Taxation without representation: the illegal IRS rule to expand tax credits under the PPACA.

Author:Adler, Jonathan H.
Position:Patient Protection and Affordable Care Act - V. Assessing Other Potential Legal Rationales for the IRS Rule through Conclusion, with footnotes, p. 167-195

    As demonstrated above, the text, purpose, structure, and history of the PPACA do not support the IRS rule. That does not end the arguments in favor of the rule, however. Insofar as the language of the PPACA would seem to bar the IRS rule, commentators have suggested several additional rationales in defense of the administrative extension of tax credits and subsidies to federal exchanges. First, some suggest that the language of Section 1401 was a "scrivener's error" that the IRS and any reviewing court would be justified in disregarding. Second, some suggest the plain text of Section 1401 should be disregarded because it would produce "absurd results" that undermine the purpose and intent of the PPACA. Third, some argue that, insofar as the text of Section 36B is ambiguous or unclear, particularly when read in light of subsequent amendments, the IRS should receive deference for its interpretation under the Chevron doctrine. Fourth, some argue that statutes should be read in light of evaluations by Congressional agencies such as the Congressional Budget Office, and that such an approach would support the IRS rule. Each of these arguments has a superficial plausibility. None withstands scrutiny.

    1. Scrivener's Error

      One possible argument in defense of the IRS rule is that the text of the PPACA contains a simple mistake that the IRS can and should disregard. Specifically, the claim is that Section 1401's failure to mention federal Exchanges created pursuant to the authority in Section 1321 was an error made in the drafting or transcribing of the legislation and does not reflect legislative intent. Professor Timothy Jost, for instance, has argued that the textual limitation of tax credits and subsidies to staterun (i.e., Section 1311) Exchanges is a "drafting error" that "is obvious to anyone who understands" the PPACA. (168) If the "error" is, in fact, "obvious," then it may be the sort of error that a federal agency (and reviewing courts) should disregard as a "scrivener's error." (169)

      A "scrivener's error" is supposed to be just that--a purely clerical error that could be attributed to a failed transcription or something of that sort. (170) Common examples are errors in punctuation that, when read literally, alter the meaning of a statutory provision and mistaken cross-references to subsections in a statute--say, mistaking "(i)" for "(ii)" or "Section 36B (B)(I)(b)" for "Section 36 (B)(I)(b)." These are the sorts of mistakes a legislator could easily miss when reviewing 2,000 pages of statutory text or that could even be introduced into a statute when it is amended or transcribed--hence the name "scrivener's error."

      To establish that a statutory provision is a scrivener's error typically requires showing that it is implausible, not merely unlikely, that a statutory provision was drafted as its authors intended. As the Supreme Court explained in U.S. National Bank of Oregon v. Independent Insurance Agents of America, this will only be shown in the "unusual" case in which there is "overwhelming evidence from the structure, language, and subject matter of the law" that Congress could not have consciously adopted the language in the statute. (171) Similarly, in Appalachian Power Co. v. EPA, the D.C. Circuit explained that:

      We will not ... invoke this rule to ratify an interpretation that abrogates the enacted statutory text absent an extraordinarily convincing justification [because] ... the court's role is not to 'correct' the text so that it better serves the statute's purposes, for it is the function of the political branches not only to define the goals but also to choose the means for reaching them.... Therefore, for the [agency] to avoid a literal interpretation ... it must show either that, as a matter of historical fact, Congress did not mean what it appears to have said, or that, as a matter of logic and statutory structure, it almost surely could not have meant it. (172) Further, the showing must be exceedingly strong for a reviewing court to disregard the statute's text because the legislature is always free to correct its own mistakes. As Justice Kennedy noted for a unanimous court in Lamie v. United States Trustee, "If Congress enacted into law something different from what it intended, then it should amend the statute to conform it to its intent." (173) Where a "scrivener's error" is found, an implementing agency or reviewing court is justified in disregarding the literal text of the statute insofar as this is necessary to correct the mistake, but no further. The discovery of a scrivener's error is not a justification for writing a statute anew. (174)

