Appointments Clause Errors in the Taxpayer First Act that the President is Deeming that He Corrected

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On July 1, 2019, the President signed into law H.R. 3151, the Taxpayer First Act – bipartisan legislation primarily making a number of changes to the IRS. Section 1001 of the Act amends Code section 7803 to add a new subsection (e), creating the IRS “Independent Office of Appeals” as a separate office within the IRS, whose “Chief of Appeals” reports directly to the Commissioner of Internal Revenue. Section 2101 of the Act also amends Code section 7803 to add a new subsection (f), creating within the IRS a new position of IRS “Chief Information Officer” (CIO).

No doubt the drafters of the legislation (presumably, the staffs of the Joint Committee on Taxation, the Senate Finance Committee, and the House Ways & Means Committee) have little experience with the requirements of the Constitution’s Appointments Clause (art. II, sec. 2, cl. 2), since there are so few appointed “Officers of the Unites States” in the IRS. Indeed, as far as I can tell, the only appointed “Officers” in that vast bureaucracy are the Commissioner, the Chief Counsel, and the members of the IRS Oversight Board (each appointed by the President with the advice and consent of the Senate); sections 7802(b)(1)(A) and 7803(a)(1)(A) and (b)(1); and the National Taxpayer Advocate (appointed by the Secretary of the Treasury). Section 7803(c)(1)(B)(ii).

New Code section 7803(e)(2)(B) and (f)(1) provide that the Chief of Appeals and the CIO shall be appointed by the Commissioner of Internal Revenue. Unfortunately, assuming that those individuals are “inferior officers” under the Appointments Clause (as opposed to a mere governmental employee lacking “significant authority” to act on behalf of the government), those appointment delegations would be invalid.

Somebody at the White House or DOJ noticed this error before the President signed the bill and thought that the President had an easy work-around. So, in signing the bill into law, the President executed a signing statement that reads in its entirety:

Today, I have signed into law H.R. 3151, the “Taxpayer First Act” (the “Act”). Sections 1001(a) and 2101(a) of the Act require the Commissioner of Internal Revenue to appoint persons to positions responsible for significant functions of the Internal Revenue Service (IRS). Such persons are likely inferior officers under the Appointments Clause of the Constitution. Because the IRS is a component of the Department of the Treasury, the Commissioner is not the head of a department and thus lacks constitutional authority to appoint inferior officers. I therefore direct the Secretary of the Treasury, as the head of the department, to approve any appointments made pursuant to sections 1001(a) and 2101(a) of the Act. DONALD J. TRUMP

Having litigated a case involving the Appointments Clause; see Tucker v Commissioner, 676 F. 3d 1129 (D.C. Cir. 2012), aff’g 135 T.C. 114 (2010) (holding that Appeals Settlement Officers and their Team Managers holding Collection Due Process hearings are not inferior officers, but mere employees not needing appointment), I am quite familiar with case law under the Clause outside the tax area. And, it is my considered opinion that if the Supreme Court were asked if the President’s fix worked, the ghost of former Justice Scalia would cause the Court to call the President’s signing statement “applesauce”. In my view, only Congress can fix the problem, not the President.

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The Appointments Clause provides in relevant part:

[The President] . . . shall nominate, and by and with the Advice and Consent of the Senate, shall appoint . . . Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.

The Framers sought to prevent the diffusion of appointment power by limiting who may make appointments and to whom Congress, by enacting a law, may delegate appointing power. The default is that, assuming a delegation law is invalid, the appointment of inferior Officers must be made by the President with the advice and consent of the Senate. There is little question that, if these new IRS individuals are “Officers of the United States” (which I am confident that they are), they are inferior officers, since they report to a higher officer, the Commissioner. Edmond v. United States, 520 U.S. 651, 662 (1997) (“Generally speaking, the term ‘inferior officer’ connotes a relationship with some higher ranking officer or officers below the President: whether one is an ‘inferior’ officer depends on whether he has a superior.”)

