Florida State University College of Law Professor Steve Johnson, one of the most thoughtful and prolific tax procedure scholars (his SSRN author page is here if you want to sample some of his 86 articles), offers thoughts on the context of the Loving and Ridgely cases. In this post, Professor Johnson’s deep knowledge of the intersection of administrative law and tax procedure provides a longer-range view and places the cases in perspective. Les
There sometimes is a tendency to focus on events in isolation. Yet to understand events more deeply, and to better predict their consequences, requires considering history and context. The assassination of an Austrian archduke and his wife in Sarajevo might, taken by itself, have seemed too small a cause to lead to the deaths of 9 million soldiers and countless civilians – until one understand the tinder (the networks of alliances, the conflicting economic, territorial, colonial, and dynastic aspirations) to which the assassination was the match. This posting explores the wider context of Loving and Ridgely, two recent cases invalidating Treasury regulations.read more...
1. The Two Cases
The Loving and Ridgely cases invalidated portions of Circular 230, the Treasury regulations governing practice before the IRS. Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014), aff’g 917 F. Supp. 2d 67 (D.D.C. 2013)(invalidating regs under 31 C.F.R. secs. 10.3 to 10.6 as to return preparer regulation); Ridgely v. Lew, 2014 WL 3506888 (D.D.C. July 16, 2014)(invalidating regs under 31 C.F.R. sec. 10.27 restricting contingency fees). The cases concluded that the regs exceeded the authority Congress had delegated to the Treasury under 31 U.S.C. sec. 330.
The obvious, immediate question arising from Loving/Ridgely is “what other portions of Circular 230 might also be at risk under the cases’ construction of sec. 330?” This question is of great practical importance, and we will grapple with it for years to come in the additional litigation that no doubt will follow in the wake of these decisions.
For now, though, I’d like to consider the wider context. Loving and Ridgely did not spring up suddenly and seemingly from nowhere. Along with the Supreme Court, the D.D.C. and the D.C. Cir. are at the heart of administrative law, the most frequent plains on which the great battles of administrative law are fought. Loving and Ridgely are Chevron Step 1 cases, and they were decided as they were because of – and reflecting shifts into — the judicial approach to Chevron currently dominant in general administrative law.
2. Changed Judicial Approach to Chevron
It once was thought that Chevron was a “super-deferential approach,” and indeed that may once have been so. E.g., William Popkin, Materials on Legislation 611 (5th ed. 2009). But fashion, the prevalence of 3-D movies, and judicial approaches to interpretation change over time. In recent years, there has been a turn in administrative law back towards congressional primacy. Judicial deference to agencies has weakened as a result. E.g., Jack M. Beerman, The Turn Toward Congress in Administrative Law, 89 B.U.L. Rev. 727 (2009); Steve R. Johnson, Loving and Legitimacy: IRS Regulation of Tax Return Preparation, 59 Villanova L. Rev. 113-14 (2014).
A subtle but important shift has occurred as to how some judges frame the question, a shift from “I’ll uphold the agency action unless Congress prohibited the agency from wielding this power” to “I’ll uphold the agency action only if Congress gave the agency this power.” As a practical matter, a judge laboring under the former approach is pre-disposed to rule for the agency. Less so is the judge operating under the latter approach.
Chevron spoke not just of explicit congressional conferrals of power on agencies. It also ventured that statutory gaps can constitute implicit delegations. 467 U.S. 837, 843 (1984); see also Morton v. Ruiz, 415 U.S. 199, 231 (1974). Such a formulation is favorable ground for the agency. “Implicit delegation,” however, was deemphasized in later cases, such as United States v. Mead Corp., 533 U.S. 218, 226-27 (2001)(“We hold that administrative implementation of a particular statutory provision qualifies for Chevron deference when it appears that Congress delegated authority to the agency generally to make rules carrying the force of law, and that the agency interpretation claiming deference was promulgated in the exercise of that authority.”).
This approach has prevailed. A 2008 article stated: “For most of the past decade, the Supreme Court seemed to be gradually eroding the deference accorded to administrative agencies.” Stephen M. Johnson, Bringing Deference Back (But for How Long?), 57 Cath. L. Rev. 1, 1 (2007). The article saw several 2006 decisions as deviating from that course, but any such change had short tenure. Subsequent cases, including recent Supreme Court tax decisions, continue to define delegation as a key aspect of Chevron, and their main focus is explicit, not implicit, delegation. E.g., United States v. Home Concrete & Supply, LLC, 132 S. Ct. 1836, 1843-44 (2012); Mayo Foundation for Med. Educ. & Research v. United States, 131 S. Ct. 704, 713-14 (2011).
3. City of Arlington
A key case in the current, delegation-oriented approach to Chevron is City of Arlington v. FCC, 133 S. Ct. 1863 (2013). The agency prevailed in the case, with the majority holding that Chevron applies to an agency’s determination of the scope of its jurisdiction. This might seem pro-agency. It’s not. The majority, in an opinion written by Justice Scalia, stressed that this Chevron review – in jurisdiction cases as in all cases – is to be exacting, not indulgent. Near the start, the majority opinion stated: “No matter how it is framed, the question a court faces when confronted with an agency’s interpretation of a statute it administers is always, simply, whether the agency has stayed within the bounds of its statutory authority.” Id. at 1868 (emphasis in original).
At the end of its opinion, the majority reemphasized: “The fox-in-the-henhouse syndrome is to be avoided … by taking seriously, and applying rigorously, in all cases, statutory limits on agencies’ authority. Where Congress has established a clear line, the agency cannot go beyond it; and where Congress has established an ambiguous line, the agency can go no further than the ambiguity will fairly allow.” Id. at 1874. None of the nine justices – whether in the majority, concurring, or in dissent – disputed the proposition that Chevron Step 1 review should be rigorous.
4. The Two Cases and the Current Approach
The Supreme Court handed down City of Arlington between the district court and the circuit court Loving opinions. Despite preceding City of Arlington, the district court opinion plainly applied a rigorous, not deferential, style of analysis at Chevron Step 1. See Johnson, Villanova, supra, at 113-20.
The circuit court’s Loving opinion was unmistakably influenced by City of Arlington. The opinion quotes City of Arlington in both the first paragraph and the last paragraph of its analytical portion. 742 F.3d at 1016 & 1022. Unsurprisingly, Ridgely also quotes City of Arlington early in its analysis. 2014 WL 3506888, at *4.
5. The Future
The time at which a case is decided can be outcome determinative. A case of first impression could be decided by the courts differently if it arose in Year 1 or in Year 20, if different styles of interpretation were in vogue in the two years. Loving and Ridgely might have been decided in favor of the government had they reached the courts when Chevron was super-deferential. But they reached the courts now, when a rigorous, non-deferential approach generally prevails in applying Chevron Step 1. Thus, the government lost.
Loving and Ridgely have great local significance as to the viability of Circular 230 rules. Their general significance as to Chevron Step 1 analysis depends on how long the current exacting mode remains in vogue. The swing of a pendulum carries the virtual guarantee of a swing back at some point.