      Given the PPACA's unusual (and somewhat hurried) legislative history, one could anticipate that there are scrivener's errors of one sort or another in the Act. As Justice Stevens observed, "a busy Congress is fully capable of enacting a scrivener's error into law," (175) and the Congress that passed the PPACA was extraordinarily busy. Sure enough, some such errors can be found in the Act. For example, there is a textbook scrivener's error in the very clause where PPACA restricts tax credits to state-run Exchanges. Section 1401 amended the Internal Revenue Code to make taxpayers eligible for premium-assistance tax credits if they enroll in a qualified health plan "through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act." (176) Obviously, the authors inadvertently omitted the word "Section" before "1311." The Act contains dozens of references to "Section 1311," including a reference elsewhere in Section 1401 that uses identical language but includes the word "Section." (177) The omission of "Section" is a clear scrivener's error. It is an error of transcription, and the language is open to no other interpretation.

      Another textbook scrivener's error exists in the section of the PPACA that creates the Independent Payment Advisory Board. (178) Subsection (f)(1) details the requirements for a type of joint resolution mentioned in "subsection (e)(3)(B)." (179) Yet subsection (e)(3)(B) makes no mention of joint resolutions. The authors clearly meant to refer to subsection (e)(3)(A). It is there that the Act first mentions the joint resolution in question. Subsection (e)(3)(A) even contains a cross-reference: it states that the joint resolution is "described in subsection (f)(1)." (180) The use of "(B)" instead of "(A)" is a clear scrivener's error.

      In contrast to these provisions, the failure to authorize tax credits for insurance purchased through federal Exchanges is not a "scrivener's error." As noted above, there is a plausible rationale for the way the statute is written and ample evidence that the language of the statute provides for what at least some of its authors intended. Either alone would be sufficient to defeat a scrivener's error claim. The alleged error here is also more significant than the sort typically recognized as a scrivener's error. Section 1401 specifically mentions the type of Exchanges through which tax credits will be available (those "established by the State") and the relevant Section (1311). It makes no mention of federally run Exchanges or Section 1321. A legislator reviewing the relevant language could not claim that they did not realize the statutory cross-reference excluded federal Exchanges because the clear text of the statute does as well.

      There is also no evidence we have been able to identify to suggest that the failure to mention Section 1321 in Section 1401's eligibility rules for premium-assistance tax credits could have been an error of transcription or something of that sort. We have been unable to identify text in any previous iteration of the law--something equivalent to the IRS rule's "or 1321"--which a legislative staffer or someone else might have mistranscribed or inadvertently dropped in order to produce the result the IRS rule seeks. In every material respect, the final versions of the PPACA's relevant provisions are identical to previous drafts of the Finance Committee bill. Those eligibility rules make numerous references to Exchanges. If the unavailability of tax credits through Section 1321 Exchanges had been a scrivener's error, one might expect at least one of those references to leave the door open to the possibility of tax credits through federal Exchanges. Yet as noted above, those eligibility rules consistently and exclusively refer to Section 1311 Exchanges. However many such errors there may be in the Act, the failure to authorize tax credits for the purchase of health insurance in federally run Exchanges is not among them.

      Further, in order to establish the existence of a scrivener's error that could be corrected by agency regulation, the IRS would have to do more than show that Congress "clearly did not mean" (181) to create a presumably undesirable scenario in which the PPACA's "community rating" price controls and individual mandate would take effect but the tax credits would not. The IRS would have to meet the more difficult test of showing that Congress could not have intended to produce such a result. Supporters of the rule would have to show, as Professor Jost claims, "It]here is no coherent policy reason why Congress would have refused premium tax credits to the citizens of states that ended up with a federal exchange." (182)

      The IRS cannot meet this test. The record clearly shows that PPACA supporters had a coherent policy reason for withholding tax credits from uncooperative states. They considered it a viable means of encouraging states to implement the law. (183) Not only is it plausible that Congress wanted to restrict tax credits to state-run Exchanges, that restriction is an essential part of the Act because it is the primary means of enforcing the directive that states "shall" create Exchanges. The HCERA's explicit authorization of tax credits and...

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