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?)
