Treasury Regulations and the APA Categories of Legislative and Interpretive Regulations (1/12/19; 1/19/19)

NOTE: THIS WAS SUBSTANTIALLY REVISED AND EXPANDED ON 1/13/19)

Note that Bob Probasco, Senior Lecturer and Director of the Low Income Tax Clinic at Texas A&M University School of Law, here, and I have an ongoing discussion in the comments below about the issues I try to present in this blog.  I strongly encourage the readers to read at least Bob's comments and, secondarily my replies.  And to engage in the discussion!

A prominent argument among academicians is that, after Chevron (as interpreted in the later cases), Treasury tax regulations promulgated after notice and comment are "legislative regulations" under the APA.  I am among the distinct minority who disagree.  Indeed, I may be the distinct minority who disagree, although, as I shall note, the IRS also disagrees.  I am not aware that any court has specifically addressed the issue.

Here's the background.  Legislative regulation is one category of regulation (or rule, as the APA calls it).  The other category is interpretive regulation (called "interpretative regulation" in the APA, but now generally called interpretive).  Under the APA, legislative regulations generally require notice and comment and prospective application.  The APA specifically exempts interpretive regulations from notice and comment and from prospectivity.  Treasury/IRS generally issues all regulations under the notice and comment procedure without regard to the legislative and interpretive categories in the APA.  Regulations that the IRS views as interpretive, however, may be retroactive subject to the limitations in § 7805 and the IRS often provides retroactive effective dates.  The issue addressed here -- the brouhaha so to speak -- is whether Chevron means that there is no such thing as an interpretive IRS regulation (as one prominent author claims).

I have written an article where I address this issue in the article at various points.  Townsend, John A., IRS Guidance – Rulemaking and Deference to IRS Statutory Interpretation (July 27, 2018), Available at SSRN: https://ssrn.com/abstract=3212060.

In my ongoing discussions with a respected colleague who is among the majority on the issue as to which I am a (maybe the) minority, I produced what I call an Executive Summary of JAT Position on the Brouhaha.  I post it below (and offer it in pdf format here).  I invite readers to comment in the comments below (so all can benefit from the comments) or by email to me at jack@tjtaxlaw.com.  For the email comments, I will not post them with attribution or even post them at all without the author's permission.

Executive Summary of JAT Position on the Brouhaha

1. Before 1946 (the year the Administrative Procedure Act (“APA”), 5 U.S.C. § 551ff. was enacted), there was a clear understanding of the difference between legislative regulations and interpretive regulations.  (I use the current terminology for these categories – legislative and interpretive.)  The distinction:
a. Legislative regulations created the rules within the scope of the authority Congress delegated.  Section 1502, authorizing consolidated return regulations, is that classic tax example of delegated legislative regulation authority.  In a bare few lines of authority, the IRS has promulgated hundreds of pages of mind-numbingly detailed and complex rules that, while within the scope of the authority delegated, cannot be derived on the basis of the statute alone.  The consolidated return regulations are the law.  If the IRS had no consolidated return regulations, there would be none and the courts could not create them.  Legislative regulations could be prospective only, except in very rare circumstances not relevant here.  For example, the IRS could not require corporate taxpayers to comply with the consolidated return regulations for conduct completed before the regulations were promulgated.
b. Interpretive regulations merely interpret the law without setting new law not fairly derived from the text of the statute.  Section 7805(a) authorized interpretive (sometimes called general authority) regulations.  There is no classic tax example of an interpretive regulation, but the sleep or rest rule for § 162 deductions approved in United States v. Correll, 389 U.S. 299 (1967) is a well-known example.  If there is no interpretive regulation for the statute text, the courts can interpret and apply the law.  And, because by their nature, interpretive regulations interpret the statute, the interpretation can apply retroactively.
c. The distinctions I draw in subparagraphs c. and d. are highly theoretical.  Between the clearest cases of legislative regulations and administrative regulations lies a continuum where, toward the center, the theoretical distinctions may be difficult to apply.  But, for purposes of this discussion, I will assume that at least at the ends of the continuum, the distinctions are valid and can be applied meaningfully.

2. Deference before 1946.
a. Courts deferred in some cases to agency interpretations of statutes, although there was no formal test or framework for how and when courts would defer.  In the final analysis, deference was important only when the court applied an agency interpretation although the court believed that there was a more reasonable interpretation that, absent deference, the court would have applied in a case.  In other words, in the Correll case, the court might have been able to formulate other reasonable interpretations, even perhaps, other more reasonable interpretations for the sleep or rest rule but deferred to the agency interpretation in the regulation.

3. In 1946, Congress enacted the APA applying a regulations framework recognizing and applying different requirements for the two categories of regulations – legislative regulations and interpretive regulations as discussed in paragraph 1.a. And 1.b.  Congress gave no indication in the APA or its legislative history that it was concerned with court deference to agency interpretation discussed in paragraph 2.
a. Terminology Caveat:
i. The APA uses the term “rules” to mean agency regulations.  The IRC, however, commonly uses the term “rules” to mean guidance below the level of regulations, which I and others call subregulatory guidance.  For example,§ 7805(a) refers to “rules and regulations” and § 6662(b)(1) refers to “rules or regulations;” as thus presented in the IRC, the two are different categories, with “rules” being subregulatory guidance.  To illustrate, Reg. § 1.16(a) defining “gross income” in § 61 is a rule in the meaning of the APA and is a regulation in the IRC; Rev. Rul. 76-75, 1976-1 C.B. 14, defining gross income to include certain interest reduction payments is not a regulation in the IRC (subregulatory guidance) and is not a rule under the APA.  In this analysis, I will use the term regulation as the same as rule in the APA.
ii. The APA does not use the term “legislative regulations”; rather, it (i) states a general rule requiring that all regulations generally must be promulgated with notice and comment and be prospective; and (ii) exempts interpretive rules from that general rule .  Regulations subject to the general rule (in part relevant here, not interpretive regulations) are commonly called legislative regulations.
b. The APA requires:
i. Legislative regulations must generally be (i) issued with notice and comment; and (ii) be prospective from 30 days after made final.  5 U.S.C. § 553(b) & (d).
ii. Interpretive regulations are exempt from both requirements; interpretive regulations may thus be (i) issued without notice and comment (although, at agency’s discretion may be issued with notice and comment) and (ii) retroactive to the date of the statute.  5 U.S.C. § 553(b) & (d).   At the agency discretion, interpretive regulations may have lesser retroactivity or may be prospective only.  E.g., § 7805(a).
c. The APA said nothing, explicitly or implicitly, about the deference that courts should give agency regulations.

Does Treasury Comply with Administrative Law, Including the APA? I Say Yes. Others Say No. (7/17/21)

In United States v. Kahn, 5 F.4th 167 (2d Cir. 7/13/21), here, the Court held that the FBAR willful penalty in 31 USC § 5321(a)(5), as amended in 2004 to increase the maximum amount of the penalty to 50% in the account(s), is not limited by the FINCen’s failure to update the underlying regulations (adopted in 1987) which, consistent with pre-2004 law, capped the willful penalty at $100,000.  This holding is currently the strong consensus.  I doubt there will be further aberrations on that issue. 

I generally discuss FBAR willful civil penalty issues principally on my Federal Tax Crimes Blog and did so in this case.  See Second Circuit Continues the Strong Consensus Rejecting the Argument that FINCen Regulations Under Pre-2004 Law Limit the Maximum Willful Penalty Prescribed under the 2004 Statutory Amendment (Federal Tax Crimes Blog 7/14/21), here.

