August 16, 2010
The taxpayers have filed their opening brief in Mayo Foundation, a copy of which is attached. They argue primarily that the statutory language of the exemption unambiguously includes medical residents, and therefore there is no occasion to consider the reasonableness of the IRS regulation. Secondarily, they argue that the regulation is in any event arbitrary and unreasonable.
With respect to the question of the correct deference analysis discussed in our previous post, the brief relies heavily on the National Muffler Dealers factors. It identifies five factors that militate against the reasonableness of the regulation: (1) does not harmonize with the origin and purpose of the statute; (2) not contemporaneous; (3) did not “evolve in an authoritative manner” because it was designed to overturn adverse judicial decisions; (4) has not been in effect for long; and (5) the government’s position has been inconsistent. Although the first factor is basic to any analysis of the reasonableness of a regulation, the other four all come from National Muffler Dealers and are not commonly associated with the Chevron deference analysis applied to non-tax statutes.
The taxpayers have not asked the Court to choose between Chevron and Muffler Dealers. To the contrary, they have finessed the possible tension between two lines of cases by purporting to examine “the factors that indicate the reasonableness of a tax regulation under this Court’s decisions in Chevron and National Muffler” and observing that the “Court has given special consideration to several factors identified in National Muffler” “in determining the reasonableness of a regulation interpreting a revenue statute.” As discussed in our previous post, this approach is entirely consistent with the way the Supreme Court has approached this issue in recent years – that is, citing to the National Muffler Dealers factors in tax cases without addressing whether the analysis is fully consistent with Chevron. But the courts of appeals have begun to question whether the two approaches are compatible. It will be interesting to see whether the government’s brief challenges the continuing vitality of the National Muffler Dealers analytical framework. That brief is due on September 27.