Of Interest

Commentary from Professor Hickman, as it occurs to her

Tax Implications of Recent SCOTUS Decisions: Synthesis and Prediction

Having offered several blog posts highlighting the implications for tax administration of recent non-tax Supreme Court decisions, the question that remains is what these and other cases like them tell us.

We have a Court that includes several Justices who possess extensive administrative law expertise and a deep interest in how agencies are organized and function, but who disagree sharply about the administrative state and the courts’ role in relation to it. Whereas the Court followed a lenient, functionalist approach to separation of powers principles and congressional experimentation with agency design through most of the 20th century, a majority of the Justices today are more inclined to a narrower and more formalist approach to constitutional interpretation, albeit to varying degrees. And whereas Justices in the 1980s and 1990s reacted to a very activist Supreme Court and D.C. Circuit of the 1970s by adopting a more hands-off approach to judicial review of administrative agency action, the pendulum now is swinging back the other way, with Justices and judges reclaiming a more robust judicial role in policing the administrative state.

Yet, although Justices Thomas and Gorsuch have made clear their willingness to disregard precedent in favor of an originalist approach to constitutional interpretation, Chief Justice Roberts and Justices Alito and Kavanaugh seem to be more concerned about stare decisis, stability, and the unintended consequences of sweeping too broadly. Meanwhile, Justice Kagan clearly is looking for compromises and has proven herself willing to embrace more formalist outcomes in exchange for the opportunity to shape the Court’s opinions and to move incrementally to preserve the status quo.

I would note also that, although administrative law is mostly statutory, it is also quasi-constitutional in two key ways. First, the terms of the Administrative Procedure Act (APA) are often undefined or at least under-defined, open-ended, and malleable. Second, much like the Constitution’s structural aspects, the APA fundamentally concerns the allocation of governmental power among the three traditional branches of government. Consequently, how courts interpret and apply the APA’s terms is often influenced by how they think about constitutional separation of powers principles. The separation of powers debates in the background sometimes prompt the Justices to be less deferential to and more demanding of agencies across the board. Lower court judges are following their lead.

As Richard Pierce and I document in our Administrative Law Treatise, courts are more aggressively applying traditional tools of statutory interpretation at Chevron step one. Courts are requiring greater consistency and more robust explanations of discretionary choices at Chevron step two and under State Farm. Although courts historically have been more deferential to Treasury and the IRS than to some other agencies, in the post-Mayo Foundation era, I would expect to see a similar trend toward a less deferential posture in tax cases as well. Additionally, we are seeing signs that courts are more willing to engage in judicial review in the first place, construing justiciability limitations more narrowly to allow judicial review in a broader array of cases, which could spill over to tax as well — for example, with respect to the Anti-Injunction Act and taxpayer standing.

It is an interesting time for administrative law at the Supreme Court. In the most recent biannual supplement to the Treatise, Pierce and I suggest that in this regard we may be in for a bumpy ride. I would expect no less for tax administration in the coming years, as trends in the former spill over and shape the latter.

To return to the first post in this series, click here.

Tax and United States v. Gamble

Continuing with the fifth of my series of posts on the tax implications of recent non-tax Supreme Court decisions:

Although United States v. Gamble less directly implicates tax administration than the other cases discussed in this series of posts, I nevertheless think it warrants a mention. Gamble was not an administrative law case at all; it concerned double jeopardy and federal/state dual sovereignty. But like the other cases I have discussed in this series, Gamble involved the Court contemplating whether to overturn longstanding precedent. And Gamble was particularly notable for the discussion and disagreement among the Justices about stare decisis.

