Abstract
It is a rare occurrence when Treasury regulations are invalidated, let alone invalidated under common administrative law principles. Although administrative law principles are intended to apply generally to all agencies, the Treasury has failed to follow many Administrative Procedure Act (APA) procedural requirements. Nonetheless, until the Supreme Court’s 2011 decision in Mayo Foundation for Medical Education & Research v. United States, the Treasury faced few successful procedural challenges from taxpayers and limited pressure from the courts. Courts may be starting to take a hint from Mayo because in May 2012, the Treasury received a double dose of general administrative law application from the Federal Circuit. In Dominion Resources, Inc. v. United States, the Federal Circuit took an unusual step by expanding the Mayo test to include an additional administrative law test. Substantively, the Federal Circuit reversed the Court of Federal Claims decision upholding Regulation section 1.263A-11(e)(1)(ii)(B) as it applied to capitalizing interest for property temporarily removed from service, finding that the Regulation was an impermissible construction of Code section 263A. Procedurally, and more importantly, the Federal Circuit came to its conclusion using a two-part test: (1) the Regulation was not a permissible construction of the statute under Chevron, a test courts apply because of Mayo, and (2) the Treasury did not comply with the APA decision-making procedures as required under State Farm.
This Note argues that the Federal Circuit was correct in applying a more comprehensive test to review Treasury regulations because the court, comporting with the APA theme of universality, brought the area of judicial review of Treasury regulations closer in line with the review of other administrative agencies. Part II of this Note discusses the historical treatment of Treasury regulations by courts and the accordance of that treatment with the APA. Part III of this Note describes the Dominion Resources opinions from both the Court of Federal Claims and the Federal Circuit. Part IV argues that the Federal Circuit correctly applied a more comprehensive and universal test for reviewing Treasury regulations, creating a new standard of judicial review that future courts should follow. Part IV also discusses the implications of this new standard of review in the context of tax practice. Part V concludes that despite the uniqueness of the Treasury, the compelling purposes of the APA require a universal application of administrative law principles when reviewing Treasury regulations.