Out of Time? APA Challenges to Old Tax Guidance and the Six-Year Default Limitations Period

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We welcome back previous guest blogger Susan C. Morse, who is the Angus G. Wynne Sr. Professor in Civil Jurisprudence and Associate Dean for Academic Affairs at the University of Texas at Austin School of Law.

Is it ever too late to raise an administrative procedure challenge to an old tax regulation?

Consider the pair of cases that has produced a circuit split between the Sixth and the Eleventh Circuits over the adequacy of notice-and-comment for a conservation easement final regulation. (Prior Procedurally Taxing coverage here and here.) The Sixth Circuit held in Oakbrook that the notice-and-comment process was sufficient. In contrast, the Eleventh Circuit concluded in Hewitt that Treasury “violated the Administrative Procedure Act’s requirements” when it promulgated the regulation and that therefore the IRS Commissioner’s application of the regulation was “invalid.” But neither court addressed the question of time. The regulation was promulgated in 1986 – decades before any of the facts arose in either case.

Does time ever limit taxpayers’ ability to raise administrative procedure challenges long after the promulgation of a regulation? Consider 28 U.S.C. § 2401(a), the default limitations period for suits against the federal government. It provides that “every civil action commenced against the United States shall be barred unless the complaint is filed within six years after the right of action first accrues.”

The limitations period analysis turns on when the “right of action” to raise an administrative procedure challenge to a regulation “first accrues.” For instance, in Oakbrook and Hewitt, if this right accrued in 1986, when Treasury promulgated the regulation at issue, then the taxpayers’ claims should have been time-barred. On this theory, the taxpayers were allowed to litigate because the government did not raise 28 U.S.C. § 2401(a) as a defense. (The government can waive the defense, as it’s not jurisdictional.) If the government had raised the six-year limitations period defense, the Oakbrook or Hewitt taxpayer would have had to argue that the right of action first accrued later, when the regulation was applied to the taxpayer’s case, or that an exception to the limitations period should apply.

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Now the government has begun to raise the six-year limitations period defense, first in July 2022, in the Govig case, pending in the federal district court in Arizona. Govig involves Notice 2007-83, which was issued nine years before penalties were first proposed on Govig for the 2016 tax year, relating to the employee welfare benefit arrangement established by the taxpayer in 2015. In Govig, the taxpayer claims that the Notice is invalid because it was issued without notice and comment, and relies on the Sixth Circuit’s decision in Mann Construction. In Mann Construction, though, the government did not raise the six-year limitations period defense.

More than half the Courts of Appeal – the Second, Fourth, Fifth, Sixth, Ninth, Eleventh, D.C., and Federal Circuits – have accepted that for administrative procedure claims, the default six-year limitations period begins to run when the challenged regulation or guidance issues, in other words at the time of final agency action. This limitations period statute exists against the background of sovereign immunity, meaning that it is an exercise of Congressional power to specify on what terms the federal government may be sued. In contrast, for certain other claims, such as claims that the agency exceeded its statutory authority, the limitations period begins to run when the regulation or guidance is applied. This is called the Wind River doctrine after a key 1991 Ninth Circuit case. The Wind River doctrine would say that the limitations period for an administrative procedure challenge to Notice 2007-83 began to run in 2007 and expired in 2013, before any relevant facts arose in the Govig case.

It may seem an awkward reading to suggest that a “right of action first accrues” with the earlier issuance of a Notice, especially when the specific controversy between the taxpayer and the government arises from later enforcement proceedings. And yet that is what the cases hold. As an example, consider Sai Kwan Wong, a 2009 Second Circuit case where the plaintiff sought to challenge a Medicaid rule that treated social security disability income as an amount that offsets Medicaid funding of nursing home care, even if that income was deposited into a special needs trust. The Department of Health and Human Services had promulgated a rule providing this offset treatment in 1980, apparently without using notice and comment. The plaintiff did not have standing until 2006, when his legal guardian began to direct the plaintiff’s disability income to a special needs trust, thus raising the question of whether the offset rule would apply. The Second Circuit held that the six-year limitation period began to run in 1980, when the guidance issued, and not in 2006, when the plaintiff had standing. It then barred the plaintiff’s administrative procedure claim.