I said in the Tax Crimes Blog posting that I might address Judge Menashi’s dissenting opinion which, in my view, is ideologically tinged repeating mantras in legal jargon that serve as proxies against the evils of the administrative state that play so well to the right.  Chevron is a chief bogeyman that Judge Menashi and other judges of similar bent use for the purpose.  Judge Menashi’s Wikipedia entry is here.

Judge Menashi’s analysis, in summary, is that an administrative agency, here FINCen with administration authority delegated to the IRS, should abide by its own regulations regardless of intervening changes in the statute.  Judge Menashi cites a rule called the Accardi principle (sometimes called a doctrine) after United States ex rel. Accardi v. Shaughnessy, 347 U.S. 260 (1954).  FINCen is part of Treasury, but a different part than the IRS.  That issue then permits Judge Menashi to launch into administrative law.

What set me off particularly about Judge Menashi’s dissent is that, although not relevant to his analysis, he repeats Professor Hickman’s claims about the IRS not following administrative law, including the APA.   Judge Menashi thus asserts (p. 3) “The Treasury Department has sometimes evaded standard administrative law principles when enforcing the tax laws” citing in footnote 3 Kristin E. Hickman, Administering the Tax System We Have, 63 Duke L.J. 1717, 1718 (2014) (describing “tax departures from general administrative-law norms”).  Readers of this Federal Tax Procedure blog will recognize that type of claim by Professor Hickman.  The Court of Appeals in CIC Servs., LLC v. IRS, 925 F.3d 247. 258 (6th Cir. 2019), reh. en banc den. 936 F.3d 501 (6th Cir. 2019), rev’d and remanded 583 U.S. ___, 141 S.Ct. 1582 (2021) quoted Professor Hickman and a colleague as claiming 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.”  The quote is from Kristin E. Hickman & Gerald Kerska, Restoring the Lost Anti-Injunction Act, 103 Va. L. Rev. 1683, 1686 (2017)).  Fortunately, in the Supreme Court in CIC Servs. the parties submitting briefs (including Professor Hickman as amicus curiae) did not repeat that claim, and the Supreme Court did not make the claim.  Perhaps they steered away from the claim prominently made by the Court of Appeals because the claim is irrelevant to the issue presented (just as it was in the Court of Appeals) and, in my view, the claim is not true.  (I synthesize my conclusions on this at the end of this blog.)  And the claim is not relevant to the issue resolved in Kahn, but despite the claim's irrelevance, Judge Menashi makes the claim.

Treasury and IRS Policy Statement on Tax Regulatory Process (3/17/19; 4/19/20)

Treasury and the IRS have issued a joint Policy Statement on the Tax Regulatory Process (3/5/19), here.

I am in the midst of finalizing an article titled:  The Report of the Death of the Interpretive Regulation Is an Exaggeration.  I have just included a discussion of this new policy.  I thought I would offer my discussion although framed in the context of the article.  Here is a cut and paste of the discussion.  This discussion in the article has only a few short(er) footnotes, so I omit the footnotes.

I offer this short introduction so that readers will have some context offered by the article.

In the article, I argue that the Administrative Procedure Act ("APA") permits two types of regulations (those published as regulations in the Federal Register) -- (i)  legislative regulations and (ii) interpretive regulations.  The distinction between the two categories is:

(i) a legislative regulation is promulgated pursuant to express statutory authority to set the law where the regulation functions like a statute because, within the scope of the delegation, the regulation is the law.  The classic tax example of a legislative regulation is the consolidated return rules promulgated by regulation under § 1502. 

(ii) an interpretive regulation is promulgated as an interpretation of a statute Congress enacted (in the case of tax, generally in the Internal Revenue Code (Title 26)).  There is no classic tax example of an interpretive regulation; I use the example of the away from home regulation addressed in United States v. Correll, 389 U.S. 299 (1967), here.  

As Kenneth Culp Davis, the leading authority on administrative law said shortly after enactment of the APA:  "According to the theory, legislative rules are the product of a power to create new law, and interpretative rules are the product of interpretation of previously existing law."

Basically, as the Courts have said, legislative regulations are the law (and thus, in the jargon, have the "force of law"), whereas interpretive regulations simply interpret to law (and do not have the force of law, even if courts give the agency interpretation deference under the Chevron framework).

The distinction between legislative and interpretive regulations has a lot of nuance which I develop in the article.  Indeed, I develop that nuance in  the article, perhaps at too great a length in the article (which I post on SSRN after I offer for comments in a conference in April 2019)  Still, the foregoing is the essence of the argument.  [Addendum 9/25/19, the article is here:  Townsend, John A., The Report of the Death of the Interpretive Regulation Is an Exaggeration (June 6, 2019). Available at SSRN: https://ssrn.com/abstract=3400489.]

With the foregoing, readers with some background in administrative law and the APA specifically should be able to understand the general concepts in the new Policy Statement and my comments below [Addendum as of 4/19/20:  the following is from my working draft of the article for revision later; hence, some of it may reflect developments or thinking after I posted the original of this blog entry on 3/27/19; my footnotes are not included.]

Section 7805(a) - Legislative or Interpretive and Problem of Retroactivity (4/2/20; 4/24/20)

In my article, The Report of the Death of the Interpretive Regulation Is an Exaggeration (SSRN last revised 2/28/20, here), I argued that interpretive regulations for agencies generally and for the IRS under § 7805(a) remain viable despite some claims to the contrary.  Today, I summarize a key facet of my argument in the article – that § 7805(a) authorizes only interpretive regulations (rather than legislative regulations as some scholars argue) and that the limitations on retroactivity in § 7805(b) are properly viewed as limitations on the general rule of retroactivity for interpretive regulations rather than grants of authority to promulgate retroactive legislative regulations.  Since I provide copious citations in the article, I will not lard up this blog post with citations except as necessary.  (Variations on this theme have been addressed in prior blogs, particularly, Treasury Regulations and the APA Categories of Legislative and Interpretive Regulations (Federal Tax Procedure Blog 1/12/19; 1/19/19), here, and Legislative Rules And Chevron Deference An Oxymoron? (Federal Tax Procedure Blog 1/31/20; 2/10/20), here, but I recommend that readers sort through this blog before going to those other offerings.)

Section 7805, here, is a familiar Code Section.  It is titled:  Rules and regulations.  It’s first subsection is:

(a) Authorization
Except where such authority is expressly given by this title to any person other than an officer or employee of the Treasury Department, the Secretary shall prescribe all needful rules and regulations for the enforcement of this title, including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.

Note that the authorization is for “rules and regulations.”  I focus here just on regulations (although I will sometimes use the term rules, which is an APA category that may include both regulations and subregulatory guidance (such as in the case of the IRS, Revenue Rulings).

The antecedents of the current § 7805(a) trace back to the dawn of the modern income tax (stated by scholars as 1917, 1918 or 1921, with some antecedents ever further back in general administrative law). Section 7805(a) is often referred to as a “general authority” provision in contrast to specific authority in a Code section to promulgate regulations to either define (interpret) a term in the statutory text (interpretive regulations) or to prescribe the law (a legislative regulation).  Most Treasury regulations are general authority regulations issued under § 7805(a).  (There is some fuzziness here because some would argue that a specific authority statutory direction to define a statutory term makes the regulations legislative in character rather than interpretive, even though all the statute does is direct the IRS to interpret the statutory term; but let’s not get hung up on that because that would mean that the specific authority regulations are all legislative rather than interpretive and would not affect the dividing line between § 7805(a) general authority regulations and specific authority regulations.)