Retaining the Court’s dual-sovereignty doctrine, Justice Alito for a seven-Justice majority defended stare decisis as “promot[ing] the evenhanded, predictable, and consistent development of legal principles, foster[ing] reliance on judicial decisions, and contribut[ing] to the actual and perceived integrity of the judicial process.” Justice Thomas concurred but wrote separately to assert that “the Court’s typical formulation of the stare decisis standard does not comport with [its] judicial duty under Article III because it elevates … decisions outside the realm of permissible interpretation … over the text of the Constitution and other duly enacted federal law” and “exacerbates [the temptation for judges to confuse their own preferences with the requirements of the law] by giving the veneer of respectability to [the] continued application of demonstrably incorrect precedents.” Justice Ginsburg dissented and argued for overturning the Court’s longstanding dual-sovereignty doctrine based at least implicitly on factors the Court previously has articulated for disregarding stare decisis: e.g., reliance, workability, changed circumstances, and inconsistency with other legal developments. Justice Ginsburg also noted that “stare decisis is not an inexorable command.” Justice Gorsuch in dissent emphasized this last point as well, and while he disagreed with Justice Thomas as to the outcome, he also observed that stare decisis “is ‘at its weakest when [the court] interpret[s] the Constitution.”

So what does all of this have to do with tax administration? Nothing directly. But as I hope this series of blog posts demonstrates, changes in administrative law doctrine do carry implications for tax administration. And whereas all of the other cases that I have discussed in this series merely contemplated whether and to what extent the Court might change one longstanding administrative law doctrine or another, Gamble was the case in which the Justices actively discussed the parameters of stare decisis as a limitation on doing so. In this way, Gamble offers an interesting angle for contemplating the mood that some Justices seem to hold for pursuing doctrinal change in the administrative law space.

One must take note, however, that the discussion in Gamble was at least somewhat particularized to stare decisis in constitutional rather than statutory interpretation. By comparison, when interpreting statutes, the courts have long embraced what now-Judge Amy Coney Barrett has described as “super-strong statutory stare decisis,” requiring changes in statutory interpretation to come from Congress rather than from courts. The distinction is particularly significant when one realizes that administrative law issues often have a foot in both the constitutional and statutory camps. I have always emphasized to my students the importance of framing in constructing administrative law arguments. One wonders whether the Court’s attitude and approach to deciding whether or to what extent to overturn a particular administrative law doctrine might be influenced by whether that doctrine is framed principally as constitutional or statutory when it arguably might be both.

To return to the first post in this series, click here.

Tax and Lucia v. SEC

Continuing with the fourth of my series of posts on the tax implications of recent non-tax Supreme Court decisions:

Let me mention a case from the 2017 term: Lucia v. Securities & Exchange Commission. In Lucia, the Court held that SEC administrative law judges are officers of the United States. Officers of the United States must be appointed as specified by Article II, Section 2 of the Constitution. That provision generally requires officers to be appointed by the President with the advice and consent of the Senate but allows Congress to vest the appointment of inferior officers in the President alone, a court of law, or the head of a department. Under Buckley v. Valeo, any federal government employee who exercises significant authority is an officer, but only a small number of cases discuss what it means to exercise significant authority in any depth.

In concluding that SEC administrative law judges are officers of the United States rather than mere employees, Justice Kagan for a six-Justice majority in Lucia drew extensively from the Court’s 1991 decision in Freytag v. Commissioner, which concerned Special Trial Judges of the United States Tax Court. As a side note, Freytag was fascinating in that the Justices unanimously agreed that the Tax Court Special Trial Judges were properly appointed as inferior officers, but divided five to four over whether their appointment was proper because the Tax Court Chief Judge who appointed them was the head of a department or a court of law. Regardless, in Lucia, Justice Kagan focused on analysis in Freytag concluding that Tax Court Special Trial Judges were officers in the first instance, and the particular features of their positions gave them that status. In that regard, the most interesting point in Justice Kagan’s analysis was her express holding that a government official does not need to possess final, legal decisionmaking authority to be an officer of the United States. By contrast, Justices Sotomayor and Ginsburg would have required final, legal decisionmaking authority for someone to be an officer.

Justice Thomas wrote a concurring opinion, joined by Justice Gorsuch. Justice Thomas argued that “all federal civil officials ‘with responsibility for an ongoing statutory duty'” should be considered officers of the United States who should be appointed in a manner consistent with the Appointments Clause. In support of that position, Justice Thomas cited favorably a Stanford Law Review article — Who are “Officers of the United States”? by Jennifer Mascott, who now is serving as Deputy Assistant Attorney General in the Department of Justice’s Office of Legal Counsel. From a tax perspective, Mascott’s article is especially interesting for its extensive discussion of revenue officials during the founding era and her corresponding assessment of present-day Internal Revenue Service personnel. She concludes that numerous officials in the IRS Office of Chief Counsel, the IRS Office of Appeals, and elsewhere in the IRS could be improperly-appointed officers of the United States under the standard advocated by Justice Thomas in Lucia.

