Reasoned Explanation and IRS Adjudication

by Steve R. Johnson

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Abstract

Under the Administrative Procedure Act (APA), an administrative action can be invalidated as arbitrary and capricious if the agency fails to sufficiently explain the reasons for its choices. This principle applies to agency adjudication as well as to agency rulemaking. How does this principle apply to IRS adjudications? Examining five paradigms of IRS decisionmaking, this Article first establishes that the IRS does engage in APA–style adjudication. The Article then examines tax-specific explanation requirements and asks whether a more robust explanation duty patterned on the APA should be imposed on IRS determinations. Based on a variety of legal and prudential considerations, the Article concludes that such an additional duty generally is not advisable as to IRS assessment determinations (that is, the amount of tax liability owed) but may be useful as to IRS collection determinations (that is, when and how to proceed with enforced collection after assessment).

Reasoned Explanation and IRS Adjudication

by Steve R. Johnson

Click here for a PDF file of this article

Abstract

Under the Administrative Procedure Act (APA), an administrative action can be invalidated as arbitrary and capricious if the agency fails to sufficiently explain the reasons for its choices. This principle applies to agency adjudication as well as to agency rulemaking. How does this principle apply to IRS adjudications? Examining five paradigms of IRS decisionmaking, this Article first establishes that the IRS does engage in APA–style adjudication. The Article then examines tax-specific explanation requirements and asks whether a more robust explanation duty patterned on the APA should be imposed on IRS determinations. Based on a variety of legal and prudential considerations, the Article concludes that such an additional duty generally is not advisable as to IRS assessment determinations (that is, the amount of tax liability owed) but may be useful as to IRS collection determinations (that is, when and how to proceed with enforced collection after assessment).