Nearly Four Months After His Death, Judge Reinhardt Casts the Deciding Vote in an Important Tax Exceptionalism Case: Altera v. Commissioner of Internal Revenue

by Christopher J. Walker — Tuesday, July 24, 2018@chris_j_walker

[8/7/2018 Update: In an order issued today by a Ninth Circuit three-judge panel where Judge Graber has replaced Judge Reinhardt, the newly constituted panel states that “[t]he Opinions filed July 24, 2018, are hereby withdrawn to allow time for the reconstituted panel to confer on this appeal.”]

Today the Ninth Circuit issued a 2-1 decision in a very important tax and administrative law case, Altera v. Commissioner. My co-blogger Andy Grewal had a short post about one aspect of the case last year: the amici law professors’ suggestion to remand without vacatur. And two groups of tax professors filed amicus briefs in support of the IRS, and those briefs are definitely worth reading (here and here). Importantly, both briefs reject tax exceptionalism, as the Ninth Circuit majority also purports to do here, and instead argue that the IRS action under review is substantially and procedurally proper under the Administrative Procedure Act and Internal Revenue Code.

Despite my scholarly interest in tax exceptionalism, I have generally not covered the substance of the case on the blog, as I represented the U.S. Chamber of Commerce as amicus curiae in this case. That brief is available here. I try to avoid mixing my academic and of counsel roles when blogging or otherwise engaged in academic work. But I did contribute a short post with some reflections on the administrative law aspects of the case to The Surly Subgroup as part of the blog’s 2017 Mini-Symposium on Tax Enforcement and Administration. Here’s the key part of the Chamber’s amicus brief, which I also reproduced for the online symposium:

This case is illustrative. Before the Tax Court, the IRS sought Chevron deference for its statutory interpretation, but disagreed that the regulation at issue is “a legislative rule,” which would subject it to all of the APA’s notice-and-comment rulemaking requirements. ER49.

Similarly, the IRS argued that administrative law’s reasoned decisionmaking requirement, as articulated by the Supreme Court in Motor Vehicle Manufacturers Ass’n v. State Farm Mutual Auto Insurance Company, 463 U.S. 29 (1983), did not apply to this rulemaking, even though the new Treasury regulation departs from the IRS’s prior position without reasoned explanation. ER51. In arguing why the reasoned decisionmaking standard that applies to the rest of the regulatory state should not apply to the IRS, the IRS claimed that “the Supreme Court has never, and [the Tax] Court has rarely, reviewed Treasury regulations under State Farm.” ER55.

Moreover, as detailed at length in Altera’s opening brief (at 38-70), now that the IRS is in court, it has essentially abandoned the stated rationale for the regulation (the arm’s-length standard) and, instead, attempted to defend its rule on a new argument (the commensurate-with-income standard). Apparently the IRS does not feel it should be bound by the Chenery doctrine, which holds that an agency action “can-not be upheld unless the grounds upon which the agency acted in exercising its powers were those upon which its action can be sustained.” Chenery I, 318 U.S. at 95. Nor does the IRS seem to consider itself bound by Supreme Court precedent that an agency must provide reasons in the rule itself for changing its position.

The dangers inherent in the IRS’s tactics should be plain: the IRS wants to take advantage of the agency discretion afforded by judicial deference doctrines that apply to administrative interpretations of law without also being bound by the constraints administrative law imposes on federal agency action in order to ensure an agency’s discretion is not exercised in an arbitrary and capricious manner. The Supreme Court, the D.C. Circuit, and now the Tax Court have rejected any such claims of tax exceptionalism. This Court should send a clear message to the IRS that it must play by the same rules of the road that govern the rest of the federal regulatory state.

On the merits, the dissent filed by Federal Circuit Judge O’Malley, who was sitting by designation on the Ninth Circuit, largely tracks this argument regarding the IRS’s failure to engage in reasoned decisionmaking.

But as the title of this post suggests, I’m very uncomfortable with the judicial decisionmaking process here. This is a 2-1 decision with Judge Reinhardt casting the deciding vote in the majority. Judge Reinhardt passed away on March 29, 2018, nearly four months before the opinion was published. As the opinion’s author is Chief Judge Thomas, who has always struck me as a careful and deliberate judge, I’m sure he conferred with all of his colleagues on the Ninth Circuit before deciding to publish this decision. The case was argued way back in October 2017, so the panel no doubt weighed the costs of additional delay and reargument.

And, to be sure, the opinion itself notes that “Judge Reinhardt fully participated in this case and formally concurred in the majority opinion prior to his death.” In other words, I infer that Chief Judge Thomas had likely circulated his opinion prior to Judge Reinhardt’s death, and Judge Reinhardt had reviewed it and sent the formal “I’m pleased to join” notification. But Judge O’Malley likely hadn’t drafted, or at least circulated, her dissent prior to Judge Reinhardt’s death, hence the four-month delay in publication.

