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More On The Confusion Surrounding The Difference Between Legislative And Interpretive Rules

Posted on June 14, 2022

Today’s post is from Jack Townsend. Jack is a practitioner whose blogs on tax procedure inspired us to start Procedurally Taxing back in 2013. In addition to working with me as the principal contributing author for the chapter in Saltzman and Book on criminal tax penalties, Jack writes widely on issues of tax procedure. An area he has written extensively about is the intersection of administrative law and tax procedure. In today’s post, Jack comments on my post the other day that discussed the difference between interpretive and legislative rules. Les

Les’ post Update on CIC Services And More On The Legislative vs Interpretive Rule Difference links to my article The Report of the Death of the Interpretive Regulation Is an Exaggeration, which considers whether interpretive regulations generally and Treasury interpretive regulations specifically are a viable APA category.

PT readers might want to know that I provide a Key Point Summary of the article, where I distill over 100 pages into 7 pages with few citations and no footnotes:  A Key Point Summary of The Report of the Death of the Interpretive Regulation Is an Exaggeration

I think the overall point of confusion is blending APA concepts into the deference discussion. Interpretive and legislative are APA concepts (importing those concepts from pre-APA law). They are not relevant to the deference discussion, except that (i) legislative regulations are the law and not subject to deference reasonableness of interpretation testing, and (ii) interpretive regulations are interpretations rather than the law and are subject to deference reasonableness of interpretation testing. Over time, the Chevron deference commotion has morphed the concepts, somehow claiming that Chevron deference applies only to legislative regulations (or rules that create law rather than interpret law). That erroneous claim is harmless error in the deference context because courts and scholars then apply the reasonableness of the interpretation test. In other words, they get the right result but get there at the intermediate step of mislabeling interpretive regulations as legislative. The erroneous claim, however, can do great mischief when imported into the APA distinction between legislative and interpretive regulations.

I offer one more point that may not be clearly stated in my offerings. Simply because a notice and comment regulation is interpretive and thus does not REQUIRE notice and comment, once the agency promulgates the interpretation in a notice and comment regulation (as Treasury has historically done for many agency interpretations), then the regulation can be tested for procedural regularity (arbitrary and capricious test) under the APA. That is not because the interpretation is legislative, but because the APA requires procedural regularity for agency action. For example, if the IRS said in the Reasoned Decisionmaking explanation in a notice and comment regulation that a tax applies only to individuals with blue eyes when there is no such requirement in the statute, the regulation might flunk the reasonableness of the interpretation deference test AND the procedural regularity (arbitrary and capricious) test. But the tests are not the same (contrary to the claims of some courts and scholars who misread Judulang‘s footnote). See Judulang v. Holder, 565 U.S. 42, 52 n.7 (2011) (As long time tax observers know, seemingly throw-away statements in Supreme Court footnotes can create great mischief, although the Judulang footnote just requires careful reading to know that claims of equivalence in the two tests are false.)

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