Furthermore, Justice Breyer wrote separately in Lucia to point out issues raised by that case and others concerning statutory removal power limitations. Guided by the Supreme Court’s 2010 decision in Free Enterprise Fund v. Public Company Accounting Oversight Board, courts have been striking removal power restrictions from statutes in order to preserve inferior officer status for some government officials (and thereby avoid declaring them unconstitutionally appointed). As Justice Breyer has observed, the courts’ application of this remedy raises serious questions for civil service job protections. Obviously those concerns extend to IRS personnel as well.

It is impossible at present to know just what the aftermath of Lucia will be or how far the Court is prepared to go either in asserting a stricter and more formalist interpretation of the Appointments Clause or in refashioning statutes to preserve the constitutionality of existing offices. Who appoints government officials, and the conditions under which they can be removed from office, have significant implications for decisional independence and accountability. It is apparent that Justice Kagan wrote the majority opinion in Lucia as narrowly as she could and still keep the maximum number of Justices on board, but no one doubts that more cases will come seeking to characterize a wider array of government officials as officers of the United States subject to the Appointments Clause. Given Justice Thomas’s Lucia concurrence, Jennifer Mascott’s article, and the sheer number of tax cases that find their way to court (and thus offering opportunities to raise Appointments Clause challenges), one senses much more to come at this particular intersection of tax and administrative law.

To return to the first post in this series, click here.

Tax and Gundy v. United States

Continuing with the third of my series of posts on the tax implications of recent non-tax Supreme Court decisions:

Another high-profile case from the last Supreme Court term is Gundy v. United States.  In Gundy, the Court seemingly came within a hair’s breadth of overturning decades of nondelegation jurisprudence and replacing the intelligible principles standard for evaluating the validity of congressionally-enacted statutes under the Constitution’s Article I vesting clause.  Just to refresh your memory, the Article I Vesting Clause gives Congress all legislative powers enumerated in the Constitution.  The nondelegation doctrine says that Congress cannot delegate those legislative powers to the executive branch or anyone else.  But under the Supreme Court’s nondelegation jurisprudence, even sweeping statutory grants of rulemaking power—giving the executive branch the authority to adopt its policy preferences as binding law—are not delegations of legislative power so long as the statutes in question contain “intelligible principles” to guide and constrain the executive branch.  The intelligible principles standard is notoriously weak, having been employed by the Court to invalidate only one statute in history: the National Industrial Recovery Act, in the Panama Refining and Schechter Poultry cases back in 1935.

Gundy concerned the constitutionality of a provision of the Sex Offender Notification and Registration Act, or SORNA, authorizing the Attorney General to adopt regulations providing for registration of sex offenders convicted prior to enactment.  Although SORNA itself was quite detailed in establishing a registration system for post-enactment offenders, the relevant provision offered little to no direction for adapting that system for pre-enactment offenders. Gundy was decided by an eight-Justice Court, without Justice Kavanaugh, who had not yet been seated when the Court heard oral argument.  Justice Kagan wrote for the Court and a plurality of four Justices.  She interpreted SORNA quite aggressively, inferring from the statute’s declaration of purpose and legislative history a feasibility requirement not found anywhere in the statute’s text, and concluding that this feasibility requirement was enough to satisfy the intelligible principles standard.  Justice Alito concurred in the judgment, but only because the Court lacked five participating Justices willing to overturn the intelligible principles standard and he considered it “freakish” to apply the intelligible principles standard to declare SORNA unconstitutional when SORNA was at least no worse than any of the other statutes the Court has upheld in the past as having intelligible principles. 

