Supreme Court adopts TEI's alternative argument in Mead.

Earlier this summer, the Supreme Court of the United States ruled that Customs classification rulings are not entitled to the deference normally granted regulations. The high court reversed the decision of the Court of Appeals for the Federal Circuit in United States v. Mead Corporation, and remanded the case for further proceedings. TEI filed an amicus brief in support of the taxpayer in the case last fall because the Federal Circuit had relied on the lack of deference accorded IRS revenue rulings in ruling against the government.

"The Supreme Court's opinion adopts the Institute's alternative argument in the case, but does not discuss the deference to be accorded revenue rulings," TEI President Betty Wilson noted. "It may be some time before lower courts can sort through the opinion to determine its effect, if any, on revenue rulings. We are pleased, however, that the Court decided that a lower standard of deference is appropriate for Customs rulings."

In its June 18 opinion in Mead, the Supreme Court held that so-called Chevron deference -- i.e., deferring to the agency's interpretation of the statute if it is a permissible one -- was not appropriate for Customs classification rulings. (The Chevron doctrine takes its name from a 1984 Supreme Court decision.) Rather, the Court held that Customs classifications rulings were entitled to "respect" under the 1944 decision in Skidmore v. Swift & Co., holding that administrative rulings, while not controlling, constitute a body of experience and informed judgment to which courts may resort for guidance.

In discussing when Chevron deference is appropriate, the Court stated that administrative implementation of a particular statutory provision qualifies when it appears that Congress delegated authority to the agency generally to make rules carrying the effect of law and that the agency interpretation claiming deference was promulgated in the exercise of that authority. Such a delegation may be shown by an agency's use of notice and comment in its rulemaking or another indication of a comparable congressional intent.

The Court rejected, however, the Institute's (and taxpayer's) argument that the lack of notice and comment automatically bars Chevron deference. Other indicia may show that Congress intended the rulings to have the force and effect of law. The Court found that the agency's practice in this case did not demonstrate a law-making mindset because Customs does not normally engage in notice-and-comment rulemaking in issuing classification rulings and the rulings are not binding on third parties. The Court placed great reliance on the fact that 46 different Customs offices issue 10,000 to 15,000 rulings each year. In addition, the Court noted that the Customs Commissioner did not issue the classification ruling.

"The good news in the opinion is that the Court recognized that there is a range of judicial deference," Ms. Wilson stated. "It held that not all interpretative rulings are entitled to Chevron deference and that Skidmore remains good law. In addition, a footnote at the end of the opinion makes it clear that deference should not be granted to positions staked out in briefs."

Given the emphasis on the manner in which the Customs rulings are issued, however, it is difficult to draw any parallels to IRS revenue rulings, TEI's president explained. "At a minimum, it appears that the Federal Circuit (and presumably the Tax Court) will have to change its view that revenue rulings are mere litigating positions and accord them some (albeit, small) level of deference."

"In short, Mead seems to have further muddied the waters. The issue of the amount of deference to be given revenue rulings will have to wait until another day," she concluded.

The Institute's amicus brief in Mead was published in the September-October 2000 issue of The Tax Executive.