far. But then Judge Guy ends up construing (oh! dare I say "interpreting") the statutory language at issue. The irony here is that Judge Guy totally agrees with the regulation on how the term “perpetuity” in the statute should be interpreted. So the taxpayer loses. But I doubt Judge Guy would say he was “legislating” from the bench! Nah! He was just “interpreting.” Cuz that's what a court does, doncha know. Thus the irony: when Treasury does the same thing as a Court does in a regulation suddenly it’s a legislative act and not an interpretive act. But when the Court does it, it’s just...well...interpretation. Go figure.
This caught my attention because that precise point has bothered me. As I note in my article, central to Professor Hickman’s argument that Treasury regulations which do no more than interpret ambiguous statutory text are legislative regulations. This argument is embraced in many court opinions. Indeed that is the argument I tilt against in my article John A. Townsend, The Report of the Death of the Interpretive Regulation Is an Exaggeration (SSRN last revised 12/15/21), here.. I address Professor Camp’s point at several places in my article, but the following are two most pertinent here:
First, pp. 5-6, footnotes omitted and emphasis supplied):
At a high level, the key difference I have with Professor Hickman’s claim hinges upon whether regulations that only interpret statutory text within the range of reasonable interpretations of the statute from enactment of the statute are legislative regulations rather than interpretive regulations. Professor Hickman claims that interpreting is legislating. If that claim is true, regulations that only interpret statutory text are legislative, must be adopted with Notice and Comment, and must be prospective in application. My opposing claim is that such Treasury regulations are interpretive regulations which the APA specifically exempts from the Notice and Comment requirement although they may be adopted with Notice and Comment (and usually are by the Treasury) and can apply retroactively. The interpretations in such regulations operate within the same interpretive space as judicial opinions. When courts interpret, they are not legislating, for our constitution does not authorize courts to legislate. When agencies interpret within that interpretive space pursuant to explicit or implicit authority to interpret ambiguous statutory text, they also are not legislating.
3. Agencies Legislate by Interpreting.
Some claim is made that, by interpreting the ambiguous statute, agencies are legislating, the sole province of the legislature. That claim, if valid, means the courts should not interpret either since legislating is certainly not for courts. Consider this in a recent article:
Because only Congress can write federal laws, neither agencies nor courts can undertake legislation-in-fact while claiming that they are only doing “interpretation.” Conversely, whenever it is permissible for federal courts to interpret vague statutes without unconstitutionally “legislating,” it is equally reasonable for agencies to do the same. n321
n321 * * * * [A]ny statute that is specific enough for judges to interpret without performing unconstitutional legislation is also specific enough for agencies to interpret. Insofar as federal judges have interpreted vague statutes for centuries without nondelegation problems, agencies should be able to do so as well.* * * *
Chevron’s nondelegation critics cannot distinguish circumstances where courts interpret ambiguous statutes from other contexts where agencies do the same thing. On the facts of Chevron, if it was an unconstitutional delegation for Congress to let the EPA decide what “stationary source” means, it should be equally unconstitutional for Congress to let courts make that decision. Either it is legislation to prescribe a specific meaning for “stationary source,” or it is not. As a matter of nondelegation doctrine, constitutional limits should apply regardless of whether the arguably legislating entity is an agency or a court. Contrary to Chevron’s critics, the charmingly oversimplified argument that only Congress “writes the laws” cannot stop agencies and courts from resolving statutory ambiguities. Chevron’s critics have never explained how much “nonlegislative” interpretation they think agencies and courts can exercise * * * *.
Bottom-line, the agency regulations which do no more than interpret ambiguous statutory text within that zone of ambiguity are interpretive regulations. To claim otherwise is nonsense. (The related claim that interpretive regulations no longer exist is also nonsense. See the article.)
And, without even recognizing that nonsense, courts often declare a regulation interpretation as a legislative regulation and then apply the Chevron test which tests only the reasonableness of an agency interpretation and not the reasonableness of a legislative regulation (the law)? For example, how exactly could a court test the quintessential tax legislative regulations, the consolidated return regulations, under Chevron measuring it against ambiguous statutory text in § 1502? Those consolidated return regulations are the law, not an interpretation of the law even capable of Chevron testing? (Like much of the nonsense in this area, the mixing of the categories is based on misreading of cases, in this instance, a footnote in Judulang v. Holder, 565 U.S. 42 57 n. 7 (2011), which some read as holding that the Chevron test is the same as the arbitrary and capricious test. That claim is false. (See pp. 94-96.))
Added 10/23/22 5:00pm:
The Chevron domain is described (correctly) as "best understood as a framework for allocating interpretive authority," Kenneth A. Bamberger & Peter L. Strauss, Chevron's Two Steps, 95 Va. L. Rev. 611, 611 (2009) (emphasis supplied); see also City of Arlington v. FCC, 569 U.S. 290, 310 (2013), Breyer concurring, emphasis supplied (After reviewing Chevron and statutory interpretation, "Although seemingly complex in abstract description, in practice this framework has proved a workable way to approximate how Congress would likely have meant to allocate interpretive law-determining authority between reviewing court and agency/"); Bernard Bell, Dead-Hand Control and “Magical Passwords”: Center for Investigative Reporting v. DOJ (Part II) (Notice & Comment 8/2/21) ("Chevron primarily allocates interpretive authority between competing interpreters," emphasis supplied); Abbe R. Gluck and Lisa Schultz Bressman, Statutory Interpretation from the Inside - An Empirical Study of Congressional Drafting, Delegation, and the Canons: Part I, 65 Stan. L. Rev. 901, 990 (2013) ("[T]he Court has been prolific in creating legal doctrines that make assumptions about how Congress understands the delegation of interpretive authority to agencies and about the allocation of interpretive authority between agencies and courts. There are nearly a dozen such doctrines. The spectrum extends from Chevron * * * *.").
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