The question I address here is whether regulations issued under general authority statutes such as § 7805(a) (or even under inherent authority derived from Congress’ assigning administrative authority to the agency) are interpretive or legislative in character.  I focus here on § 7805(a) for Treasury Regulations, but the issue is presented for other agency general authority regulations.

In the current context, § 7805 had a pretty clear meaning for most of its statutory life.  The meaning was that § 7805(a) authorized the Treasury (IRS) to prescribe guidance in the form of “rules and regulations” which did not create new law but interpreted ambiguous text in existing statutes.  The understanding was that § 7805(a) authorized interpretive regulations and did not authorize legislative regulations.

I think most judges and scholars were comfortable with understanding at least until Chevron and more likely until later cases interpreting Chevron.  Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), and then principally United States v. Mead Corp., 533 U.S. 218 (2001).  Then some new ways of viewing § 7805(a) crept into the academic discourse.  Section 7805(a), so the new notion goes, is a grant of authority to the IRS to create legislative regulations (legislative rules must be regulations).  A key feature of legislative regulations is that they create the law just as if they were statutes and are not interpretations of the law (statutes).  Because legislative regulations are the law (and not interpretations of the law), they are said to have the force of law.  Thus, morphing that traditional modeling of the legislative regulations to deference concepts under Chevron and its progeny, the new notion is that § 7805(a) regulations, within the scope of the authority granted, are the law.  Why?  Because, once you say that § 7805 regulations have the force of law, you say that they are the law just like statutes and not interpretations of the law (statutes).

More Thoughts on APA and Legislative and Interpretive Regulations Inspired by Recent Cases (4/8/21; 4/11/21)

As readers of this blog know, I have recently been considering and even obsessing over the distinction between legislative and interpretive regulations for purposes of the APA and Chevron deference.  Just in the past few days, I have focused on four opinions that I think highlight the confusions in this area.  The first three are decisions by three different Circuits on the issue of the validity of a recently adopted regulation including bump stocks within the statutory definition of “machineguns,” thus prohibiting their possession with potential criminal penalty consequences.  Those decisions are:

• Guedes v. BATFE, 920 F.3d 1 (D.C. Cir. 2019), cert. denied, 140 S. Ct. 789 (2020), D.C. Cir. here and GS here; 
• Aposhian v. Barr, 958 F.3d 969 (10th Cir. 2020), 10th Cir. here and GS here; and
• Gun Owners of Am., Inc. v. Garland, 992 F.3d 446  (6th Cir. 3/25/21), 6th Cir. here; GS here.  [Note that the lengthy decision was published on the same day as oral argument.]

The regulation was sustained in Guedes and Aposhian as a Chevron-entitled interpretation of the ambiguous statutory text; the regulation was invalidated in Gun Owners as (i) violating separation of powers and the rule of lenity and (ii) in any event not passing Chevron analysis as a reasonable interpretation of ambiguous statutory text.

The Fourth Opinion, a truly monster opinion, was an en banc opinion in Brackeen v. Haaland, 994 F.3d 24 (5th Cir. 4/6/21), 5th Cir. here; GS here.  The opinions are, in the aggregate, 325 pages long and the portions of the opinions that represent the en banc opinion are scattered in two separate opinions – that of Judge Dennis and that of Judge Duncan.  Here is the Court’s description:

Dennis, J., delivered the opinion of the en banc court with respect to Parts II(B), II(C), and II(D)(2) of his opinion (except as otherwise noted in the Per Curiam opinion, supra). 

Duncan, J., delivered the opinion of the en banc court with respect to Parts III(B)(1)(a)(i)–(ii), III(B)(1)(a)(iv), III(B)(2)(a)–(c), III(D)(1), and III(D)(3) of his opinion (except as otherwise noted in the Per Curiam opinion, supra).

The exercise of working through that stuff to figure out what the en banc holdings were would be daunting indeed.  So, the Fifth Circuit helpfully offers the first opinion, a per curiam opinion, to provide a guide to the en banc opinions embodied in the opinions with the named authors.  Fortunately, for purposes of this blog entry, I and readers interested in the legislative – interpretive distinction do not have to dig through all of that morass.  In relevant part, Judge Dennis’ opinion has the en banc opinion at outline paragraph II.D.2., titled The Scope of the BIA’s Authority, on pages 138-147, beginning here.

I offer this high level summary with limited citations (I am revising my article on the subject for posting to SSRN later).  I begin with what I think should be the starting point for discussing the issue—the original meaning of the APA distinction between legislative and interpretive regulations and how that original meaning played out in deference.  I will then address the cases which evidence the distortions and distractions that have obscured the original meaning.

Original Meaning of the APA

Court Invalidates Regulation for Invalidity of Good Cause Statement (4/6/22)

In Liberty Global, Inc. v. United States (D. Colo. Dkt. 1:20-cv-03501-RBJ #46 Order dtd. 4/4/22), CL here and GS here, the Court granted summary judgment to Liberty Global holding IRS temporary regulations on § 245A invalid for not undertaking notice and comment before the effective date.  (The docket entries and pleadings on the motion are available on Courtlistener here.)  I am not so much concerned about the substantive issue of whether Liberty Global owes the tax in question.  I am concerned about what I perceive as lack of sound analysis on the APA issues by parties and, as a result, by the Court.

Basically, the Court held that:

1.  The regulation in issue was a legislative regulation, apparently without analysis of the issue because “the parties do not dispute that the temporary regulations are legislative rules.”  (Slip Op. 9.)

2. As a legislative regulation issued with a statement of good cause for immediate effect, the good cause statement was not persuasive; therefore the temporary regulation did not have immediate effect.

3. Implicit in #2 was that, if the good cause statement were valid, the temporary regulation could have not only been effective immediately upon promulgation but there was still the issue of whether good cause immediate effect would permit retroactivity under § 7805(b)(2) (although that may be implicit).

I think the Court’s holdings are consistent with mainstream judicial and scholarly current thinking.  As readers of this blog know, I part company with mainstream current thinking on key premises relevant to this discussion.  I provide key relevant points of departure, but those wanting detailed analysis can find it in John A. Townsend, The Report of the Death of the Interpretive Regulation Is an Exaggeration (SSRN last revised 12/15/21), here.

Reply to Professor Hickman's Response to My PT Article (6/17/22; 6/24/22)

Note that changes may be made. I will state when the change is made. The date of the latest update is indicated in the date parenthesis in the blog's title; the last date in the parenthesis is the date of the last change.

UPDATE as of 6/24/22 1:00 pm:  Readers interested in this issue should read Professor Bryan Camp's thoughtful trilogy of Procedurally Taxing Blogs joining of the issue:  

• Bryan Camp, It's Time To Get Real: Treasury Regulations Can Certainly Be Interpretive Rules (Procedurally Taxing Blog 6/23/22), here.
• Bryan Camp, The APA Is Not A Hammer (Procedurally Taxing Blog 6/24/22), here.
• Bryan Camp, The More Things Change The More They Remain The Same (Procedurally Taxing Blog 6/27/22), here.

I have blogged here on the Administrative Procedure Act (APA) distinction between legislative and interpretive regulations. Recently, I posted a guest blog on the Procedurally Taxing Blog. Jack Townsend (Guest Blogger), More On The Confusion Surrounding The Difference Between Legislative And Interpretive Rules (Procedurally Taxing Blog 6/14/22), here. Professor Kristin Hickman posted an opposition response, strongly worded. Kristin E. Hickman, It's Time To Let Go:  Treasury Regulations Are Not Interpretative Rules (Procedurally Taxing Blog 6/16/22), here. The competing positions are academic differences of opinion between Professor Hickman and me as to the proper interpretation and application of the Administrative Procedure Act ("APA") distinction between legislative and interpretive rules. Further discussion of that difference of opinion will not be particularly enlightening to PT readers and perhaps not even to my Federal Tax Procedure Blog readers. Still, the FTPB blog is mine, and I have spent considerable blogs discussing the issue, so I decided to post my response to Professor Hickman's PT Blog on the FTP Blog rather than seeking to post on the PT Blog. I will be pleased to post verbatim as a guest blog any further comments or responses she or anyone else wishes to make that engage the discussion.

