Current Issue

Foreword

Taking Administrative Law to Tax
Amandeep S. Grewal
PDF

Articles

A Case Study of Legislation vs. Regulation: Defining Political Campaign Intervention Under Federal Tax Law
Ellen P. Aprill
PDF

The rules that should govern political campaign intervention by social welfare organizations exempt from taxation under § 501(c)(4) of the Internal Revenue Code have been the subject of recent controversy. Long before all the attention, a group of dedicated and experienced experts on the topic, under the auspices of two wellknown nonprofit groups, undertook the task of clarifying the rules regarding tax-exempt political activity. In light of the issues becoming national news, the group, known as the Bright Lines Project, also converted the regulatory proposal into legislative language. These two versions of the same rules—as a set of regulations and as a set of statutes—provide a natural laboratory to compare the administrative law implications of choosing between legislation and regulation to establish a set of tax rules. This Article undertakes that examination. It concludes that, if revenue rulings interpreting regulations are afforded deference under Auer v. Robbins and Bowles v. Seminole Rock & Sand Co., promulgating the initial definition of political campaign intervention as a set of regulations may well give the Internal Revenue Service greater power to police political campaign intervention by exempt organizations than would the enactment of detailed legislation. It recommends, however, that broad statutory guidance, followed by regulations, and then by revenue rulings strike the best balance between democratic concerns and administrative flexibility.

A History of Tax Regulation Prior to the Administrative Procedure Act
Bryan T. Camp
PDF

The relationship of the Administrative Procedure Act (APA) to tax administration has been the subject of increasing scrutiny from scholars and courts. Some of this scrutiny has critiqued the long-held view of the Department of Treasury that tax regulations issued under the general grant of authority in I.R.C. § 7805(a) are interpretative regulations within the meaning of the APA. This Article reviews the almost 150–year history of tax administration before the enactment of the APA to show the origins and basis for this long-held view. The Article also argues that the application of the general terms of the APA to tax administration must be informed by this pre–APA history of tax regulation.

Administering the Tax System We Have
Kristin E. Hickman
PDF

Traditional perceptions of tax exceptionalism from administrativ–law doctrines and requirements have been predicated at least in part on the importance of the tax code's revenue–raising function. Yet, Congress increasingly relies on the Internal Revenue Service to administer government programs that have little to do with raising revenue and much more to do with distributing government benefits to the economically disadvantaged, subsidizing approved activities, and regulating outright certain economic sectors like nonprofits, pensions, and health care. As the attentions of the Treasury Department and Internal Revenue Service shift away from raising revenue and toward these other matters, the revenue—based justification for tax exceptionalism from general administrative—law norms fades. To demonstrate the shift, the Article incorporates empirical analysis of Treasury Department and Internal Revenue Service regulatory activity over time.

Reasoned Explanation and IRS Adjudication
Steve R. Johnson
PDF

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).

(Un)Appealing Deference to the Tax Court
Leandra Lederman
PDF

The U.S. Tax Court (Tax Court), which hears the vast majority of litigated federal tax cases, occupies an unusual place in the federal government. It is a federal court located outside of the judicial branch, but its decisions are appealable to the federal courts of appeals. This odd structure, coupled with the court's history as an independent agency in the executive branch, can give rise to important questions, such as the standard of review that should apply to its decisions. In particular, should the courts of appeals treat Tax Court decisions the same as those of district courts in tax cases, or should they apply a more deferential standard analogous to review of agency decisions, as the U.S. Supreme Court held in 1943 in Dobson v. Commissioner?

Answering the standard-of-review question implicates issues of both law and policy. Contrary to some scholarship, this Article argues that, as a doctrinal matter, no vestige of the Dobson rule remains and that courts of appeals must apply the same standard of judicial review that they apply to district courts in nonjury cases. The Article further argues that appellate review theory supports that result. The Dobson rule was a largely instrumental one designed by U.S. Supreme Court Justice Robert Jackson to reduce the volume of tax litigation. Although tax litigation is unusually decentralized and the Tax Court has unique expertise, those differences do not support departing from the policies underlying appellate review. Appellate courts therefore should not defer to the interpretations of the Tax Court any more than they do to those of the district courts.

Maybe Just a Little Bit Special, After All?
Lawrence Zelenak
PDF

The attitude—common among tax professionals—that tax is special (mostly because of its supposedly unique complexity), and that special legal rules should apply in the tax context, has been described and excoriated by scholars as "tax exceptionalism" or "tax myopia." The Supreme Court dealt tax exceptionalism a grievous blow in its 2011 opinion in Mayo Foundation for Medical Education & Research v. United States, in which it held that the Chevron standard for determining the validity of regulations applied in tax just as it applied in other fields. One commentator gleefully celebrated Mayo as the death knell of tax exceptionalism, declaring, "The tax world finally recognized a stark fact of life in 2011: Tax law is not special." This Article offers, with numerous hedges and qualifications, a defense of the exceptionalists and of exceptionalism. It makes three points for the defense. First, it is not so much tax professionals who think tax is special; rather, the view of tax as a thing apart is held most strongly by everyone else. Second, to the extent tax professionals do believe that tax is special, they resemble antitrust lawyers who think that antitrust is special, bankruptcy lawyers who think that bankruptcy is special, and so on. In other words, there is nothing exceptional about tax exceptionalism. And, finally, to the extent tax professionals not only think tax is special but also think it is more special than, say, antitrust lawyers think that antitrust is special, they may not be altogether wrong. Maybe tax really is just a little bit special, after all.

