Key Points in Oral Arguments on 1/17/24 in the Supreme Court Cases Considering the Future of Deference (1/18/24)

I have now had the time to read the transcripts of oral arguments in the cases challenging Chevron deference:

• Loper Bright Enterprises v. Raimondo (SEC) (Sup. Ct. Dkt. 22-451, here.) (“Loper Bright”), transcript here,
• Relentless, Inc. v. Department of Commerce (Sup. Ct. Dkt 22-1219, here ) (Relentlesss transcript here),

Relentless was argued before Loper Bright. I infer that was because Justice Jackson recused herself in Loper Bright.

I will discuss what I think are the key points of the oral arguments. There is a lot more in the transcripts, including both somewhat important points and some nit-picky points. I will consider later posting the transcripts with pdf highlights with discussion behind the highlights as comments for readers to review if they wish.

With apologies for readers that may not have some introduction into the jargon of administrative law, I will often just use that jargon without further citation. For example. I refer to (i) Chevron deference which refers to the deference approved in the case of that name and (ii) Brand X which is the deference approved in a Supreme Court opinion with that name. I do not give the cites for these common administrative law shorthand before having any understanding of the issues involved.

In my discussion, I do not attempt to predict whether the Court will pronounce the demise of deference (whether with the Chevron label or not) or the constriction of Chevron deference, or whatever. I note, that  the three Trump appointees (Justices Gorsuch, Kavanaugh, and Barrett) almost certainly will vote for the demise or substantial restriction of deference (at least in its traditional formulation), because of their prior anti-Chevron musings and that anti-Chevron was a litmus test for their respective appointments as Justices.  See Jeremy W. Peters, Trump’s New Judicial Litmus Test: ‘Shrinking the Administrative State’ (NYT 3/26/18) (noting administrative state angst with anti-Chevron as a litmus test for Trump’s judicial, particularly Supreme Court Justice, nominees). And, Justices Thomas and Alito have expressed disdain for Chevron. Justices Kagan, Sotomayor, and Jackson seem pro-Chevron, although they might agree to some constriction (such as doubling down on Chevron Footnote 9). I think Chief Justice Roberts can go either way, but being an institutionalist may be inclined to lean toward stare decisis without terminating (but with constricting) Chevron in futuro.

What Are the Perceived Evils in Chevron? (Herein of The Deference Concept)

Musings on Proposed § 6751(b) Regulations and the Potential Demise of Chevron Deference (1/8/24; 1/15/24)

Section 6751(b)(1) provides:

(1) In general

No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.

Penalties cannot be assessed unless they have written supervisor approval by some magical moment; stated otherwise, an assessment or a step predicate to assessment of penalties without prior written approval is invalid. The only magical moment in the statute is the “initial determination of the assessment.” That statutory language on its face is nonsense because there is no “initial determination of the assessment,” at least other than the assessment itself. The courts have made hash of the language of the statute, which, through its fuzziness coupled with a snippet in the legislative history, lends itself to fuzzy thinking about the tax system we have and to disparate outcomes. In short, the interpretation and application of § 6751(b) is a mess. 

I  discuss the mess in my Federal Tax Procedure (current 2023.2 Practitioner Edition SSRN here) at pp. 385-393. Because of the mess, which has been brewing for several years, I have noted in recent versions of my Federal Tax Procedure Practitioner Edition (e.g., 2023.2 Edition p. 387 n. 1645):

    n1645 This appears to me to be a classic case where a well-considered statutory amendment or, failing that, comprehensive interpretive regulations could clean up the mess. The courts have already found the statute ambiguous, the condition required for “reasonable” interpretive regulations. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). By adopting well-considered interpretive regulations, the IRS could essentially moot out the plethora of prior and future court machinations to deal with the problem. See National Cable & Telecommunications Assn. v. Brand X Internet Services, 545 U.S. 967, 981 (2005) (permitting the agency to adopt interpretive regulations contrary to prior judicial interpretations so long as the prior judicial interpretations are not compelled by the text of the statute, which would not be true here because the statute is ambiguous). I don’t think reversal of the court interpretations of § 6751(b) would be foreclosed under Brand X by prior judicial precedent that foreclose the agency new interpretation as occurred in United States v. Home Concrete & Supply, LLC, 566 U.S. 478 (2012). An interpretive regulation, with notice and comment, by Treasury, the expert on IRS processes and the big picture, would likely produce a more holistic set of interpretations than courts can do anecdotally as unique cases arise. The problem with the regulations approach is that final regulations could take a very long time, perhaps a couple of years. But since the regulations would be interpretive, Treasury could adopt a Temporary Regulation and, provided that the final Regulation is adopted within three years, the Temporary Regulation could be effective immediately (§ 7805(e)) and the final Regulation could be effective from the date of the Temporary Regulation (§ 7805(b)). And, perhaps even, the Temporary and Final Regulations might be persuasive authority under Skidmore v. Swift & Co., 323 U.S. 134 (1944) for application retroactively to the date of the statute for any case still in pipeline or getting there involving conduct prior to the effective date of the Temporary Regulation. Such retroactive application beyond the limits imposed by § 7805 is a long subject, I think that the interpretation might apply retroactively with the only limit being that the  interpretation be within the scope of § 6751(b)’s ambiguity from the enactment of the statute.