So, here is my response to Professor Hickman's PT Blog:

First, I respect Professor Hickman's scholarship and passion for the views she holds deeply. I just disagree with her.

Now to the merits of our disagreements.

I have already stated in detail in my article why I disagree with Professor Hickman's previously stated positions on this issue. The article is:  John A. Townsend. The Report of the Death of the Interpretive Regulation Is an Exaggeration (SSRN December 14, 2021), https://ssrn.com/abstract=3400489. I respond in this blog to her claims in the PT Blog entry without getting too much into the weeds. The weeds in the article required over 100 pages with copious footnotes. (A summary in 7 pages with no footnotes: is John A. Townsend, A Key Point Summary of The Report of the Death of the Interpretive Regulation Is an Exaggeration (SSRN May 11, 2022), https://ssrn.com/abstract=4089906.)

I start my article quoting Professor Hickman's claim that there are no interpretive Treasury regulations, despite the APA continuing to have that category. Her PT Blog makes the same claim. Since, as Professor Hickman has persuasively and correctly championed, there is no basis for tax exceptionalism, the same arguments she makes for Treasury Regulations have to apply to all agency regulations. That means that her argument is that the interpretive rule category for regulations has been eliminated from the APA without any legislative amendment of the APA. Thus, for example, the APA exempts interpretive rules from the requirement of notice and comment and application only prospectively, thus meaning that the interpretive regulation category still in the APA means nothing. I thought that an odd claim, particularly since the APA does not allow exceptions except by legislation expressly stating the exception.   That is the Hickman claim that I address in the article. (Clarification added 6/24/22 8:22 am:  The APA refers to "rules" rather than "regulations;" legislative rules must be notice and comment regulations; interpretive rules may be notice and comment regulations or subregulatory guidance; conventionally, discourse in this context uses the terms legislative regulations and interpretive regulations, with both categories authorized by the APA although not in those specific terms.)

I noted in the article (p. 5), in contrast to Professor Hickman's claim of the evaporation of the APA category of interpretive regulation, that, in oral argument in Kisor in 2019, Justice Breyer (an administrative law expert) said that "there are hundreds of thousands, possibly millions of interpretive regulations." That statement can be true only if interpretive regulations remain a viable APA category.

Does Professor Hickman know something that Justice Breyer does not know? Or vice-versa? At a minimum, there is confusion. I side with Justice Breyer.

I engage Professor Hickman and others on the details in my article. I therefore only address some points she specifically raised by her short PT post. Unfortunately, as we all know, responding to claims cryptically stated often requires more words than cryptic claims.

1. The original understanding of the APA's distinction between legislative and interpretive rules may be briefly stated:  

• Legislative rules are the law rather than an interpretation of an ambiguous statute. Legislative rules require an explicit grant of authority to make the law rather than interpret the law. Hence, legislative regulations were (and are) said to have the force of law as statute substitutes. Legislative rules have to be promulgated with notice and comment regulations. And, as with legislation, legislative rules generally have to be prospective. The classic tax example is the consolidated return regulations authorized by § 1502.
• Interpretive rules do not state the law but are interpretations of ambiguous statutory text; the ambiguous statutory text is the law; interpretative regulations may but are not required to undergo notice and comment rulemaking; and agency interpretations, like judicial interpretations, can generally be retroactive to the date of enactment of the interpreted statute (because the statute and not the interpretation is the law).

Circuit Conflict in Important Cases that Allow the Supreme Court to Take Cert and Pronounce on the Difference between Legislative and Interpretive Regulations (3/30/21; 12/6/21)

I have thrashed around on this blog about the APA distinction between legislative and interpretive rules, focusing principally on regulations.  Briefly, the key points I have asserted in the blogs and elsewhere are:

• The APA distinction between legislative and interpretive regulations continues to be viable despite claims from some scholarly quarters that they are not.

• The distinction between the two categories is:  Legislative rules (must be by regulation) are like statutes; they are the law; they do not interpret the law.  Interpretive rules (can be by regulation) are not the law but are interpretations of the law (here the statute).

• A legislative regulation like the consolidated return regulations authorized by specific delegation under § 1502 is the law just as if it were a statute.  A legislative regulation does not interpret the statute.

• An interpretive regulation does interpret the statute.  Interpretations of statute can be tested for the reasonableness of the interpretation.  That is what Chevron does in the context  of agency interpretations in interpretive regulations.

• An agency may adopt interpretive rules, at its choice in the form of notice and comment regulations, pursuant to the authority in “general authority” statutes (such as § 7805 of the IRC) or implied authority in the agency’s formative legislation.  

• For example, § 482 which shares a provenance with § 1502 under the Revenue Act of 1928 when the prior version of the two statutes were split, with the 1928 predecessor of § 1502 conferring express delegated authority to Treasury to make the law in statute-like legislative regulations and the 1928 predecessor of § 482 not having that authority.  Can you imagine the howls from scholars, the practitioner community and the courts if the IRS asserted the authority to make legislative rules like the consolidated return rules under § 482 via its general authority in § 7805?

• Adopting interpretive rules in notice and comment format does not make the interpretive rule legislative for purposes of the APA distinction.

• Legislative rules (must be by regulation) are not entitled to Chevron deference because legislative rules are the law and are not interpretations of the law.  Chevron only tests reasonableness of interpretation against the text of a statute.  Chevron cannot test the reasonableness of either a statute or a legislative regulation (said to be statute-like).  Chevron can and does test interpretations in interpretive regulations to determine if the interpretations are reasonable within the scope of the statutory ambiguity.

Some, perhaps many, of these claims are not mainstream.  For example, some claim that Chevron applies only to legislative regulations.  This claim could be partially truth if their further claim that the legislative regulations category has taken over the interpretive regulation category, so that all notice and comment regulations are legislative even if all they do is to reasonably interpret ambiguous statutory text.  It is my claim that the interpretive regulation category continues viable (has not been taken over by the legislative regulation category) and that Chevron deference applies to interpretive regulations and does not apply to legislative regulations.

Updated Article on APA Interpretive Regulations (1/28/20)

In June, I posted an a blog on article on the APA issue of the continued viability of the interpretive regulation.  Article on the Continued Viability of the APA Category of Interpretive Regulations (6/21/19), here.  I have now posted a substantial update of the article at the same URL on SSRN.

The SSRN cite for the revised article is:  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.

The revised abstract is:

There is a claim about in the scholarly administrative law community that the APA category of interpretive regulations, including tax regulations under IRC § 7805(a), are no longer a viable category under the Administrative Procedure Act ("APA). Instead, so the claim goes, regulations that have historically been considered interpretive because all they do is reasonably interpret ambiguous statutory text are now legislative regulations under the APA thus subject to the APAs legislative regulations’ requirements for Notice and Comment and Prospectivity. 

