Granting Chevron Deference to IRS Revenue Rulings: The 'Charitable' Thing to Do

Author:Kristin E. Oglesby
Position:J.D./D.C.L., 2018, Paul M. Hebert Law Center, Louisiana State University.
Pages:631-672
 
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Granting Chevron Deference to IRS Revenue Rulings:
The Charitable Thing to Do
TABLE OF CONTENTS
Introduction .................................................................................. 632
I. Revenue Rulings and Standards of Judicial Deference ................ 635
A. Chevron: The Starting Point in Any Deference Discussion .. 637
B. Skidmore: Skidding Away from Any Real Deference ........... 638
C. Comparing Chevron and Skidmore ........................................ 639
D. Historical Deference to Revenue Rulings .............................. 641
II. Christensen, Mead, and Associated Problems ............................. 643
A. Christensen v. Harr is County ................................................ 643
B. United States v. Mead Corp. .................................................. 644
III. Substantially Deferring to Revenue Rulings: Meeting Mead....... 647
A. Force and Effect of Law: The Congressional Grant .............. 647
B. Force and Effect of Law: Owning Your Power ..................... 651
IV. The Future of Revenue Rulings and the Appropriate Deference
Standard: Examining Charitable Organizations ........................... 653
A. Hospitals ................................................................................ 654
B. Unrelated Business Income and the Notion
of “Relatedness” .................................................................... 657
C. Political Campaign Activity .................................................. 658
D. Complexity of Charitable Organizations
Tax Law as a Whole .............................................................. 661
V. A Call for Deference .................................................................... 663
A. The IRS as the Tax Expert ..................................................... 664
B. The Need for Quick Answers ................................................ 666
C. Revenue Rulings Actually Save Taxpayer Dollars ................ 667
D. Certainty, Reliance, and Consistency: Avoiding
Incoherent Representations .................................................... 669
Conclusion .................................................................................... 671
632 LOUISIANA LAW REVIEW [Vol. 78
INTRODUCTION
A simple fact of life is that all peopletaxpayers and evaders alike
despise taxes and the Internal Revenue Service (IRS). General
perceptions view the IRS as having inherent advantages over taxpayers,1
taking hard-earned money from and effectively irritating Americans each
April. Because the main objective of the IRS is to raise money for the
government, taxpayers perceive that the agency acts in a manner that calls
reasonableness into question.2 Although factually the IRS typically does
not engage in excessively unreasonable practices,3 taxpayers nonetheless
may feel victimized by the IRSs rules. Organizations that associated
themselves with the Tea Party certainly felt victimized in 2013 when news
broke that IRS employees had been subjecting groups associated with
conservative political views to more rigorous standards than non-
conservative organizations.4 What makes taxpayers feel even more
wrongedoften raising attitudes toward the IRS from mere distaste to
raging hatredis when one taxpayer is treated in an unequal, and
presumably unfavorable, manner than his next-door neighbor.5
A general duty of consistency is imposed on the IRS,6 but when courts
from state to stateand even courts within statesfail to adhere to the
same principles for similarly situated taxpayers, people get even angrier.
Such is the case with IRS revenue rulings, which are published by the IRS
Copyright 2017, by KRISTIN E. OGLESBY.
1. Irving Salem et al., ABA Section of Taxation Report of the Task Force on
Judicia l Deference, 57 TAX LAW. 717, 723 (2004).
2. Id. at 725.
3. See TREAS. INSP. GEN. FOR TAX ADMIN., 2015-2016 SEMIANN. REP. passim,