The theory that underpins cases like Sai Kwan Wong is articulated in Shiny Rock, a 1990 Ninth Circuit case that preceded Wind River by one year. There, the court explained that any injury “was that incurred by all persons .. in 1964” when the Bureau of Land Management issued a public land order – not in 1979, when Bureau applied the order to deny the plaintiff’s mineral patent application. The Shiny Rock court suggests that the rights that are vindicated by an administrative procedure challenge are the general public rights to participate in the administrative procedure process. A later-accrual approach, added the Shiny Rock court, “would virtually nullify the statute of limitations,” since it would always be possible for the old administrative order to applied later, to a new plaintiff who had later gained standing. Viewed this way, the case law consensus that the limitations period begins to accrue when a regulation is promulgated makes sense.

An alternative reading of 28 U.S.C. § 2401(a) might be that a particular plaintiff’s right of action cannot accrue until the plaintiff has standing. This reading is grounded in a private law understanding of the statutory provision, which envisions the government as party to a contract or tort action that arises from a specific transaction or interaction between the government and a plaintiff. But administrative procedure violations are not like these private law causes of action. They arise not from a specific interaction between government and plaintiff, but rather from the alleged failure of a process that is supposed to serve the general public function of producing better administrative law.

Thus, in Govig, if the District of Arizona follows Ninth Circuit precedent, it should conclude that the administrative procedure challenge to Notice 2007-83 is time-barred – unless, of course, the Govig plaintiffs can persuade the court that an exception to the limitations period applies. There is little in the facts of Govig that would support an equitable tolling or equitable estoppel argument. For instance, the government did not hide information or delay enforcement in order to wait out the limitations period. Instead, the facts of the case did not arise until after the limitations period had expired.

An issue that may arise in Govig relates to intervening case law. This is because the Govig plaintiff arguably relies on CIC Services, a 2021 Supreme Court case that held that some facial or pre-enforcement challenges are permitted in tax, despite the Anti-Injunction Act. (Prior Procedurally Taxing coverage here, here, and here).Historically, intervening case law has restarted the 28 U.S.C. § 2401(a) limitations period when a case has only prospective effect – but not if the case has (as is typical) retroactive effect. Plus, more recent Supreme Court precedent emphasizes that its applications of federal law “must be given full retroactive effect …as to all events, regardless of whether such events predate or postdate the announcement of the rule.” The intervening case law argument seems unlikely to offer the Govig plaintiff an exception to the time limitation of 28 U.S.C. § 2401(a).

The Govig case is one to watch. If the Arizona federal district court follows prevailing case law, it will likely allow the government’s limitations period defense and time bar the plaintiff’s administrative procedure claim. The availability of such time bars would reshape the landscape of administrative procedure in tax by putting APA claims on the clock and replacing the assumption that the government will waive the 28 U.S.C. § 2401(a) limitations period defense.

For further reading, if of interest: I have posted a preliminary draft here with additional analysis of this limitations period issue.


  1. Jack Townsend says

    First, thanks Susan for exploring and calling the attention of the bar and the Government to the issues involving timeliness of an APA challenges. I always enjoy your scholarly offerings.

    Now to some comments, which are variations on discussions you and I have had:

    1. Does it make any difference whether the challenge is a procedural challenge or an interpretive challenge? By procedural challenge I mean challenges such as failure to properly apply notice and procedure (including considering all material comments)).

    2 You say, “for certain other claims, such as claims that the agency exceeded its statutory authority, the limitations period begins to run when the regulation or guidance is applied.” [As an aside, I am not sure the two following sentences make the point of the quote which I copied verbatim, but that is an aside.]

    3. The quote in paragraph 2 read literally would seem to cover a claim that the agency interpretation exceeds the interpretive space of the statute text being interpreted. The question then would be what the interpretive space of the statute is.

    4. Obviously, if the interpretation is the best interpretation of the statute, any interpretive challenge must fail whether or not there was some procedural defect challenge to adoption of the interpretation as an agency rule or whether the interpretation is even adopted in some agency rule. A procedural defect in adopting the best interpretation of the statute still requires the court to apply the best interpretation.

    5. So, that invites the question of whether there is any interpretive space to permit an agency interpretation that is not the best interpretation?, This is the same issue that appears in all Chevron challenges to agency interpretations that are not the best.

