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C0MMENTARY / VIEWPOINTS
should afford an agency action depends on how it fares for rules that are interpretative.11 Testing both types of
under its earlier precedents in Chevron6 and Skidmore.7 regulations through notice and comment trials is an
2005. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
dead.8 Seminole Rock doctrine would do if applicable — it would
undermine the Treasury’s practice and policy by, in effect,
II. Seminole Rock Should Not Apply to Tax Cases according the status of an interpretative regulation to an
administrative ruling issued without public input. That
A. Treas. Regs Are Not the IRS’s to Interpret would result in interpretative rules issued without the
Even if Seminole Rock is still good law, the IRS’s deliberation and democratic qualities that Treasury has
interpretation of Treasury regulations should not fall determined should exist for rules that potentially bind
within the Seminole Rock doctrine because Treasury regu- taxpayers.
lations are not the IRS’s own regulations, they are those Plainly, courts should not defer to an administrative
of the Treasury. interpretation under circumstances that contravene the
The IRS is a bureau of the Treasury Department and relevant agency’s own policy and practice for issuing
ordinarily plays a role in the preparation of Treasury interpretations that bind the public and are to receive
regulations, but the IRS does not speak with the voice of judicial deference.
the Treasury and does not issue Treasury regulations. The C. Circumvents Supreme Court Precedent
issuance of a Treasury regulation is made under the Affording deference to revenue rulings would allow
signature of the secretary of the Treasury or his delegate the IRS to make an end-run around judicial precedent
(which can be an assistant secretary or deputy assistant regarding deference when interpreting tax statutes, be-
secretary only; there has never been that delegation of cause the IRS could almost always claim it is interpreting
authority for the IRS commissioner or any other IRS a regulation, not a statute.
personnel).9 In contrast, revenue rulings are issued by the The content of most tax statutes is cut and pasted into
IRS (ordinarily by approval from an assistant commis- a Treasury regulation. Treasury regulations frequently
sioner) without the imprimatur of the secretary, and thus echo the statute’s language and then on selected points
a revenue ruling does not represent the Treasury’s inter- provide elaboration or clarification, depending on the
pretation of its own regulation.10 statute under which they are promulgated. Opening the
Because the Seminole Rock doctrine applies only when door for Seminole Rock whenever a regulation parrots the
an agency interprets its own rule, and Treasury regula- statute would permit the IRS, at its whim, to circumvent
tions are not the IRS’s own rules, the Seminole Rock Supreme Court precedent such as United States v. Mead,13
doctrine should be inapplicable to an IRS revenue ruling in which the Court, in connection with agency interpre-
that interprets a Treasury regulation. tations of statutes, expressly limited the application of the
B. Conflicts With Treasury Policy deferential standard set forth in Chevron U.S.A. Inc. v.
Natural Resources Defense Council Inc.,14 because the IRS
The Treasury Department has a long-held practice of could almost always claim that it is interpreting the
satisfying the notice and comment procedures under the regulation, not the statute, thus taking the analysis be-
Administrative Procedures Act (APA) before issuing final yond the reach of Mead and other Supreme Court prece-
regulations. That practice applies to both legislative dent that could be applicable in the case of statutory
regulations and interpretative regulations, even though interpretation.15
the APA does not necessarily require notice and comment Said another way, the Seminole Rock doctrine is limited
to agency interpretations of other agency pronounce-
ments; it does not apply to interpretations of acts of
11
Lowy and Vasquez, ‘‘Judicial Deference,’’ supra note 1 at 28.
12
See id.; ‘‘ABA Section of Taxation Report,’’ supra note 2 at
6
467 U.S. 837 (1984). 728; Michael Saltzman, IRS Practice and Procedure at para. 3.02[3]
7
323 U.S. 134 (1944). (WG&L 1991).
8 13
See ‘‘ABA Section of Taxation Report,’’ supra note 2 at 746 533 U.S. 218 (2001).
14
(suggesting that Mead diminished the application of Seminole Supra note 6.
15
Rock). As mentioned earlier, there is grave doubt whether the
9
See Lowy and Vasquez, ‘‘The Revenue Ruling Process,’’ Seminole Rock doctrine is still viable after Mead; however, this
supra note 1. section assumes arguendo that it is and that Mead does not apply
10
For a discussion on the IRS’s role in the Treasury regulation in some instances when an administrative agency interprets its
process, see id. own regulations.
