Court Opinion

ID: 9578394
Source: CourtListenerOpinion
Date Created: 2023-08-21 21:44:49.196959+00
Date Added: 2024-06-11T13:20:59.005723
License: Public Domain

O’SCANNLAIN, Circuit Judge,
specially concurring:
I join the court in its conclusion that Revenue Procedure 2002-40 is a valid exercise of the Internal Revenue Service’s authority. Yet as the majority notes, there is tension in our case law as to whether the level of deference prescribed in Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), or Skidmore v. Swift & Co., 323 U.S. 134, 65 S.Ct. 161, 89 L.Ed. 124 (1944), should apply to the agency’s action in this case. Thus, while I agree with the majority that Revenue Procedure 2002-40 withstands scrutiny under either standard, I write separately because I believe this tension, left unresolved, could lead our court down a path that is inconsistent with Supreme Court authority and with common sense. As I explain, I believe that in this case, Chevron deference must apply.
I
Prior to 2002, the Internal Revenue Code allowed taxpayers to carry back the net operating loss accrued in a particular tax year by a maximum of two years. 26 U.S.C. § 172(b)(1)(A). In 2002, Congress enacted the Job Creation and Worker Assistance Act of 2002 (“JCWA Act”), Pub.L. No. 107-147, § 102(a), 116 Stat. 25-26, codified at 26 U.S.C. § 172(b)(1)(H), which temporarily extended the carryback period from two years to five years. Id. The new five-year carryback applied only to tax years ending in 2001 or 2002. In addition, the JCWA Act provided that taxpayers could opt out of the five-year carryback, stating that the taxpayer’s “election shall be made in such manner as may be prescribed by the Secretary.” 26 U.S.C. § 172(j). The Internal Revenue Service (“IRS”) responded to this specific delegation of authority by promulgating Revenue Procedure 2002^40. Among other things, the Revenue Procedure required taxpayers wishing to opt out of the five-year carry-back to make their election on or before October 31, 2002. In this appeal, we must decide whether the IRS exceeded its authority when it imposed this deadline.
II
As an initial matter, the JCWA Act states unequivocally that the Secretary shall prescribe the manner of elections. 26 U.S.C. § 172(j). Thus, because Congress has “directly spoken to the precise issue,” Chevron, 467 U.S. at 842, 104 S.Ct. 2778, I would look no further than the statute’s text in ascertaining the scope of the rulemaking authority Congress intended to delegate to the IRS. Accordingly, I *945do not believe the Congressional Letter discussed by the majority is relevant to our analysis. See Maj. Op. at 940-41 (citing Congressional Letter from Rep. Bill Thomas, Chair, Comm, on Ways and Means; Sen. Max Baucus, Chair, Comm, on Finance; Rep. Charles B. Rangel, Ranking Member, Comm, on Ways and Means; Sen. Charles E. Grassley, Ranking Member, Comm, on Finance, to Mark A. Weinberger, Assistant Sec’y (Tax Policy), Dep’t of the Treasury (Apr. 15, 2002)). Although the Congressional Letter recites that Congress intended the Secretary to prescribe the manner of elections, such intent is made plain by § 172(j).
Where Congress unambiguously expresses its intent in the text of the statute, I believe it unnecessary to entertain correspondence signed by a handful of legislators to confirm that Congress meant what it said — a taxpayer’s “election shall be made in such manner as may be prescribed by the Secretary.” 26 U.S.C. § 172Q).
Ill
But just what level of deference should Revenue Procedure 2002-40 receive? In United States v. Mead Corp., 533 U.S. 218, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001), the Supreme Court explained that an agency’s implementation of a statute will receive Chevron deference where it appears that Congress delegated authority to the agency to “make rules carrying the force of law,” and where “the agency interpretation claiming deference was promulgated in the exercise of that authority.” Id. at 226-27, 121 S.Ct. 2164. Agency action that does not meet this test is subjected to the less deferential analysis prescribed by Skid-more. See Mead, 533 U.S. at 234-35, 121 S.Ct. 2164.
A
In this case, the agency interpretation claiming deference is a revenue procedure. Revenue Procedure 2002-40 was published in the Internal Revenue Bulletin, which serves as “the authoritative instrument of the Commissioner for the announcement of official rulings, decisions, opinions, and procedures, and for the publication of Treasury decisions, ... and other items pertaining to internal revenue matters.” Treas. Reg. § 601.601(d)(1). Importantly, however, revenue procedures are not produced through formal notice-and-comment rulemaking or formal adjudication.