    6. Let’s assume that Chevron does require (more likely permit) courts to apply (defer to) agency interpretations that are not the best because, although not best, they are “reasonable” (or “permissible”). Let’s call that the Chevron space because that is the only situation in which Chevron becomes outcome determinative. I presume that, since Chevron says that that interpretive space (not best but reasonable) is the agency’s (rather than the court’s, provided the agency has spoken), a Chevron challenge will fail because the agency has not exceeded its “authority.” So, under the quote in paragraph 2, a Chevron challenge is not an exception to the general 2410 six-year statute of limitations. (I do admit that this becomes somewhat circular, with a chicken and egg problem.)

    7. That gets us to the question of what exactly is a not best but reasonable interpretation that a court may deploy to defer (in an outcome determinative sense). I like this quote from Second Circuit Judge Newman, a very thoughtful observer (Jon O. Newman, On Reasonableness: The Many Meanings of Law’s Most Ubiquitous Concept, 21 J. App. Prac. & Process 1, 83 (2021), where, after discussing at length what the ubiquitous concept of reasonable throughout the law, offers this on Chevron:

    It is difficult to know how the Supreme Court or other federal courts determine whether an agency’s interpretation of an ambiguous statute is “reasonable.” No weighing process appears to be involved. It would probably be too cynical to suggest that the courts are just accepting agency interpretations with which they agree and rejecting those they disfavor, but in some cases that almost seems to be what is happening. Clearly there is no one meaning of “reasonable” in the context of Chevron deference. Perhaps this is simply a context where there is a narrow range of acceptable agency interpretations, on either side of the disputed issue, that courts are willing to uphold, but they are ready to assert the power to reject others that, for stated, or more often unstated, reasons, they deem beyond an amorphous notion of “reasonable.”

    [JAT Note: I am not sure exactly what the full meaning of Judge Newman’s comment is, but I think he is spot-on in saying that Chevron gives a judge space to apply the court’s own interpretation; since judges are (or fancy themselves to be) the best arbiters of the best interpretation, that gives them space to apply the best interpretation which, of course, is not deference. Judge Newman does allow for a narrow range of acceptable agency interpretations that a judge might consider not best, but my research suggests that it is narrow indeed and may even apply only when a court is in equipoise as to the best legal interpretation, in which case the court does not defer to the best interpretation but uses Chevron “deference” as a tie-breaker.].

  2. Robert Kantowitz says

    Something tells me that if and when this gets to the Supreme Court, the Supreme Court will start the clock from when the particular challenger first had standing. Otherwise, there may be no way for anyone to raise a claim. A regulation can be promulgated, intentionally or unintentionally, in such a way that it applies for over six years to no one, or to no one that has a sufficient incentive to challenge it, and anyone who anticipates being affected significantly but isn’t yet will be thrown out of court for lack of standing. Consider, for example, the foreign tax credit limitation with respect to so-called structured passive arrangements from 2007-2008. With the onset of the recession, the targeted transactions ground to a halt because of economic considerations. Even without that, a practitioner who thought that Treasury had authority to promulgate this regulation (while I said it did not) said that no one would ever be able to challenge it because no one would do a transaction and take the risk, and that if anyone did a small transaction as a test case the government might well not apply the new regulation lest the taxpayer go to court and get a holding against the government. Does anyone support the proposition that the government can insulate a regulation from review simply by failing to apply it for six years?

  3. Lavar Taylor says

    One possible way to deal with the six year statute of limitations is to change the law to require all regulations to to be “re-promulgated” every six years. Failure to “re-promulgate” the regulation makes the regulation invalid. I made this type of suggestion in a comment to a previous blog post on this site, as a way to avoid the chaos that would result if the Courts were to abandon Chevron deference altogether, a course of action seemingly advocated by certain Supreme Court Justices.

    “Re-promulgating” regulations every 6 years would allow interested parties to submit new comments, including comments based on how the regulation has worked in practice, and would require the IRS to look anew at the old regulation. Sure, it requires extra work by the IRS. But the extra work would be far less than the extra work required to defend against challenges to regulations if “Chevron deference” were to go the way of the Dodo Bird.

    This would hopefully prevent challenges to a regulation from being tossed based on statute of limitations grounds.

    I haven’t taken the time to review the cases discussed in the post which barred the suits based on the 6 year SOL, but it seems unfair to me to “start the clock” prior to the date on which the aggrieved taxpayer has standing. Maybe its time to attempt to “Boechlerize” the existing case law and argue that there should be equitable tolling of the six year period for the time period(s) during which the aggrieved taxpayer lacked standing.

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