COMMENTARY / VIEWPOINTS
Congress. In the tax context, however, most tax statutes enue laws may be complex, they do not ordinarily turn
are restated in Treasury regulations — often verbatim — on science and the type of specialized factual expertise
2005. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
gress has never delegated to the IRS general authority to Empowering the IRS to issue outcome determinative
make rules carrying the force and effect of law. rulings whenever Treasury regulations present ambigu-
ity encourages the government to promulgate unclear
In short, permitting the IRS to hide behind the Semi-
regulations. All the government would have to do is
nole Rock doctrine would invite the IRS to circumvent
‘‘occupy the field’’ with a general regulation on a subject
Supreme Court precedent and allow the IRS to prevent
for the IRS to be permitted to bind taxpayers with specific
the judiciary from making its own, independent judg-
interpretations. That is both a bad idea and contrary to
ment about the meaning of tax statutes.
the statutory scheme.
D. Policy Reasons for Deference Do Not Apply Taxpayers in litigation are already disadvantaged by
Courts interpret statutes; that is their business. Courts their burden of proof and the presumption of correctness
interpret regulations too. That is also their business. that are ordinarily given to IRS determinations; allowing
Nevertheless, courts do sometimes give deference to an the government to issue ambiguous regulations and then
agency’s interpretations of statutes and their own regu- render self-serving interpretations during litigation
lations, when the regulatory body has particular expertise that would represent an unprecedented slanting of the play-
the court may lack. Specifically, deference to agency inter- ing field against taxpayers. The IRS should not be able to
pretation may make sense when the interpretation and dictate the outcome of litigation by issuing a revenue
application of the law is not merely a matter of legal ruling based on the fact pattern of the case to guarantee
analysis and enters the realm of the agency’s specialized its victory.16
expertise. Moreover, ambiguous regulations foster uncertainty
For example, the Environmental Protection Agency for taxpayers seeking to comply with the tax laws and
issues regulations on air quality standards. Similarly, the properly report their federal taxes, and thus regulation
Labor Department issues regulations on ergonomics in drafters should be encouraged to strive for clarity, not
the workplace. If the EPA determines that X particles of Y obfuscation.17
pollutant may be emitted by manufacturers, or if the
Labor Department determines that every business with X Conclusion
number of workers should have available nonreflective The question is unsettled whether a revenue ruling
computer screens and chairs that have lumbar support, should be given greater deference when it claims to
courts should be reluctant to second-guess the agency’s interpret a Treasury regulation as opposed to an act of
judgment, provided the regulation does not exceed the Congress. The better view appears to be that it should
agency’s rulemaking authority. In those instances, regu- not. That is the view adopted by the ABA Tax Section’s
lations depend largely on scientific studies and judg- Judicial Deference Tax Force and endorsed in this article.
ments about public policy — matters committed to the Giving revenue rulings controlling weight under those
expertise of the administrative agency. That differs from circumstances would encourage vague and ambiguous
pure issues of statutory construction. regulations and unfairly tilt the playing field against
The distinction may be analogized to expert witnesses taxpayers. It would also conflict with Treasury’s policy to
at trial. Courts tend to permit expert witnesses on issues permit the public to participate in the promulgation of all
of fact. If the expert’s methods seem reasonable, the binding interpretations of the tax code, and it would take
expert’s judgment is afforded at least some degree of questions of statutory interpretation out of the hands of
deference. In contrast, courts usually do not permit the judiciary and into the hands of bureaucrats.
experts to testify as to what the law is; that is the job of
judges. That is so even if the judge has no experience
with the area of the law involved in the case, and even if 16
the expert is one of the preeminent scholars in that area of Cf. Thomas Jefferson University v. Shalala, supra note 4
(Thomas, J., dissenting) (arguing that the Seminole Rock doctrine
law. Likewise, when an agency is merely engaging in
would encourage vague and ambiguous regulations because it
traditional legal interpretation that does not depend on would maximize the agency’s power and give it greater latitude
specialized expertise on some factual or scientific matter, to make expedient decisions).
courts may exercise their own, independent analysis, 17
See id. (Thomas, J., dissenting) (explaining that regulations
without deference to an administrative body. should be clear and definite so that affected parties have
Applying that paradigm to IRS interpretations of tax adequate notice concerning the agency’s understanding of the
statutes and regulations suggests that in most instances law).
the courts should not give deference to revenue rulings.
In contrast to the interpretation and application of mat-
ters involving air quality and ergonomics, interpretation
of tax statutes and regulations is usually pure interpre-
tation of law. Said another way, while the internal rev-