In the article, I quote, with permission, a noted scholar who claims:  

• "regulations promulgated under 7805(a) are legislative rules as that term is understood for purposes of the Administrative Procedure Act;"
• "Administrative law doctrine says that legislative rules are those that carry the force of law, while interpretative rules do not. Although the force of law concept is blurry at the margins, I do not see any possible way that one could conclude that 7805(a) regulations do not carry the force of law;"
• "In summary, there are no Treasury regulations that are interpretative rules as that term is understood for purposes of the Administrative Procedure Act -- irrespective of the terminology embraced by the tax community."  

If that claim is true for § 7805(a) regulations, it is true for all agency regulations interpreting the statute under similar agency grants (either express or implied).
My limited anecdotal polling from talking with administrative law professors is that the claim is a mainstream scholarly position. And courts noise around with the concept, although usually without nuance. 

By contrast, in the recent oral argument in Kisor v. Wilkie (Sup. Ct. No. 18-15), transcript p. 10), Justice Breyer, an administrative law scholar (taught administrative law at Harvard Law School), said “there are hundreds of thousands, possibly millions of interpretive regulations.” And courts regularly refer to interpretive regulations as if they were a viable APA category. 

So which is it? Are interpretive regulations generally and Treasury interpretive regulations specifically a viable APA category? 

Supreme Court Yet Again Weighs In At the Edges on Legislative and Interpretive Rules (6/26/19; 7/2/19)

In Kisor v. Wilkie, 588 U.S. ___, 139 S.Ct. 2400 (2019) [Sup Ct Slip Op here; Google Scholar with S.Ct. pagination here], the Supreme Court decided to retain Auer deference, at least for now.  I offer some preliminary thoughts on the opinions in Kisor and may revise them as I think further and consider others comments.

Although perhaps oversimplifying for analysis, I think Auer deference functions like Chevron deference but one step removed from the statutory text.

• Chevron deference applies to some reasonable agency interpretations of ambiguous statutory text.
• Auer deference applies to reasonable agency subregulatory interpretations of  ambiguous agency regulations (which for this purpose may be either (i) ambiguous legislative regulations (e.g., in a tax context, ambiguous consolidated return regulations) or (ii) ambiguous interpretive regulations entitled to Chevron deference (e.g., in a tax context, say ambiguous “away from home” interpretive regulations entitled to deference as in Correll)).

In Kisor, while re-affirming Auer deference, the opinions were fractured as to what Auer continues to mean and whether it may be on life support.  All we can say for sure is that Auer lives (for now, although its precise application may be muddled and Kisor clearly restricts Auer’s application over what some of the prior less restrained applications suggested).

I don't want to get into the Justices competing views of Auer deference.  The pundits will be doing that for some time now.

I do want to get into what, if anything, Kisor says about the legislative / interpretive issue that I have fulminated about recently.  See Article on the Continued Viability of the APA Category of Interpretive Regulations (Federal Tax Procedure Blog 6/21/19), here; and Supreme Court Again Weighs In At the Edges on Legislative and Interpretive Rules (Federal Tax Procedure Blog 6/23/19), here.

Just to restate the issue.  Some, a considerable consensus in the scholarly community, claim that the interpretive regulation is no longer viable, having been conflated into legislative rules by judicial opinions after the adoption of the APA.  I reject that notion.  I do note as an important pushback Justice Breyer's comment in the Kisor oral argument:  “there are hundreds of thousands, possibly millions of interpretive regulations.”   Justice Breyer is, of course, an administrative law expert (he and Justice Kagan are the administrative law experts on the Court), and he thinks that interpretive regulations are still viable.  (Significantly, at oral argument, no Justice challenged the notion that interpretive regulations were a viable APA category.)

The Kisor opinions, as I said, were fractured, with some key points not gathering a majority. The Justices in the plurality for the Court opinion which I discuss herein were Justices Kagan (author), Ginsburg, Breyer and Sotomayor.  Remember  that Justices Kagan and Breyer are the Court's administrative law experts, so from the perspective I focus on (the APA distinction between legislative and interpretive regulations), Justice Kagan's opinion concurred in by Justice Breyer are most important to the legislative /interpretive issue.

District Court Holds that Temporary Regulations are Legislative and Thus Fail APA's Notice and Comment Requirement (10/10/16)

In Chamber of Commerce v. U.S. IRS, ________ (W.D. Tex. 10/6/17), here, the Court concluded that the so-called inversion Temporary Regulation was a legislative regulation that could not become effective until there was either the APA required notice and comment because no reasoned good cause statement had been given as required for immediate effectiveness of legislative regulations.   Caveat:  this is a revised opinion.  I have not attempted to locate the differences between the original opinion issued 9/29/17 and this revised opinion.  All of the following discussion relates to the revised opinion issued 10/6/17.

First, I offer the Court's explanation of the Temporary Regulation, which it called the Rule.

The Rule was issued pursuant to statutory authority in the Internal Revenue Code, which provides: 

The Secretary shall prescribe such regulations as may be appropriate to determine whether a corporation is a surrogate foreign corporation, including regulations (A) to treat warrants, options, contracts to acquire stock, convertible debt interests, and other similar interests as stock, and (B) to treat stock as not stock. 

26 U.S.C. § 7874(c)(6). And further, 

The Secretary shall provide such regulations as are necessary to carry out this section, including regulations providing for such adjustments  to the application of this section as are necessary to prevent the avoidance of the purposes of this section, including the avoidance of such purposes through (1) the use of related persons, pass-through or other noncorporate entities, or other intermediaries, or (2) transactions designed to have persons cease to be (or not become) members of expanded affiliated groups or related persons. 

26 U.S.C. § 7874(g). The statute uses terms granting broad authority to the Secretary of the Treasury for example: "such regulations as may be appropriate" and "such regulations as are necessary to carry out this section." The statute does not limit the broad authority granted in the first part of each subsection by identifying regulations that would not be appropriate or providing boundaries to the Secretary's authority under the statute. Instead, the statute gives examples of what the Secretary may employ by using the word "including" several times. Further, the examples given in the statute of regulations the Secretary may issue include significant authorizations, such as the authority to "treat stock as not stock," which could substantially alter a calculation under the statute based on the stock of a corporation.

Based on the broad authority granted by Congress, the court concludes the Rule does not exceed the statutory jurisdiction of the Agencies. The Rule directs that certain stock be disregarded in calculations made under the statute, which falls into the statute's allowance that regulations may "treat stock as not stock." Further, the Rule aims to "prevent the avoidance of the purposes" of the statute, which is specifically named as an authorized function of regulations issued pursuant to the statute. 

The court concludes the Rule does not exceed the statutory jurisdiction of the Agencies.

The Court then holds (pp. 8-10) that the IRS gave a reasoned explanation for the Rule consistent with the broad grant of authority. Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).

JAT Note: The Court to this point has not distinguished between a legislative regulation and an interpretive regulation.

The Court then holds (pp. 10-13) that the Temporary Regulation, issued without notice and comment, violates the APA requirement for notice and comment.  In this portion of the discussion, the Court does not mention the fact that interpretive regulations are exempted from the APA notice and comment requirement.  So, the assumption must be, for purposes of that discussion, that the Temporary Regulation was a legislative regulation.

The Court then turns (pp. 13-15) to the interpretive regulation exception to the APA notice and comment requirement.  This is the nub of the reason I write this blog entry, so I quote the key part:

Occam’s Razor and the Distinction Between Legislative and Interpretive Regulations (9/24/20)

I have previously said that the Administrative Procedure Act ("APA") distinction between legislative and interpretive regulations does not address deference.  I did, however, address both the APA and deference in my article, Townsend, John A., The Report of the Death of the Interpretive Regulation Is an Exaggeration (August 23, 2020). Available at SSRN: https://ssrn.com/abstract=3400489.  But, I did not tie the two together as crisply as I should have. 