The majority points out that our case law is unclear as to whether a revenue procedure should receive Chevron or Skid-more deference. Maj. Op. at 941-42 (citing Omohundro v. United States, 300 F.3d 1065 (9th Cir.2002) (applying Skidmore deference to an IRS revenue ruling) and Schuetz v. Banc One Mortgage Corp., 292 F.3d 1004 (9th Cir.2002) (applying Chevron deference to a Department of Housing and Urban Development policy statement)). The majority declines to resolve this tension, concluding instead that Revenue Procedure 2002-40 is valid even under the less deferential Skidmore analysis. Maj. Op. at 941-42. I agree with the majority that our precedents are inconsistent, but I believe the majority presents a question we are not required to ask. Mead does not instruct us to decide whether revenue procedures, as a class, are subject to one level of deference or another. Instead, the Supreme Court requires us only to determine whether this Revenue Procedure is entitled to deference under Skidmore or under Chevron.
In Mead, the Court explained that the formality of a particular agency action is an important factor in determining whether it receives Chevron or Skidmore deference, but not a determinative one. The Court noted that “[i]t is fair to assume generally that Congress contemplates administrative action with the effect of law *946when it provides for a relatively formal administrative procedure.” Mead, 533 U.S. at 230, 121 S.Ct. 2164. And, as a consequence, the “the overwhelming number of[the Court’s] cases applying Chevron deference have reviewed the fruits of notice-and-comment rulemaking or formal adjudication.” Id. (citations omitted). Still, the Court emphasized that “[djelegation of such authority may be shown in a variety of ways, as by an agency’s power to engage in adjudication or notiee-and-eomment rulemaking, or by some other indication of a comparable congressional intent.” Id. at 227, 121 S.Ct. 2164(empha-sis added); see also Swallows Holding, Ltd. v. Comm’r, 515 F.3d 162, 169-71 (3d Cir.2008) (citing Mead for the proposition that “[w]hen determining whether Congress intends a particular agency action to carry the force of law, our inquiry does not hinge solely on the type of agency action involved.”).
Yet on this point, our own cases are in conflict. In Schuetz, we applied Chevron deference to a Department of Housing and Urban Development (“HUD”) Policy Statement, even though it was not the result of formal rulemaking or adjudication. 292 F.3d at 1012. In so doing, we directly quoted from the Supreme Court’s decision in Barnhart v. Walton, 535 U.S. 212, 122 S.Ct. 1265, 152 L.Ed.2d 330 (2002), that “the fact that the Agency previously reached its interpretation through means less formal than notice and comment rulemaking does not automatically deprive the interpretation of the judicial deference otherwise due.” Schuetz, 292 F.3d at 1012 (quoting Walton, 535 U.S. at 221, 122 S.Ct. 1265) (internal quotation marks omitted). But only a few months later in Omohundro, we applied Skidmore deference to an IRS revenue ruling which was not the product of formal rulemaking or adjudication, because we interpreted Mead as holding that “an administrative agency’s interpretation of a statute contained in an informal rulemaking must be accorded the level of deference set forth in Skidmore.” 300 F.3d at 1067-68(eitations omitted) (emphasis added).
Our statements in Schuetz and Omohun-dro are irreconcilable. Moreover, our statement in Omohundro flatly contradicts the Supreme Court’s instructions in Walton and Mead. See Walton, 535 U.S. at 221, 122 S.Ct. 1265; Mead, 533 U.S. at 230-31, 121 S.Ct. 2164. Indeed, the Court has emphasized that “as significant as notice-and-comment is in pointing to Chevron authority, the want of that procedure ... does not decide the case,” for the Court has “sometimes found reasons for Chevron deference even when no such administrative formality was required and none was afforded.” Mead, 533 U.S. at 230-31, 121 S.Ct. 2164(citing NationsBank of N.C., N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251, 256-57, 115 S.Ct. 810, 130 L.Ed.2d 740 (1995)).
I agree with the majority that Revenue Procedure 2002-40 would satisfy even Skidmore deference and, as such, I understand the majority’s decision not to resolve the conflict between Schuetz and Omohun-dro in this case. Yet I am convinced that Omohundro’s statement that all informal rulemaking must receive Skidmore deference cannot be reconciled with the Supreme Court’s holdings in Walton and Mead.
