THE IMPACT OF AGENCY PROCEDURES AND JUDICIAL REVIEW ON TAX REFORM
This paper discusses hurdles that the IRS and Treasury would face following tax reform in their efforts to respond quickly with guidance that courts will uphold. These hurdles include the impact of the Tax Anti-Injunction Act and the Declaratory Relief Act, heightened interest in the course of tax litigation regarding compliance by the IRS and Treasury with the Administrative Procedure Act, and provisions enacted in 1988 and 1996 limiting temporary and retroactive regulations. The paper then outlines several approaches Congress could consider to mitigate possible untoward consequences.
Coloring Outside the Lines: Examining Treasury's (Lack of) Compliance With Administrative Procedure Act Rulemaking Requirements
The Treasury Department and the Internal Revenue Service have a strange relationship with Administrative Procedure Act notice-and-comment rulemaking procedures. Treasury acknowledges the general applicability of APA procedural requirements when it promulgates regulations interpreting the Internal Revenue Code. Treasury also maintains that most Treasury regulations are exempt from the APA's public notice and comment requirements. Nevertheless, Treasury purports to utilize those same procedures anyway in promulgating most Treasury regulations. This Article documents a study of 232 separate Treasury regulation projects for which Treasury published Treasury Decisions and notices of proposed rulemaking in the Federal Register between January 1, 2003, and December 31, 2005. In connection with this study, this Article compares Treasury's actual practices and exemption claims with current doctrinal trends in courts evaluating compliance with APA requirements across administrative agencies. The Article documents the study's finding that, in 40.9% of the projects studied, Treasury failed to follow APA notice and comment requirements. The Article also concludes that, as interpreted by the courts, established exceptions from those requirements generally do not apply to excuse this noncompliance. Consequently, among other implications, many Treasury regulations, including some of Treasury's most complex and controversial rulemaking efforts, are susceptible to legal challenge for failure to adhere to APA rulemaking requirements.
Interpreting Statutory Silence
Like fences, the statutes in subtitle F of the Tax Code define the operational area in which the IRS administers the tax laws. Statutory words - like pickets - place important boundaries on IRS action. Statutory silence - the spaces surrounding the words - can be just as important to understand the boundaries. As with any other aspect of language, meaning comes from both what is said and what is not said. This article examines a dispute over the meaning of the spousal relief provisions in §6015 where the silence is particularly disquieting. The problem is this: while there is a statutory two year limitation period for taxpayers to seek spousal relief under §6015(b) or §6015(c), the statute contains no such limitation period for those seeking section 6015(f) relief. Only silence surrounds section 6015(f). The IRS has taken that silence and, in Treas.Reg. 1.6015-5(b)(1), used it to construct an immovable 2 year limitation period that the IRS applies against any person seeking section 6015(f) relief. In Lantz v. Comm’r, the Tax Court said the regulation was invalid. The Seventh Circuit Court of Appeals reversed the Tax Court, but whether one believes the opinion is right or wrong, it will not settle the issue. Part A of the article reviews the statutory context of §6015(f). Part B present the facts of Lantz and contrasts the majority and dissenting Tax Court opinions. Part C explains why the Tax Court was right to overrule the IRS interpretation of section 6015. It explains how this case illustrates why Chevron does not provide a helpful analytical structure for questions about who bears what responsibility for interpreting Tax Code administrative provisions. Finally, Part D explains why the Seventh Circuit opinion is not only wrong on the merits but misses an important administrative law point. At bottom, the IRS’s attempt to appropriate this statutory silence to suit its (admittedly legitimate) administrative needs should not be allowed. More importantly, the Tax Court, as a specialized court centered on one agency, deserves the kind of deference normally given to agencies when it comes to interpreting statutory silence.