Separately, the Taxpayer Advocate proposed a legislative solution. See Legislative Recommendations 32 and 36 in Taxpayer Advocates Legislative Recommendations for 2023 and 2022, respectively as follows: 

A Conceptual Analysis of Chevron Footnote 9’s Approach to (Possibly) Mitigating Chevron Deference (10/15/23; 2/6/24)

I am working on a paper addressing the issue of whether APA § 10(e) of the original Administrative Procedure Act in 1946 (now codified at 5 USC § 706, here). My principal contribution is to bring the tax authorities into the discussion. Tax authorities are important to the discussion but have been overlooked or misunderstood by those writing on the subject.

Today’s blog addresses the commotion about whether rigorous statutory interpretation is a cure, in whole or in part, to so-called "reflexive deference." This topic was originally in the drafts of the paper, but I took it out to slim the paper down and now offer the discussion here.

The cure championed by some (e.g., Justice Kavanaugh) is to deploy rigorous statutory interpretation at Chevron Step One to determine the best interpretation without ambiguity. (Remember that only at Chevron Step Two after determining ambiguity does Chevron deference apply.) This approach is the so-called Chevron Footnote 9 approach based on Chevron’s footnote 9 (Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843 n9  (1984) (case citations omitted)):

   n9  The judiciary is the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear congressional intent. If a court, employing traditional tools of statutory construction, ascertains that Congress had an intention on the precise question at issue, that intention is the law and must be given effect.

The notion is that more rigorous interpretation will shrink the scope of the ambiguity and will shrink (or tame) the scope of deference. Deference deniers view this as a positive good to at least partially emasculate Chevron deference.

This blog is inspired by a tax phenomenon at the heart of abusive tax shelters sold with “opinions” written by prominent lawyers and accountants that the key legal edifice (and components) supporting a bullshit tax shelter opinion would “more likely than not” prevail. That type of legal opinion was inspired by the fact-finding concept that preponderance of the evidence meant a finding that, on the evidence, the fact was more likely than not. The fact-finding concept was sometimes conceptualized as a finding that the fact was more than 50% likely based on the evidence. A 50% or lesser likelihood meant the party bearing the burden of persuasion lost on that fact issue. So, in theory, if the fact-finder found that the fact was 51% likely the party bearing the burden of persuasion on that issue wins. I hope at this point you have spotted the problem—what exactly is the difference between 50% and 51% likelihood? Can a fact-finder really perceive that fine a difference in a way meaningful to make a rational fact-finding? Isn’t this a context where there is a range rather than a finite percentage. See in a similar context in fact-finding, John A. Townsend, Burden of Proof in Tax Cases: Valuation and Ranges—An Update, 73 Tax Lawyer 389 (2020), here.

Applying that theoretical concept to “law-finding,” what is the difference between a 51% and a 50% likelihood for a legal opinion. Can any rational or responsible law-finder—whether a judge in a case or a lawyer rendering a legal opinion--make that fine an analysis? Specifically, in the current context, is a judge’s or a lawyer’s belief that the likelihood of being the correct interpretation is 51% (proponent wins) or 50% (proponent loses) meaningful? Is that sliver of difference of 1% (or with finer tuning, .000001%) meaningful to anyone? See e.g., Daniel J. Hemel and Aaron L. Nielson, Chevron Step One-and-a-Half, 84 U. Chi. L. Rev. 757, 781-782 (2017) (using a similar spectrum analysis)