Justice Gorsuch wrote a dissent in Gundy for himself, Justice Thomas, and Chief Justice Roberts.  Justice Gorsuch called for replacing the intelligible principles standard with a test requiring Congress to make the policy decisions and rules regulating private conduct and leave to the executive branch only the responsibility for resolving “mere details” and making factual determinations.  He acknowledged and seemed to have no problem, however, with the fact that those mere details might be “highly consequential.”  It is difficult to imagine how a standard distinguishing highly consequential details from rules governing private conduct would be any stricter or more determinative than a standard gleaning intelligible principles from statutory text, history, and purpose.  (For a more extended critiques of Justice Gorsuch’s dissent, see here and here.)

Regardless, Justice Gorsuch’s principal target was open-ended statutory terms like “feasible” or “in the public interest” —especially when those terms are merely inferred from statutory text, but also when statutory text uses them explicitly.  The Internal Revenue Code typically does not use terms like that, but nevertheless confers broad, discretionary rulemaking authority on Treasury/IRS.  Exactly how Justice Gorsuch would view any particular bit of discretion-conferring language in the Internal Revenue Code is difficult to say.  But consider, for example, § 1502, which authorizes Treasury/IRS to adopt regulations “as [it] deems necessary” to determine the income tax liability of an affiliated group of corporations making a consolidated return, and further allows those regulations to be “different” from such tax laws “as would apply if such corporations filed separate returns.” (Indeed, § 1502 seems especially like the statutory provision at issue in SORNA, although obviously the subject matter is different.) Or consider the § 482 grant of rulemaking authority to “distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among [affiliated enterprises] if [Treasury/IRS] determines that such … is necessary in order to prevent evasion of taxes or clearly to reflect … income.”  Each of these provisions is implemented by hundreds of pages of rules and regulations. Mere details?  

Still, Gundy featured three Justices on record as supporting Justice Gorsuch’s replacement for the intelligible principles standard, and Justice Alito indicating that he was only waiting for a fifth vote.  And now, with his statement in the Paul cert denial, Justice Kavanaugh has expressed his interest in reconsidering the intelligible principles standard as well, although as I noted in a prior post, his thoughts may suggest a somewhat different approach than Justice Gorsuch’s.  Regardless, it seems entirely possible that the intelligible principles standard’s days are numbered, and taxpayers will be poring through the tax code to find questionable grants of rulemaking power to challenge.

To return to the first post in this series, click here.

Tax & Kisor v. Wilkie

Continuing with the second of my series of posts on the tax implications of recent SCOTUS decisions:

One high-profile Supreme Court decision this year was Kisor v. Wilkie.  As I noted in a post a few days ago, the Court in Kisor retained the Auer deference standard for agency regulatory interpretations, but largely because Justice Kagan writing for the Court articulated a new five-part test for Auer deference that cemented a longtime evolution toward a narrower and less deferential Auer.  In framing the Court’s retention of Auer deference this way, Justice Kagan gained the vote of Chief Justice Roberts in the name of stare decisis. 

Auer deference has never been especially pivotal in tax cases. The Tax Court hasn’t taken Auer particularly seriously, and the Treasury Department issued a policy statement last spring stating that the government would not seek Auer deference for IRS subregulatory guidance. Treasury could change its mind and retract that policy, but the new five-part Auer test makes judicial deference for IRS regulatory interpretations under that doctrine less likely in any event. 

But Auer is not the only Judicial deference that has been under attack lately. As with Auer, commentators and at least a couple of Supreme Court Justices have argued for overturning the Chevron deference doctrine.  By comparison with Auer, Chevron has played a significant role in tax cases, particularly since the Mayo Foundation decision.  In his concurring opinion in Kisor, Chief Justice Roberts made a point of suggesting that Kisor would have no bearing on a future case reconsidering Chevron deference. Yet despite those cautionary words, Kisor seems useful as a harbinger of what the Court might do down the road with ChevronChevron has always enjoyed stronger theoretical and doctrinal defenses than Auer. It is difficult to imagine that the Court that found a way to retain Auer will repudiate Chevron, particularly when there are just as many ways to curtail Chevron deference without getting rid of it altogether.  

To return to the first post in this series, click here.

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