I recently realized, although they are different “regimes” – APA (including the legislative / interpretive regulation divide in the APA) and deference – they do address the same issue in the same way.  Indeed, the APA distinction between legislative and interpretive regulations was based on a similar distinction that applied to under pre-APA law for deference to agency interpretations and the related concept of retroactive application of agency interpretations (generally retroactivity the norm for interpretive regulations and generally prospectivity the norm for legislative regulations). 

Before and after the APA, the distinguishing difference between legislative and interpretive regulations is:  (i) the legislative regulation based on express authority to create the law (create a new obligation or right) is the law, with necessarily the force of law (example, § 1502 for consolidated return regulations); and (ii) the interpretive regulations based on express or implied authority to interpret otherwise ambiguous statutory text within the scope of the ambiguity, but does not add any new right or obligation within the scope of the statutory text (example § 162's away from home statutory text addressed in United States v. Correll, 389 U.S. 299 (1967)).  That was true before the APA, so when Congress used the APA used the legislative / interpretive concepts (called interpretative in the APA), that was the background that defined those terms in the APA and informed both Congress and original public readers of the APA as to their meanings.

What that means is that, if a regulations interpretation is entitled to deference, now called Chevron deference (as a reasonable interpretation within the scope of ambiguity in statutory text), the regulation is an interpretive regulation rather than a legislative regulation for both APA purposes and for deference.  Simply because a court defers to an agency regulations interpretation does not mean that the regulations interpretation has been magically transformed into a legislative regulation.  (Courts do sometimes state that deferring to a reasonable agency interpretation (say Chevron Step Two) gives the interpretation the force of law, a distinguishing characteristic of a legislative regulation; I do address that misunderstanding in some detail in the article, but bottom-line, force of law is a consequence of a legislative regulation after it is determined to be a legislative regulation rather than a test of whether the regulation is legislative to start with.)

As I reflect on it, sometimes the simplest explanation is the best explanation.  That is a variation of Occam’s Razor (with Occam variously spelled and sometimes called the law of parsimony).  See Wikipedia Enter, Occam’s Razor, here (noting that it is variously paraphrased by statements like "the simplest explanation is most likely the right one").

I will likely revise my article above to correct some errors, add some nuance, and incorporate this simpler explanation.

Draft of Article on Interpretive Regulations (4/19/19)

I post here for download my article titled "The Report of the Death of the Interpretive Regulation Is an Exaggeration."  Here is a summary of the article:

In this article, I discuss the claim of the demise of the APA category of interpretive tax regulations for APA purposes, a claim that, when extended, is that there are no longer any interpretive regulations for any agencies for APA purposes.  Instead, so the claim goes, the regulations that have historically been considered interpretive because all they do is reasonably interpret ambiguous statutory text, are now legislative regulations under the APA.  My understanding is that the claim has considerable traction in the academic community. 

By contrast, in the recent oral argument in Kisor v. Wilkie (Sup. Ct. No. 18-15), transcript p. 10, here), Justice Breyer, an administrative law scholar (taught administrative law at Harvard Law School), said “there are hundreds of thousands, possibly millions of interpretive regulations.” 

So which is it?  Are there interpretive regulations as a legitimate APA category? 

I claim that, as the title suggests, interpretive regulations are a viable APA category.  I argue that: (i) the APA original public meaning of the interpretive regulation category remains viable; (ii) there have been no material developments after enactment of the APA (including American Mining Congress and Chevron) that changed the original public meaning; (iii) in particular, the concept of deference (both pre- and post-Chevron) never had any role in the APA distinction between legislative and interpretive regulations; (iv) deference (currently in its Chevron iteration) applies to legislative regulations only in determining the scope of the delegation of legislative authority (an interpretive exercise) and has no application to the arbitrary or capricious / State Farm, a different test for procedural regularity (including failure to make reasoned decisionmaking, by extreme example stating a basis for the interpretation that the moon is made of green cheese); and (v) that other distractions along the way are not relevant to the APA’s distinction between legislative and interpretive regulations. 

To be sure, I suppose that Congress could have framed the APA so that all regulations were treated and tested as legislative regulations.  That is not the choice Congress made.  My claim is that, regardless of one’s interpretive bent or judicial philosophy, Congress’ clearly expressed intent in the original public meaning of the legislative / interpretive distinction should control. 

The article is a revision of a draft of the article that I presented in conjunction with a panel discussion on Altera and the intersection of tax law and administrative law at the Virginia Tax Study Group on April 12.

I hope that some readers will download the article, read it, and offer me their comments.  I plan on posting the article to SSRN in the near future, but would like comments before doing so.  Please offer any comments whether as to substance, presentation, grammar, etc.

The title of the article takes off from the famous quote (much misquoted) from Mark Twain (Samuel Clemens) that  “The report of my death was an exaggeration.”  See Wikiquotes entry on Mark Twain, here.

Court Invalidates IRS Attempt by Rev Proc to Change Legislative Regulation (8/5/19; 12/10/20)

In Bullock v. IRS, 401 F. Supp. 3d 1144 (D. Mont. 2019), here, the court held that the IRS's use of a Revenue Procedure to revoke a requirement of a legislative regulation, issued with notice and comment, was invalid.

Section 6033(a)(1) requires tax exempt entities to file a return “stating specifically the items of gross income, receipts, and disbursements, and such other information for the purpose of carrying out the internal revenue laws as the Secretary may by forms or regulations prescribe.”  The IRS long ago adopted notice and comment regulations requiring the tax-exempt entity to identify on Schedule B of Form 990 persons contributing more than $5,000 during the taxable year.  26 C.F.R. § 1.6033-2(a)(2)(ii)(f).

Rev. Proc. 2018-38 eliminated the IRS’s previous requirement contained at 26 C.F.R. § 1.6033 that exempt organizations report donor information.

Two states, Montana and New Jersey sued to have the Rev. Proc. declared procedurally invalid for lack of adoption with notice and comment.  Each of the states claimed that they were injured by the change because they could use the Form B disclosures for their own tax administration purposes and were allowed to access that IRS information under the requirements for the IRS to share tax return information with the states.

The district court held that the states met the predicate requirements (such as standing) so that it could reach the merits of the states' claims.  (I won't discuss those predicate requirements, but they are interesting reading.)

On the merits of the states' claims, the court held, in effect, that the regulations requirement that the tax-exempt entities report donor information on Schedule B of Form 990 was a "legislative" rule which could be changed only by another legislative rule which would require that it be adopted by notice and comment regulation rather than in subregulatory guidance such as a Rev. Proc.  This is a straight-forward application of the APA distinction between legislative and interpretive rules. [for an errata correction I made to this sentence, see note at bottom of this blog]

JAT Comments.

SSRN Posting of Article on IRS Guidance -- Rulemaking and Deference (8/2/18)

SSRN has posted for review and download my article on IRS Guidance.  titled IRS Guidance – Rulemaking and Deference to IRS Statutory Interpretation. Townsend, John A., IRS Guidance – Rulemaking and Deference to IRS Statutory Interpretation (July 27, 2018). Available at SSRN: https://ssrn.com/abstract=3212060`.