In the case of Cabinet Departments, only the Department’s Secretary has been held to be the Head of a Department under Supreme Court Appointments Clause case law. Freytag v. Commissioner, 501 U.S. 868, 886 (1990) (“This Court for more than a century has held that the term ‘Department’ refers only to “‘a part or division of the executive government, as the Department of State, or of the Treasury,'” expressly ‘created’ and ‘giv[en] . . . the name of a department’ by Congress.”). (Note that, since Freytag, the Supreme Court has also held that independent agencies, such as the SEC, can also be “Departments”. See Free Enterprise Fund v. PCOAB, 561 U.S. 477, 510-511 (2010).) Thus, the Commissioner of Internal Revenue, as the head of a mere unit within the Treasury Department, is not one of the individuals to whom Congress may delegate appointment power for an inferior officer. The Commissioner is not the Head of a Department.

This is not the first time Congressional drafters made an Appointments Clause error in naming an appointer who was not the Head of a Department. What happened most recently to the Patent and Trademark Judges is instructive. The history is set out in detail in Stryker Spine v. Biedermann Motech GmbH, 684 F. Supp. 2d 68, 80-88 (D.D.C. 2010). The Patent and Trademark Judges were part of the Patent and Trademark Office of the Department of Commerce. Congress had long given the Secretary of Commerce the power to appoint such judges. But, in 2000, some bright bulb in Congress changed the law so that the Director of the Patent and Trademark Office could appoint such judges. When Prof. John Duffy, in a 2007 blog post, questioned the constitutionality of this appointment if the judges, as he argued, were inferior officers, not employees, patent and trademark lawyers started to raise this issue in the courts in challenges to the post-2000 rulings of such judges. Congress solved the problem by enacting a law allowing the Secretary of Commerce to appoint such judges – i.e., reverting to the prior law. Congress purported to make the new law retroactive to cure any error, something at least Duffy thought not constitutional, either. But, no court has ever held the Congressional fix improper.

I don’t see how the Secretary of the Treasury has been authorized by law to appoint the new IRS officers. The President’s mere deeming the Secretary to be the proper co-appointer has not been approved by Congress.

On the bright side for Congress, though, they can clearly add this fix to a Technical Correction Act. And, when they do so, I expect that they will follow the lead of what they did in fixing the similar problem with the Patent and Trademark Judges – complete with making the fix retroactive.

Also on the bright side for both the President and the IRS, I have a hard time figuring out who has the standing to bring a legal challenge under the Appointments Clause to what the President just did. After all, who is aggrieved by the error? The Chief of Appeals doesn’t make individual taxpayer rulings within Appeals. Perhaps some government contractor, whose proposed information technology contract was turned down by the IRS CIO, though, might have standing to complain. But, really, would such a lawsuit really be worth it to anyone?

About Carlton Smith

Carlton M. Smith worked (as an associate and partner) at Roberts & Holland LLP in Manhattan from 1983-1999. From 2003 to 2013, he was the Director of the Cardozo School of Law tax clinic. In his retirement, he volunteers with the tax clinic at Harvard, where he was Acting Director from January to June 2019.

Comments

  1. Ronald Wiener says

    Thanks for the very quick, informative, and clear visit to the constitution’s Appointments Clause. It’s the first time I’ve had the incentive/interest to understand it. I hope Congress promptly corrects the error in a Technical Corrections law.

    I especially appreciated your discussion of the question as to whether there’s likely to be anyone with standing to object to the appointment of either of the two positions. I’ve been wondering about standing in a different context – Treasury Regulations under certain provisions of the 2017 Tax Act. I admit to not having analyzed the issue in depth, but it seems to me that some provisions of the proposed QOZ regulations may violate the clear language of the statute in ways that are taxpayer-favorable. Assuming for the sake of argument that such an interpretation would to be upheld by the courts if the issue were to be presented after adoption of final regulation, who might have standing to bring such a case?

    • Carl Smith says

      Maybe a competitor business in the QOZ would have standing to complain, though I have not investigated competitor standing? I don’t think such a suit would be prohibited by the Anit-Injunction Act of 7421 or the declaratory judgment act exception relating to taxes, but I am not positive. I think the D.C. Cir. Cohen case may be relevant.

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