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:
Table of Contents
Table of Contents -i-
I. Introduction. -1-
A. Substantive Introduction (Including the APA). -1-
B. Background for this Article. -3-
C. Note on Style Quotations and Citations. -4-
D. Request for Reader Feedback. -5-
II. IRS Rulemaking Authority. -5-
A. Introduction (Including the APA). -5-
B. Regulations. -11-
1. Final, Proposed and Temporary. -11-
2. Interpretive or Legislative. -15-
3. Retroactivity of Regulations. -26-
a. Introduction. -26-
(1) Retroactivity of Statutes. -27-
(2) Retroactivity of Judicial Interpretations. -29-
b. Promulgated / Final Regulations. -31-
(1) Retroactivity of Legislative Regulations. -31-
(2) Retroactivity of Interpretive Regulations. -32-
c. What About Temporary Interpretive Regulations? -35-
4. Nonexistent or Phantom Regulations. -35-
5. Politics and Regulations. -37-
C. Subregulatory Guidance. -39-
1. Notices (and Retroactivity). -40-
2. Revenue Rulings and Procedures. -41-
a. Revenue Rulings. -41-
b. Revenue Procedures. -43-
D. Other Documents (Not Expressly Intended as Guidance). -43-
1. Letter Rulings. -43-
a. The Role of Letter Rulings. -43-
b. Retroactive Revocation of PLRs. -45-
2. Technical Advice - TAMs and TEAMs. -45-
3. Frequently Asked Questions (FAQs). -46-
4. Internal Revenue Manual (“IRM”). -47-
5. AODs–IRS Positions on Decided Cases. -49-
6. Other IRS Documents to Inform the Public. -49-
7. Miscellaneous Internal Positions. -49-
a. Chief Counsel Advice -49-
b. Other -50-
8. IRS Publications. -51-
9. Public Access to and Precedential or Persuasive Value of Less Formal IRS Written Determinations. -51-
III. Deference to IRS Interpretation of the Code. -55-
A. Statutory Interpretation - Chevron Framework. -55-
1. Introduction. -55-
2. The Context Before Chevron. -57-
3. Chevron; the Two-Step Chevron Framework. -61-
B. Some Issues Under the Chevron Framework. -70-
1. Effect of Chevron on the Pre-Chevron Deference Regime. -70-
2. Chevron Distinguishes Between Legislative and Interpretive Regulations. -70-
3. Ambiguity in Chevron Step One. -72-
4. Reasonableness / Unreasonableness in Chevron Step Two. -78-
5. Regulations Contrary to Prior Judicial Decisions. -79-
6. Chevron and Retroactive Regulations. -81-
8. Chevron and the Congressional Review Act. -86-
9. Chevron, the Rule of Lenity and Criminal and Civil Penalties. -87-
10. Deference to Interpretations Other than By Regulation (Subregulatory Guidance). -91-
11. Subregulatory Interpretation of Regulations. -97-
12. Procedural Interpretations. -98-
13. Holding the IRS to Published Positions. -99-
14. Presidential Signing Statements. -99-
15. Interpretive Considerations for Treaties. -100-
C. What Does Deference Do? -102-
1. Introduction. -102-
2. On Interpretation. -102-
a. Chevron Deference. -102-
b. Other Deference. -105-
3. Systemic Effects. -106-
D. Possible Legislative and Judicial Consideration of Chevron. -108-
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