The Abstract is:

This article deals with one of the key intersections of federal tax law and administrative law: IRS rulemaking. The IRS makes rules that affect the public through regulations and subregulatory guidance. I first discuss the IRS process for issuing such guidance and the principal forms the IRS uses. I then discuss the administrative law concept of deference to agency statutory interpretations. In administrative law, the two key regimes for deference are Chevron deference and Skidmore deference. Chevron deference requires the court to defer to an agency interpretation in formal guidance when the statutory text being interpreted is ambiguous and the agency interpretation is a reasonable interpretation even though the court believes there is a more reasonable interpretation. In the IRS context, Chevron deference applies to Treasury Regulations. Skidmore deference requires the court to defer to an agency interpretation in subregulatory guidance to the extent that the interpretation is persuasive. (That Skidmore formulation may sound a bit odd, but I get into that in the article.)  

The nonmainstream discussion in the article has two interrelated components: First, Chevron does not apply to legislative regulations. Legislative regulations are regulations, exemplified in the tax area by the consolidated return regulations under § 1502, where Congress delegated to the IRS the power to make the law. Second, Chevron does apply to interpretive regulations--regulations which interpret the statutory text. Some authors assert that, if Chevron deference applies to give the interpretation the force of law, then the regulation is a legislative regulation with the APA requirements for legislative regulations--promulgation in the Federal Register and prospective application only. The same argument, presumably, would apply if Skidmore or any other deference is given to an IRS interpretation in subregulatory guidance, because by conferring deference the interpretation has the force of law. I disagree with those authors. I assert that a court adopting--deferring to, if you will--an agency interpretation of ambiguous statutory text does not transform interpretation into legislative rulemaking under the APA. Hence, for such agency interpretations promulgation in the Federal Register is not required and the interpretations can apply retroactively. The IRS usually does issue its formal interpretations in regulations subject to notice and comment, so that is not a key difference. But, IRS interpretive regulations can and often do have retroactive effect.

Additional Notes:

1.  This article started with the related discussion in the 2017 Editions of the Federal Tax Procedure Book.  It was too long for the intended audience of that book, so I excerpted that discussion and shortened the discussion of the topics for the book.  The more summary discussion in the Book is at pp. 37-69 of the Student Edition and pp. 53-94 of the Practitioner Edition.  Readers interested in the subject might first want to review the more summary discussion, particularly in the Practitioner Edition with footnotes.

2.  I substantially revised the longer discussion which I excerpted from the 2017 Book and, hopefully improved on it as I made it even longer.  Those interested in more detail than offered in the Book will find it here.

3.  I do discuss toward the end of the article the current political climate where Chevron deference has become a scapegoat for all the perceived ills of the administrative state.  My own view is that Chevron deference and its related deference forms (Auer and Skidmore) may not be perfect but offer a better framework for dealing with interpretations of complex statutory systems Congress expects agencies to administer.  Nonetheless, as I conclude the article, "But with these cross-currents of politics, repeal of Chevron may be a bad idea whose time has come."

Here is the Table of Contents for the Article:

My Distillation of the Legislative - Interpretive Regulation Distinction (4/3/21)

In further considering the legislative-interpretive distinction, it occurred to me that one way to distill the essence of the distinction is as follows (when I cite Chevron, I refer to the Chevron framework):

For a valid legislative regulation, two things are required:  (i) Congress must have enacted express and specific authority to the agency to make the law (with an appropriate intelligible principle limiting the delegation); and (ii) the agency must have promulgated the legislative regulation pursuant to that authority.  Accordingly, if the agency says it is invoking its express and specific authority in the statute to make law, court review of the regulation tests only whether the regulation is within the scope of the delegated authority.  If so, the regulation is the law, just as if it were a statute.

For a valid interpretive regulation, Congress must have conferred upon the agency express or implied authority to interpret ambiguities within statutory text.  If the agency is invoking its express or implied interpretive authority, then, under Chevron, court review tests only whether the interpretation in the regulation is reasonable within the scope of the ambiguity in the statutory text. 

These tests turn upon  what the agency has done – (i) exercise its legislative regulation authority (for which it must cite an express delegation of legislative authority, such as § 1502 for consolidated returns); or (ii) exercise its express or implied authority to interpret statutory text.  If Congress has delegated the agency legislative authority, the agency would want to specifically invoke its legislative authority because, by invoking legislative authority, the regulation is the law and has the force of law just as if it were a statute.  If the agency has no such legislative authority or doesn’t invoke legislative authority in promulgating the regulation and the regulation only interprets ambiguous statutory text, the regulation is an interpretive regulation which, under Chevron, controls (note the conjunctive) (i) if the interpretation is reasonable within the scope of ambiguity in the text of the statute and (ii) the court defers to the agency interpretation even though the court believes there is a better reasonable interpretation.  (It the court interprets the same as the agency, there is no deference to the agency interpretation, there is no deference; if the court is in a state of equipoise as to the better interpretation and defaults to the agency reasonable interpretation, that too is not deference because the court is not substituting the agency interpretation for its own better interpretation.)

Interpretive and Legislative Regulations and the Relationship to Chevron (2/26/17)

I have been struggling with the APA distinction between legislative and interpretive regulations and how that distinction might be impacted by the Chevron doctrine.  I link here my latest revision to my Federal Tax Procedure Book currently due to publish in August 2017 (and will be available for free download on my SSRN account, here, then).  (Note that the linked current status of the revision may not be final, but I think it is fairly close to final subject to comments from this blog entry.)

Basically, I conclude that the historic distinction between legislative and interpretive regulations remains even after Chevron and its progeny, although some loose thinking / language about Chevron has muddied the water as to the historic distinction.  I will state the historic distinction and refer readers to the linked documents for more details (both pro and con).

The historic distinction is (from Kenneth Culp Davis, Administrative Rules - Interpretative, Legislative, and Retroactive, 57 Yale L.J. 919, 928 (1948) (footnotes omitted)):

According to the theory, legislative rules are the product of a power to create new law, and interpretative rules are the product of interpretation of previously existing law.  Legislative rules may change the law but interpretative rules merely clarify the law they interpret.

Then I say in  my text (footnotes omitted):

To illustrate this discussion, I use examples at the extremes of a spectrum.  Such examples  can offer key insight even though much of the play in the real world is between the extremes where things become less certain.  Here are the extremes on the issue at hand.  Code § 162(a)(2) allows deductions for expenses incurred while “traveling ... away from home in the pursuit of a trade or business.”  The regulation, adopted under the general authority stated in § 7805(a), interpreted “traveling ... away from home” text to require that the taxpayer must sleep or rest, sometimes called the overnight rule.  The Supreme Court sustained the regulations’ interpretation of the statutory text. The regulation was an interpretive regulation.  By contrast, § 1502 delegates to the IRS the authority to adopt regulations that the IRS “may deem necessary” for consolidated reporting among an affiliated group of corporations.  The regulations do so in mind numbing detail, in regulation after regulation.  The consolidated return regulations are legislative regulations.

The Chevron doctrine may be summarized as a rule of interpretation of a statute that defers to an agency interpretation under this analysis:  Step One, if the text is plain (not ambiguous), that meaning applies, end of analysis; do not go past Step One; and Step Two, if the text is not plain (ambiguous), the agency interpretation applies unless unreasonable.  Under my analysis (perhaps not mainstream), Chevron only applies to agency regulations that are interpretive and does not apply to legislative regulations.

The linked text relates to the foregoing with more detail.

I address in this blog the current movement to eliminate or throttle back on Chevron deference.  There are speculations about at least judicial throttling back when Judge Neil Gorsuch is confirmed as a justice on the Supreme Court.  And, there is pending legislation that would eliminate Chevron deference.  The proposed legislation would take away the authority of the judiciary to apply Chevron.  Although not mentioning Chevron by name, the proposed legislation would require courts do the following with respect to agency rulemaking:  (i) "decide de novo all relevant questions of law, including the interpretation of constitutional and statutory provisions, and rules made by agencies" and (ii) take away from courts the authority to interpret a statutory "gap or ambiguity as an implicit delegation to the agency of legislative rule making authority and [to] rely on such gap or ambiguity as a justification either for interpreting agency authority expansively or for deferring to the agency’s interpretation on the question of law."

