In Mayo Clinic v. United States, 2021 U.S. App. LEXIS 14143 (8th Cir. 5/13/21), here, the Eighth Circuit reversed the district court’s invalidation of a regulation’s test for meeting the “qualified organization” requirement that turned upon being an educational organization under § 170(b)(1)(A)(ii). Reg. § 1.170A-9(c)(1) defined a charitable organization as one whose “primary function is the presentation of formal instruction” and whose noneducational activities “are merely incidental to the educational activities.” As stated by the Court, the district court “held that the Treasury Regulation is invalid ‘because it adds requirements — the primary-function and merely-incidental tests — Congress intended not to include in the statute.’”
A quick digression, I wrote on the district court opinion: District Court Invalidates Interpretive
Regulation at Chevron Step One (Federal Tax Crimes Blog 8/8/19; 3/11/19), here. I concluded as follows:
I don't think the Court's reasoning
is compelling. The conclusion may be
right. I just don't think the reasoning
articulated by the Court compels the conclusion that the statutory text does
not offer sufficient ambiguity to permit the interpretation adopted by the IRS.
In reversing the district court, the Eighth Circuit panel
did not adopt my implicit reasoning—that there was sufficient ambiguity in the statute
to permit Chevron space for reasonable interpretations at Chevron
Step Two. (Although, if Chevron
is conceptualized as a single step, all the work really could be done at Chevron
Step One but I won’t go down that detour here.)
Rather, the Eighth Circuit panel stops at Step One because it found that
the regulation was permitted by the unambiguous text of the statute, at least
the unambiguous text as the Eighth Circuit panel interpreted the text. (Because
the regulations test is not compelled by
the statutory text and requires interpretation for it to be compelled, that
means, in my mind, that there is
interpretive space in the statute; if there
is interpretive space, then the court or the agency may fill that interpretive
space, but if the agency has done it, the
interpretation, is usually tested at Step Two)
Of course, at Chevron Step One, the usual tools of statutory interpretation apply to determine whether the statute is ambiguous and whether the interpretive regulation is within the scope of the ambiguity. I gather what the Court did was to apply those interpretive tools to determine that there was no ambiguity and thus no remaining interpretive space under the Chevron Framework because the regulation was consistent with that unambiguous interpretation. If that is true, then it seems to me that it is the statute that is the law and not the regulation, consistent with traditional distinctions between legislative and interpretive regulations. Hence the interpretive regulation which is then consistent with the unambiguous statutory text (as interpreted) becomes the law and per se the regulation interpretation a is valid interpretation of the statute. (Compare the Treasury’s adoption in some interpretive regulations of language mimicking the statute; what work and what validity do the regulations have in that context?)
1. The concurring opinion took issue with the panel majority’s use of legislative history in its Chevron Step One analysis. The concurring judge first noted that "The court comes to it by relying largely on the statutory and interpretive history of the phrase." Of course, statutory history is different from legislative history, and so far as I am aware there is no controversy about use of statutory history. The concurring judge then objects to the majority's "decision to resort to legislative history in several places." There is some controversy as to whether it is appropriate to use legislative history generally for interpretation and in the interpretation at Chevron Step One. (I don't think except for deniers of any validity to using legislative history for interpreting statutory text, there is any controversy about using legislative history at Chevron Step Two.) As to legislative history in whichever interpretive process is engaged (Chevron or normal statutory interpretation), though, I personally think it is nonsense not to use “good” legislative history, recognizing that some legislative history is better or more persuasive as to the key inquiry (whether framed as an “intent” or an original public meaning). So, you might ask, what is good legislative history – I would say generally, for example, as a class, tax legislative history is usually pretty good because of the involvement of the bipartisan Joint Committee Staff in the process. I would also say that the Joint Committee Staff "Blue Book" is a useful and perhaps persuasive tool for interpretation even if it is not technically legislative history. See Is the JCT Blue Book More Persuasive than a Law Review Article? (Federal Tax Procedure Blog 4/27/21), here.
2. The Court relied in part on Nat'l Muffler Dealers Ass'n v. United States, 440 U.S. 472, 477 (1979). I know many thought the earlier Mayo Supreme Court opinion (Mayo Foundation for Med. Educ. v. United States, 562 U.S. 44 (2011)) had put Nat’l Mufflers to rest or on life support (whether deserved or not). But, alas, according to the Eighth Circuit panel, it continues to have some gravitas for some purposes. Here is how the panel used it:
“In determining whether a particular regulation carries out the congressional mandate in a proper manner, we look to see whether the regulation harmonizes with the plain language of the statute, its origin, and its purpose.” Nat'l Muffler Dealers Ass'n v. United States, 440 U.S. 472, 477 (1979).3 To determine whether the statute the agency interpreted is unambiguous, we turn to the statutory history and other “traditional tools” of statutory construction. “It is a fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.” Davis v. Mich. Dept. of Treasury, 489 U.S. 803, 809 (1989). Although relevant, the Russello principle is not controlling, and we conclude the district court failed to give sufficient consideration to the origins of the statutory charitable exemption and the Treasury Regulation at issue, and the manner in which the current statutory provisions have been added to the IRC and modified over more than a century.
n3 In Mayo Found., 562 U.S. at 53-58, the Court concluded that Chevron rather than National Muffler provides the appropriate framework for evaluating an agency regulation interpreting an ambiguous statute. Here, we look to origin and purpose to determine whether a regulation validly interprets a statute's unambiguous command.
Maybe more later; maybe not.
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