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

m/news/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 Fairness, 36 SETON HALL L. REV. 421 (2006). 6. The 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 fairness to all taxpayers. IRM 1.1.1.2 (June 2, 2015); see also I.R.C. § 7803(a)(3) (2012); 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 receive 11 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. Comm’r., 84 T.C.M. (CCH) 657, at 4–5 (2002) (finding revenue ruling “commanded deference”); Trinova Corp. and Subsidiaries v. Comm’r, 108 T.C. 68 (1997) (disagreeing with the Second and Ninth Circuits’ level of deference to revenue rulings), rev ’ d sub nom. Aeroquip-Vickers, Inc. v. Comm’r, 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-office-seemed-unclear-about-the-rules.html?_r=0 [https://perma.cc/8VX4-C9MN]. The IRS Exempt Organization department administers tax law governing charities, private foundations, and other entities exempt from federal income tax. See About Us, IRS, https://www.irs.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 and effect of Treasury Department Regulations . . . .”). 13. See, e.g., Linda Galler, Emerging Standards for Judicial Review of IRS Revenue Rulings, 72 B.U. L. Rev. 841, 857–69 (1992); Peter A. Lowy & Juan F. Vasquez, Jr., How Revenue Rulings Are Made, and the Implications of That Process For Judicial Deference, 101 J. TAX’N 230, 234 (2004) (stating that it is abundantly clear that revenue rulings are not entitled to Chevron deference); 634 LOUISIANA LAW REVIEW [Vol. 78 Nonetheless, the regulations also provide that revenue rulings are “published to provide precedents to be used in the disposition of other cases, and may be cited and relied upon for that purpose.” 14 Controversy exists as to whether the explicit disclaimer—codified in the Federal Treasury regulations 15 —that revenue rulings do not rise to the level of Treasury regulations necessarily strips revenue rulings of the force and effect of law. 16 Nevertheless, applying any standard less than substantial deference to revenue rulings conflicts with principles of administrative law and contradicts established jurisprudence. 17 Applying a lesser standard, such as considering revenue rulings merely persuasive, effectively allows courts to inject their own analyses into the meaning of the statute at issue, only looking to agency interpretations to determine if the interpretations may persuade a court otherwise. 18 Part I of this Comment examines the legal principles behind revenue rulings, discussing the two main standards of deference that may be afforded to administrative rulings generally and assessing how various courts have treated revenue rulings. Part II discusses applicability of the standards of deference to IRS revenue rulings in light of the Supreme Court decision in United States v. Mead Corp 19 and the problems that have arisen post-Mead. Particularly, this Part explores the standards behind agency promulgations that have the force and effect of law. Part III assesses revenue rulings and discusses the various reasons why the rulings are entitled to substantial judicial deference. Part IV offers a solution to alleviate the uncertainty of the deference afforded to revenue rulings, focusing on revenue rulings in the context of charitable organizations. Part V advocates a call for deference to revenue rulings as supported by the examination in Part IV. This Comment concludes by arguing that revenue Salem et al., supra note 1, at 744 (recommending that federal courts should give revenue rulings Skidmore deference). 14. Treas. Reg. § 601.601(d)(2)(v)(d). 15. Id. 16. Compare Salem et al., supra note 1, at 744 (providing that revenue rulings are not entitled to Chevron deference because they do not have the same force of law as Regulations), with Ryan C. Morris, Substantially Deferring to Revenue Rulings After Mead, 2005 B.Y.U. L. REV. 999, 1040 (2005) (“A wide variety of reasons suggest that revenue rulings are the type of administrative pronouncement that deserves Chevron deference . . . .”). 17. See discussion infra Part IV.B. 18. See Russell L. Weaver, The Emperor Has No Clothes: Christensen, Mead, and Dual Deference Standards, 54 ADMIN. L. REV. 173, 174 (2002); see also Ronald M. Levin, Mead and the Prospective Exercise of Discretion, 54 ADMIN L. REV. 771, 772 (2002). 19. Mead Corp. v. United States, 533 U.S. 218 (2001). 2017] COMMENT 635 rulings are entitled to Chevron deference as it is both plausible and logical given the level of certainty taxpayers desire, the expertise of the IRS, the method by which revenue rulings are generated, the penalties associated with noncompliance, and the social policies particular to charitable organizations. I. REVENUE RULINGS AND STANDARDS OF JUDICIAL DEFERENCE IRS revenue rulings are official interpretations of substantive tax law 20 and are the “second most important” pronouncements made by the IRS. 21 Defined as official interpretations by the IRS, revenue rulings are published to inform and provide guidance to taxpayers, IRS officials, and other parties concerned with principles of taxation. 22 The issuance of revenue rulings may offer interpretations of the Internal Revenue Code (“IRC” or “Code”), Treasury regulations, and caselaw as applied to hypothetical fact patterns. 23 Formally, these promulgations represent the IRS’s position on how the law applies to a particular set of facts. 24 They are formatted in a way that discusses hypothetical facts, applies the appropriate law to the proposed facts, and sets forth the proper outcome and reasons in support of such outcome. 25 The IRS issues revenue rulings to promote correct and uniform application of tax laws by its IRS employees and to assist taxpayers in attaining maximum voluntary compliance. 26 To those ends, the revenue rulings inform IRS personnel of the internal revenue laws, related statutes, treaties, regulations, and statements of procedures affecting the rights and duties of taxpayers. 27 The IRS instructs taxpayers to rely on revenue rulings as guidance in applying the particular tax law to substantially similar facts. 28 In the event that taxpayers choose to ignore the principles established in revenue rulings, they may face penalties associated with 20. Treas. Reg. § 601.601(d)(2)(i)(a), (v)(a); see also Rev. Proc. 89-14, § 3.01, 1989-1 C.B. 814. 21. Stichting Pensioenfonds Voor de Gezondheid v. United States, 129 F.3d 195, 198 (D.C. Cir. 1997). 22. Treas. Reg. § 601.201(a)(6) (1967). 23. See IRM 32.2.3.1 (Sept. 16, 2016) (discussing revenue rulings). 24. Rev. Proc. 2002-1, 2002-1 C.B. 1. 25. See Bankers Life & Cas. Co. v. United States, 142 F.3d 973, 978 (7th Cir. 1998). 26. Treas. Reg. § 601.601(d)(2)(iii) (as amended in 1989). 27. Id. 28. Treas. Reg. § 601.601(d)(2)(v)(e). 636 LOUISIANA LAW REVIEW [Vol. 78 noncompliance for “[n]egligence or disregard of rules or regulations.” 29 As revenue rulings are effectively binding to the applications of similar facts, they represent more than just pure guidance documents or policy statements by the IRS; as statements of the IRS’s position on the law as applied to similar facts, revenue rulings also provide standards governing IRS taxation treatment unless and until the standard is altered by a subsequent IRS promulgation. 30 Revenue rulings and Treasury regulations are the principal means by which taxpayers receive guidance in interpreting the IRC; 31 nonetheless, these means are far from comprehensive and still result in uncertainty regarding IRC provisions. 32 Revenue rulings differ, however, from Treasury regulations, which are authorized by IRC § 7805, and many other provisions of the IRC. Regulations are the most formal and authoritative interpretations of the IRC. 33 Regulations are issued by the Treasury Department after extensive review within both the department and the IRS 34 and are among the highest authorities in administrative...