First, note that this speaks only as to interpretive issues related to Chevron, not legislative rulemaking authority.

Second, I just pose this practical question.  If the Supreme Court or the legislation would eliminate the Chevron doctrine, what would that mean for legislative regulations?  Under my interpretation (summarized above and detailed in the linked document), Chevron is a rule of interpretation applying only to statutory interpretations.  Chevron is not a rule that can apply to a legislative regulation under the traditional definition of legislative regulation (a regulation establishing the substantive rule).

If as some claim, Chevron applies to legislative regulations, what would happen to, for example, the consolidated return regulations under § 1502 after the demise of Chevron (either judicial demise or legislative demise)?

Is Statutory Interpretation a Legislative Act When Agencies Do It But Not When Courts Do It? (4/8/22; 10/23/22)

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.

Supreme Court Again Weighs In At the Edges on Legislative and Interpretive Rules (6/23/19; 7/2/19)

The immediately preceding blog reported my new article posted on SSRN titled The Report of the Death of the Interpretive Regulation Is an Exaggeration.  See Article on the Continued Viability of the APA Category of Interpretive Regulations (Federal Tax Procedure 6/21/19), here.  One of the threads in the claim that the APA category of interpretive regulations is no longer viable is the notion that Chevron deference, when applied to interpretations in agency rule (regulations in specific), gives the interpretation the force of law, supposedly the hallmark of a legislative rule (which must be by notice and comment regulation) rather than an interpretive rule.  I argue in the article that "force of law" is a slippery concept, but in this context is the consequence of a regulation being legislative and not a test that a regulation is legislative.

I address in this blog a new development that, I think, refutes the notion that Chevron deference for agency interpretations is relevant to the issue of whether rules (including regulations) are legislative or interpretive.

I noted in the article that, on March 27, 2019, during oral argument in Kisor v. Wilkie (Sup. Ct. No. 18-15), Justice Breyer, an administrative law expert (along with Justice Kagan), said: “there are hundreds of thousands, possibly millions of interpretive regulations.”  I noted in the footnote (p. 5 n. 14) that Justice Breyer was formerly a professor of administrative law at Harvard Law School and is the lead author on a leading administrative law book which continues with his name as a nominal author. Stephen G. Breyer, et al., Administrative Law and Regulatory Policy (8th ed. 2017 Walters Kluwer), co-authored with four other recognized administrative law experts, Richard B. Stewart, Cass R. Sunstein, Adrian Vermeule, and Michael E. Herz.  (Justice Kagan also taught administrative law at Harvard Law School.)

Justice Breyer is at it again, this time refuting the notion that Chevron sounded the death knell of the interpretive regulation.

In PDR Network, LLC v. Carlton & Harris Chiropractic, Inc., 588  U.S. ___, ___ S.Ct. ___, 2019 U.S. LEXIS 4181 (2019), here, decided June 20, 2019, the issue was judicial reviewability of final orders of the Federal Communication Commission (FCC).  The FCC had issued a final Order interpreting the prohibition on "unsolicited advertisement" as used in the Telephone Consumer Protection Act of 1991, 47 U. S. C. §227(b)(1)(C).  The statute gave courts of appeals “exclusive jurisdiction to enjoin, set aside, suspend (in whole or in part), or to determine the validity of” certain “final orders of the Federal Communication Commission.” 28 U. S. C. §2342(1).  That "exclusive review" was required in a proceeding brought within 60 days after the entry of the order.  The issue was whether a district court, in an application of the law long after the FCC adopted the Order, precluded the district court from considering the merits of the interpretation in the Order.

Justice Breyer for the majority felt that the issue turned upon preliminary issues not yet addressed by the courts--whether Order was (p. 5, cleaned up)

• "the equivalent of a legislative rule, which is issued by an agency pursuant to statutory authority and has the force and effect of law."

or

• "the equivalent of an interpretive rule, which simply advises the public of the agency’s construction of the statutes and rules which it administers and lacks the force and effect of law?"

Note the phrasing of "equivalent of."

Legislative Rules And Chevron Deference An Oxymoron? (1/31/20; 2/10/20)

Today, I address courts frequent statements about Chevron deference applying to legislative rules.  I was reading the decision in Renewable Fuels Ass'n v. U.S. EPA (10th Cir. 1/24/20), here.  In the decision the Tenth Circuit says (cleaned up):

Legislative rules and formal adjudications are always entitled to Chevron deference, while less formal pronouncements like interpretive rules and informal adjudications may or may not be entitled to Chevron deference. 

This blog entry concentrates on the claim that legislative rules are always entitled to Chevron deference.  I claim that legislative rules are never entitled to Chevron deference because they are not interpretations of law; rather, legislative rules are the law, which means deference simply is not meaningful (just as courts do not defer to a statute).  (Caveat I do note one possible nuance in that, since the scope of a legislative rulemaking authority delegation is an interpretation, it is possible that the scope could be subject to agency interpretation and deference to that interpretation, although I argue that even as to scope deference is not appropriate.)

I start with an acknowledgement that the judges and scholars often claim that legislative rules (which must be regulations) are entitled to Chevron deference or some variant thereof.  E.g., Guedes v. Bureau of ATF, 920 F.3d 1, 17 (D.C. Cir. 2019), here (“Legislative rules generally Chevron deference,” quoting  Nat'l Mining Ass'n v. McCarthy, 758 F.3d 243, 251 (D.C. Cir. 2014)); Kristin E. Hickman, Unpacking the Force of Law, 66 Vand. L. Rev. 465, 509 (2013) (“Where an agency employs notice-and-comment rulemaking under clear congressional authority to adopt rules and regulations, there is little doubt that the courts will treat the rule both as legislative and as eligible for Chevron deference.”).  I could go on and on and on with variants of this claim.

Contrary to the this claim that legislative rules (regulations) are subject to Chevron deference, I claim that Chevron deference has a limited, if any, role for legislative rules.  I address this and other similar claims about Chevron in my article.  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.  Because my claim is laid out in more detail in the article, I just set forth here my reasoning for the claim.

1.  Legislative rules which the APA commands be promulgated by notice and comment regulation and be prospective only are the law if within the scope of the legislative authority Congress delegated to the agency.  Courts say that such legislative rules are like statutes and have the force of law.

2.  Deference is a concept of deferring to an interpretation of ambiguous statutory text rather than deferring to the statutory text itself.  So, too for a legislative rule which has the effect of a statute.  Courts do not defer to statutes or their equivalent, legislative rules.

3.  There is a theoretically possible place for Chevron deference to legislative rules in the agency's interpretation of the scope of the legislative rulemaking authority in the statutory text.  (I discuss below in paragraph 7 why I don't think Chevron is applicable to the scope issue, so I flag here that that is the only possible application of Chevron to legislative rules.)  Once it is determined that the legislative rule is within the scope, the legislative rule is the law and deference to the law is an oxymoron.

4,  Of course, agencies can in other interpretive documents interpret the legislative rule and, if appropriate, have Chevron, Skidmore-type, or Auer deference apply to the interpretation of the legislative rule.  But the legislative rule within the scope of the delegation is the law without any deference whatever.  Indeed the concept of deference to the law -- whether the law is in a statute or a legislative rule -- is an oxymoron (except possible as to scope of the legislative authority delegation).