In Chief Counsel Notice 2019-006, the Treasury Department and IRS set out the level of deference it will ask the courts to give to subregulatory guidance. A previous policy statement issued by the Treasury Department and IRS provided that subregulatory guidance should not be used to modify existing legislative rules or create new legislative rules (see prior coverage in Checkpoint). The policy statement announced that the IRS will not argue that subregulatory guidance has the force and effect of law. In litigation before the Tax Court, as a matter of policy, the IRS will not seek judicial deference under Auer or Chevron to interpretations set forth only in subregulatory guidance. The policy statement defined subregulatory guidance as guidance published in the Internal Revenue Bulletin (revenue rulings, revenue procedures, notices, and announcements).
The Chief Counsel Notice provides that arguments regarding the weight to be accorded by a court to IRS positions taken only in subregulatory guidance may continue to be made under Skidmore, Zenith Radio, and Cottage Saving.
Types of Judicial Deference
The Supreme Court has defined various levels of deference courts can give to administrative agencies.
In Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., (Sup Ct 1984) 467 U.S. 837, the Supreme Court set out a two-step analysis for courts to apply in reviewing an agency’s construction of a statute that it administers: (1) if the intent of Congress is clear, IRS and the courts must give effect to the unambiguously expressed intent of Congress; (2) if the statute is silent or ambiguous as to a specific issue, the question for a court is whether the agency’s answer is based on a permissible construction of the statute. Under “Chevron” deference, an agency’s regulations are given controlling weight unless they are “arbitrary, capricious, and manifestly contrary to the statute.”
A similar deference (“Auer” deference) applies when an agency interprets its own regulations. That interpretation, regardless of the formality of the procedures used to formulate it, is “controlling unless plainly erroneous or inconsistent with the regulations.” (Auer v. Robbins, (S Ct 1997) 519 U.S. 452)
Other levels of deference include:
- Skidmore v. Swift & Co., (S Ct 1944) 323 U.S. 134 (the weight given to an administrative judgment in a particular case depends upon, among other things, the thoroughness evident in its consideration, the validity of its reasoning, and its consistency with earlier and later pronouncements);
- Zenith Radio Corp., (S Ct 1978) 437 U.S. 443 (longstanding interpretation entitled to considerable weight); and
- Cottage Saving Ass’n, (S Ct 1991) 499 U.S. 554 (administrative pronouncements long continued without substantial change, applying to unamended or substantially re-enacted statutes, are deemed to have received congressional approval and have the effect of law).
Read the full article and expert analysis in Federal Tax Update, available on Checkpoint.
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