Current Issue

Foreword

Taking Administrative Law to Tax
Amandeep S. Grewal
PDF

Articles

A Case Study of Legislation vs. Regulation: Defining Political Campaign Intervention Under Federal Tax Law
Ellen P. Aprill
PDF

The rules that should govern political campaign intervention by social welfare organizations exempt from taxation under § 501(c)(4) of the Internal Revenue Code have been the subject of recent controversy. Long before all the attention, a group of dedicated and experienced experts on the topic, under the auspices of two wellknown nonprofit groups, undertook the task of clarifying the rules regarding tax-exempt political activity. In light of the issues becoming national news, the group, known as the Bright Lines Project, also converted the regulatory proposal into legislative language. These two versions of the same rules—as a set of regulations and as a set of statutes—provide a natural laboratory to compare the administrative law implications of choosing between legislation and regulation to establish a set of tax rules. This Article undertakes that examination. It concludes that, if revenue rulings interpreting regulations are afforded deference under Auer v. Robbins and Bowles v. Seminole Rock & Sand Co., promulgating the initial definition of political campaign intervention as a set of regulations may well give the Internal Revenue Service greater power to police political campaign intervention by exempt organizations than would the enactment of detailed legislation. It recommends, however, that broad statutory guidance, followed by regulations, and then by revenue rulings strike the best balance between democratic concerns and administrative flexibility.

A History of Tax Regulation Prior to the Administrative Procedure Act
Bryan T. Camp
PDF

The relationship of the Administrative Procedure Act (APA) to tax administration has been the subject of increasing scrutiny from scholars and courts. Some of this scrutiny has critiqued the long-held view of the Department of Treasury that tax regulations issued under the general grant of authority in I.R.C. § 7805(a) are interpretative regulations within the meaning of the APA. This Article reviews the almost 150–year history of tax administration before the enactment of the APA to show the origins and basis for this long-held view. The Article also argues that the application of the general terms of the APA to tax administration must be informed by this pre–APA history of tax regulation.

Administering the Tax System We Have
Kristin E. Hickman
PDF

Traditional perceptions of tax exceptionalism from administrativ–law doctrines and requirements have been predicated at least in part on the importance of the tax code's revenue–raising function. Yet, Congress increasingly relies on the Internal Revenue Service to administer government programs that have little to do with raising revenue and much more to do with distributing government benefits to the economically disadvantaged, subsidizing approved activities, and regulating outright certain economic sectors like nonprofits, pensions, and health care. As the attentions of the Treasury Department and Internal Revenue Service shift away from raising revenue and toward these other matters, the revenue—based justification for tax exceptionalism from general administrative—law norms fades. To demonstrate the shift, the Article incorporates empirical analysis of Treasury Department and Internal Revenue Service regulatory activity over time.

Reasoned Explanation and IRS Adjudication
Steve R. Johnson
PDF

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).

(Un)Appealing Deference to the Tax Court
Leandra Lederman
PDF

The U.S. Tax Court (Tax Court), which hears the vast majority of litigated federal tax cases, occupies an unusual place in the federal government. It is a federal court located outside of the judicial branch, but its decisions are appealable to the federal courts of appeals. This odd structure, coupled with the court's history as an independent agency in the executive branch, can give rise to important questions, such as the standard of review that should apply to its decisions. In particular, should the courts of appeals treat Tax Court decisions the same as those of district courts in tax cases, or should they apply a more deferential standard analogous to review of agency decisions, as the U.S. Supreme Court held in 1943 in Dobson v. Commissioner?

Answering the standard-of-review question implicates issues of both law and policy. Contrary to some scholarship, this Article argues that, as a doctrinal matter, no vestige of the Dobson rule remains and that courts of appeals must apply the same standard of judicial review that they apply to district courts in nonjury cases. The Article further argues that appellate review theory supports that result. The Dobson rule was a largely instrumental one designed by U.S. Supreme Court Justice Robert Jackson to reduce the volume of tax litigation. Although tax litigation is unusually decentralized and the Tax Court has unique expertise, those differences do not support departing from the policies underlying appellate review. Appellate courts therefore should not defer to the interpretations of the Tax Court any more than they do to those of the district courts.

Maybe Just a Little Bit Special, After All?
Lawrence Zelenak
PDF

The attitude—common among tax professionals—that tax is special (mostly because of its supposedly unique complexity), and that special legal rules should apply in the tax context, has been described and excoriated by scholars as "tax exceptionalism" or "tax myopia." The Supreme Court dealt tax exceptionalism a grievous blow in its 2011 opinion in Mayo Foundation for Medical Education & Research v. United States, in which it held that the Chevron standard for determining the validity of regulations applied in tax just as it applied in other fields. One commentator gleefully celebrated Mayo as the death knell of tax exceptionalism, declaring, "The tax world finally recognized a stark fact of life in 2011: Tax law is not special." This Article offers, with numerous hedges and qualifications, a defense of the exceptionalists and of exceptionalism. It makes three points for the defense. First, it is not so much tax professionals who think tax is special; rather, the view of tax as a thing apart is held most strongly by everyone else. Second, to the extent tax professionals do believe that tax is special, they resemble antitrust lawyers who think that antitrust is special, bankruptcy lawyers who think that bankruptcy is special, and so on. In other words, there is nothing exceptional about tax exceptionalism. And, finally, to the extent tax professionals not only think tax is special but also think it is more special than, say, antitrust lawyers think that antitrust is special, they may not be altogether wrong. Maybe tax really is just a little bit special, after all.