Accordingly, I hope this court might one day confront Omohundro and clarify that the formality of a particular agency action, standing alone, does not determine the level of deference it receives. This was the path we followed in Schuetz and, in my view, this is the path that should be followed here. Under such framework, I believe Revenue Procedure 2002-40 is one example of informal rulemaking which is still entitled to Chevron deference.
*947B
When Congress has “explicitly left a gap” for an agency to fill, “there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation,” and “[s]uch legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute.” Chevron, 467 U.S. at 843-44, 104 S.Ct. 2778. Congress has empowered the Secretary of the Treasury and, by his delegation, the IRS with the broad authority to “prescribe all needful rules and regulations” to enforce the Code, including “all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.” 26 U.S.C. § 7805(a). Most revenue procedures are promulgated pursuant to this general delegation. Yet in § 172(j), Congress specifically delegated to the Secretary the authority to prescribe the manner of elections. Revenue Procedure 2002-40 is the product of that rulemaking authority. In my view, this specific delegation strongly indicates that the resulting IRS action would carry the force of law and, thus, receive Chevron deference. See Mead, 533 U.S. at 227-29, 121 S.Ct. 2164.
A comparison with Schuetz is instructive. In that case, we cited several reasons for applying Chevron deference to the HUD Policy Statement even though it was not formal action. First, the statute at issue authorized HUD to prescribe rules and regulations and to interpret the statute. 292 F.3d at 1012 (citing 12 U.S.C. § 2617(a)). Second, the Policy Statement was published in the Federal Register. Id. Finally, we noted that notice-and-comment rulemaking would have been impracticable because Congress issued a Conference Report which directed HUD to issue a policy statement within 90 days to resolve an ambiguity in the statute. Id. at 1009,1012.
The same considerations counsel in favor of Chevron deference here. First, Revenue Procedure 2002-40 is supported by the Secretary’s broad rulemaking authority under § 7805(a) and his specific authority under § 172(j). Second, the IRS published Revenue Procedure 2002-40 in the Internal Revenue Bulletin. Finally, notice-and-comment would have been impracticable in this case because time was of the essence for the IRS to exercise its power delegated by § 172(j) to establish the manner of elections out of the five-year carryback. As the majority explains, Congress enacted the JCWA Act on March 9, 2002. The Act created a five-year net operating loss carryback for tax years ending in 2001 and 2002. 26 U.S.C. § 172(b)(1)(H). It further provided that taxpayers could elect to opt out of the new carryback, but left the manner of election to the Secretary. Id. § 172(j). Yet by the time the Act became law, many taxpayers had already filed their tax returns of the tax years 2001 and 2002. Maj. Op. at 939-40. Such taxpayers were faced with an awkward problem — the Act allowed them to opt out of the carryback, but they had no way of doing so until the Secretary told them how. By April 2002, the ranking members of the House Ways and Means Committee and the Senate Finance Committee recognized the dilemma and sent a letter requesting that the Secretary “issue guidance under which taxpayers are given until November 1, 2002” to, among other things, make an election to opt out. Congressional Letter, supra at 944-45. In light of these factors, the IRS’s response in Revenue Procedure 2002-40 was entitled to Chevron deference.
Omohundro is distinguishable. In that case, we applied Skidmore deference to an IRS revenue ruling that interpreted 26 U.S.C. § 6511(a). 300 F.3d at 1067-68. While the revenue ruling was issued pursuant to the IRS’s broad powers under *948§ 7805(a), it was not the product of a specific delegation of rulemaking authority such as the one provided by § 172(j). In addition, there is no evidence that the revenue ruling in Omohundro was issued under a time constraint such as the one facing the IRS here. Thus, despite Omo-hundro’s strained interpretation of Mead and its inconsistency with our earlier interpretation in Schuetz, several facts that counsel in favor of Chevron deference here were not before the court in that case.
IV
I concur in the result reached by the majority — Revenue Procedure 2002-40 was a valid and enforceable exercise of the IRS’s authority. But while the majority declines to specify the necessary level of deference, I would apply Chevron deference to this particular agency action. The distinction between our positions is important because the Supreme Court has made clear that sometimes informal rulemaking may still lead to deference under Chevron. I believe this is such a case.