As Howard Bashman has noted, #appellatetwitter folks disagree about what to do with judges’ votes in opinions issued after they die. Consider me firmly among those who find this practice of dead-hand voting quite unsettling, especially to cast the deciding vote and even more so if the deceased judge did not have an opportunity to review and respond to the dissent. On the substance of the administrative law issues implicated by this case, I wouldn’t be surprised to see the Ninth Circuit reconsider the case en banc and/or the Supreme Court deciding to review the case. But I wonder how this procedural oddity will factor, if at all, into the decision to grant further review.



Cite As: Author Name, Title, 36 Yale J. on Reg.: Notice & Comment (date), URL.

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About Christopher J. Walker

Christopher Walker is a law professor at The Ohio State University Moritz College of Law. Prior to joining the law faculty, Professor Walker clerked for Justice Anthony Kennedy of the U.S. Supreme Court and worked on the Civil Appellate Staff at the U.S. Department of Justice. His publications have appeared in the California Law Review, Michigan Law Review, Stanford Law Review, and University of Pennsylvania Law Review, among others. Outside the law school, he serves as one of forty Public Members of the Administrative Conference of the United States and as Chair-Elect of the American Bar Association’s Section on Administrative Law and Regulatory Practice. He blogs regularly at the Yale Journal on Regulation.

2 thoughts on “Nearly Four Months After His Death, Judge Reinhardt Casts the Deciding Vote in an Important Tax Exceptionalism Case: Altera v. Commissioner of Internal Revenue

  1. tabman

    I think this process should be deemed inappropriate, and this opinion should not bind the parties. The judicial opinion is an order of the court, and it does not exist until issued. It does not become the court’s opinion when discussed or voted on, but when issued, and there were only 2 judges then, and the case should have been resubmitted with a third judge.

  2. Jack Townsend

    I think it is fair to say that tax exceptionalism was always mostly, if not exclusively, a figment in some people’s imagination. And if that is too stark a characterization, it certainly is after Mayo.

    Also, the interpretive-legislative regulation issue is a bit of a red-herring. As I understand the issue as it arose in Altera, the notion is that agency interpretations attracting Chevron deference are legislative regulations by force of the reasoning in Chevron (based on implicit legislative delegation of interpretive authority and the deferral to an agency interpretation giving it the force of law). Accepting that premise, then since notice and comment regulations perforce attract Chevron deference, then there is no such thing as an interpretive notice and comment regulation because Chevron makes such a regulation a legislative regulation. Then, as a legislative regulation, it is subject to the notice and comment requirement (which, of course, for the Altera regulation it had been given) and State Farm’s reasoned rulemaking requirement.

    I question the premise — that Chevron deference makes the interpretive regulation a legislative regulation for purposes of the APAs requirements for legislative regulations. Before Chevron, there could be interpretive regulations; indeed tax regulations were mostly interpretive regulations (the IRS claims still are). And, those regulations were given deference, albeit in a less structured fashion than Chevron adopted. But they were still interpretive regulations even though given deference and thereby the force of law. As to such interpretive regulations that had gone through notice and comment, it really made no difference for the APA’s requirement of notice and comment for legislative regulations. But it did make a difference for retroactivity. Legislative regulations generally cannot be retroactive; interpretive regulations can be retroactive. And retroactivity for interpretive regulations was routinely accepted pre-Chevron. I don’t think that Chevron changed that (although there are some limitations in 26 USC § 7805(b) which were not enacted until the 1990s).

    If I am correct that the APA concept for interpretive regulations still exists even for regulations given Chevron deference, then I think the issue becomes that, although interpretive regulations need not go through the regulations notice and comment process, if the agency chooses to put them through that process (as the IRS does), then the agency must meet the APAs requirements for the process — that the notice and comment be meaningful and produce reasoned decisionmaking.

    For that reason, the majority in Altera did not have to reach the issue. See the opinion, p. 25, n. 10:

    Because the Commissioner does not contest the applicability of the APA or Chevron in this context, this case does not require us to decide the broader questions of the precise contours of the application of APA to the Commissioner’s administration of the tax system or the continued vitality of the theory of tax exceptionalism. See generally, e.g., Stephanie Hoffer and Christopher J. Walker, The Death of Tax Court Exceptionalism, 99 MINN. L. REV. 221 (2014); Kristin E. Hickman, Coloring Outside the Lines: Examining Treasury’s (Lack of) Compliance with Administrative Procedure Act Rulemaking Requirements, 82 NOTREDAME L.REV. 1727 (2007).


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