https://www.treasury.gov/tigta/semiannual/semiannual_mar2016.pdf [https://perma
.cc/5P47-67D8].
4. See TREAS. INSP. GEN. FOR TAX ADMIN., 2013-10-053, INAPPROPRIATE
CRITERIA WERE USED TO IDENTIFY TAX-EXEMPT APPLICATIONS FOR REVIEW
(2013), https://www.treasury.gov/tigta/auditreports/2013reports/201310053fr.pdf
(last updated May 14, 2013) [https://perma.cc/E9ZT-RTG9]; IRS Fina lly Reveals
List of Tea P arty Gr oups Targeted for Extra Scrutiny, WASH. TIMES (June 5,
2016), http://www.washingtontimes.com/ne ws/2016/jun/5/irs-reveals-list-of-tea-
party-groups-targeted-for-/ [https://perma.cc/5ZR7-PM7S].
5. See generally Richard J. Wood, Supreme Court Jurisprudence of Tax
Fair ness, 36 SETON HALL L. REV. 421 (2006).
6. T he IRS Mission is to provide United States taxpayers top quality service
by helping them understand and meet their tax responsibilities and enforce the law
with integrity and fair ness to all taxpayers. IRM 1.1.1.2 (June 2, 2015); see also
I.R.C. § 7803(a)(3) (20 12); United States v. Kaiser, 363 U.S. 299, 308 (1960)
(Frankfurter, J., concurring).
2017] COMMENT 633
and are said to carry the effect of law, though they often are disregarded
or applied inconsistently by courts.7 Perhaps if the IRS provided its
employees and United States taxpayers with more robust guidance in the
form of practical revenue rulings, there would not have been an
opportunity for the Tea Party targeting that occurred within the IRS
Exempt Organization Division.8
The Supreme Court of the United States has not issued a definitive
opinion on the deference that reviewing courts should accord revenue
rulings, but the Court has offered guidance as to how courts should interpret
and defer to administrative rulings generally.9 A circuit split exists regarding
the appropriate treatment of revenue rulings.10 Because revenue rulings are
not subject to the same level of scrutiny that Treasury regulations receive11
and because the IRS explicitly provides that revenue rulings do not carry
the same force that regulations are accorded,12 many scholars argue that
revenue rulings should be afforded some lesser standard of deference.13
7. See, e.g., Tedokon v. Commr., 84 T.C.M. (CCH) 657, at 45 (2002)
(finding revenue ruling commanded deference); Trinova Corp. and Subsidiaries
v. Commr, 108 T.C. 68 (1997) (disagreeing with the Second and Ninth Circuits
level of deference to revenue rulings), r evd sub nom. Aeroquip-Vickers, Inc. v.
Commr, 347 F.3d 173, 180 (6th Cir. 2003 ) (reversing the Tax Court s decision
and acknowledging a change in direction and that in light of recent Supreme Court
cases, revenue rulings should receive some degree of deference).
8. See Nicholas Confessore et al., Confusion and Staff Troubles Rife at I.R.S.
Office in Ohio, N.Y. TIMES (May 18, 2013), http://www.nytimes.com/2013/05/19
/us/politics /at-irs-unprepared-of fice-seemed-unclear-ab out-the-rules.html?_r =0
[https://perma.cc/8VX4-C9MN]. The IRS Exe mpt Organization department
administers ta x law govern ing charities, pr ivate foundations, and other entities
exempt from federal income tax. See About Us , IRS, https://www.ir s.gov
/charities-non-profits/about-irs-exempt-organizations (last visited Nov. 16, 2017)
[https://perma.cc/T2M6-C2TV].
9. See, e.g., Skidmore v. Swift & Co., 323 U.S. 134 (1940); Chevron U.S.A.
v. Nat. Res. Def. Council, 467 U.S. 837 (1984); United States v. Mead Corp., 533
U.S. 218 (2001).
10. See discussion infra Part I.C.
11. See discussion infra Part I.
12. Treas. Reg. § 601.601(d)(2)(v)(d) (as amended in 1989) (“Revenue
Rulings published in the Bulletin do not have the force an d effect of Treasury
Department Regulations . . . .”).
13. See, e.g., Linda Galler, Emerging Sta ndards for Judicial Review of IRS
Revenue Rulings, 72 B.U. L. Rev. 841, 85769 (1992); Peter A. Lowy & Juan F.
Vasquez, Jr., How Revenue Rulings Are Made, and the Implications of That
Process For Judicia l Deference, 101 J. TAXN 230, 234 (2004) (stating that it is
abundantly clear that revenue rulings are not entitled to Chevron deference);

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