The Seminole Rock Doctrine andDeference to IRS Interpretations

By PeterA. Lowy and Juan F. Vasquez Jr.

When interpreting tax statutes, many judges treatrevenue rulings like a brief filed by one of the parties —thus valuing them only to the extent they convince thecourt — or lend a minimal level of deference to theruling.1 There is a question, however, whether the samelevel of deference applies when in a revenue ruling theIRS interprets not a tax statute but instead a Treasuryregulation. There is a line of authority, originating fromBowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945),that administrative agencies, when interpreting theirown regulations, are entitled to deference. That is knownas the Seminole Rock doctrine, and the IRS has at timesattempted to invoke it to get judges to yield to revenuerulings without having to prove the validity of theruling’s content.

The American Bar Association Section on Taxation’sTask Force on Judicial Deference recently counseledagainst the application of the Seminole Rock doctrine inthe tax context.2 This article concurs with the task force’sconclusion and highlights five reasons courts shouldreject attempts by government litigators to obtain defer-ence for revenue rulings when they interpret Treasuryregulations. But first, here is an introduction to theconcept that an administrative agency deserves compara-tively more deference when it construes regulations thanwhen it considers statutes.

I. The Seminole Rock DoctrineThe genesis of the doctrine that courts should defer to

an agency’s interpretation of its own regulations can betraced to the Supreme Court’s leading decision in thisarea, Bowles v. Seminole Rock & Sand Co., 325 U.S. 410(1945). In Seminole Rock, the Court was faced with inter-preting a regulation issued by the Office of Price Admin-istration under the Emergency Price Control Act of 1942.In its official bulletins, OPA had interpreted the regula-tion, and that interpretation was consistent with theguidance it provided on inquiry by the general public.Addressing the issue of deference, the Court determinedthat the agency’s interpretation of its own regulation isentitled to controlling weight unless plainly inconsistentwith the regulation.

On occasion over the past few decades, the SeminoleRock doctrine has affected the outcome of nontax cases.For example, in Martin v. Occupational Safety & HealthReview Comm’n, 499 U.S. 144 (1991), the Supreme Courtdeferred to a Labor Department interpretation of anOccupational Safety and Health Administration regula-tion (which the Labor Department had promulgated),because ‘‘the power authoritatively to interpret its ownregulations is a component of the agency’s delegatedlawmaking powers.’’3 Accordingly, the Court concludedthat the agency’s interpretation controls ‘‘so long as itsinterpretation ‘sensibly conforms to the purpose andwording of the regulations.’’’4

The Supreme Court has not, however, applied Semi-nole Rock in a tax case. In fact, the Court on severaloccasions has had the opportunity to apply the SeminoleRock doctrine to revenue rulings, but did not. For ex-ample, in United States v. Swank, 451 U.S. 571 (1981), theCourt dealt with the interpretation of the percentagedepletion regulations under section 611. The dissentargued that under the Seminole Rock doctrine the Courtshould defer to a revenue ruling that interprets relevantregulations. The majority, in a 7-2 decision, did not followthe path the dissent suggested and decided the case incontradiction to the IRS’s revenue rulings and otheradministrative interpretations.5

Note also that recent decisions call into question thecontinued validity of Seminole Rock in any context — taxor nontax. For example, in United States v. Mead, theSupreme Court enunciated a broad holding regardingdeference to agency promulgations. According to theCourt, the level of deference, if any, that the judiciary

1For a discussion on judicial deference to revenue rulingswhen interpreting tax statutes, see Peter A. Lowy and Juan F.Vasquez Jr., ‘‘The Revenue Ruling Process and Its Implicationsto Judicial Deference,’’ Journal of Taxation (October 2004) (here-after Lowy and Vasquez, ‘‘The Revenue Ruling Process’’; PeterA. Lowy and Juan F. Vasquez Jr., ‘‘Judicial Deference forRevenue Rulings in a Post-Mead World,’’ Tax Practice & Proce-dure (August-September 2004) (hereafter, Lowy and Vasquez,‘‘Judicial Deference’’).

2See ‘‘ABA Section of Taxation Report of the Task Force onJudicial Deference,’’ 57 Tax Lawyer No. 3 (Spring 2004) (hereafterABA Section of Taxation Report).

3Martin v. Occupational Safety & Health Review Comm’n, 499U.S. 144 (1991).

4See id. See also Thomas Jefferson University v. Shalala, 512 U.S.504 (1996) (applying the Seminole Rock doctrine).

5See also Fribourg Navigation Co., Inc. v. Comm’r, 383 U.S. 272(1966); Cottage Savings v. Comm’r, 499 U.S. 554 (1991).

Peter A. Lowy is Senior Tax Counsel for a multina-tional company in Houston, Texas. Juan F. Vasquez Jr.is an Associate in the Houston office of Chamberlain,Hrdlicka, White, Williams, & Martin. The views ex-pressed in this article do not necessarily reflect theview of any client or organization with which theauthors are associated.

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should afford an agency action depends on how it faresunder its earlier precedents in Chevron6 and Skidmore.7The Mead decision does not on its face limit its applica-tion to agency interpretations of statutes, and doctrinallyit seems applicable to an agency’s interpretation of itsown regulations. Thus, although the Supreme Court hasnot expressly renounced the Seminole Rock doctrine, it isopen to debate whether in Mead’s wake the doctrine isdead.8

II. Seminole Rock Should Not Apply to Tax Cases

A. Treas. Regs Are Not the IRS’s to InterpretEven if Seminole Rock is still good law, the IRS’s

interpretation of Treasury regulations should not fallwithin the Seminole Rock doctrine because Treasury regu-lations are not the IRS’s own regulations, they are thoseof the Treasury.

The IRS is a bureau of the Treasury Department andordinarily plays a role in the preparation of Treasuryregulations, but the IRS does not speak with the voice ofthe Treasury and does not issue Treasury regulations. Theissuance of a Treasury regulation is made under thesignature of the secretary of the Treasury or his delegate(which can be an assistant secretary or deputy assistantsecretary only; there has never been that delegation ofauthority for the IRS commissioner or any other IRSpersonnel).9 In contrast, revenue rulings are issued by theIRS (ordinarily by approval from an assistant commis-sioner) without the imprimatur of the secretary, and thusa revenue ruling does not represent the Treasury’s inter-pretation of its own regulation.10

Because the Seminole Rock doctrine applies only whenan agency interprets its own rule, and Treasury regula-tions are not the IRS’s own rules, the Seminole Rockdoctrine should be inapplicable to an IRS revenue rulingthat interprets a Treasury regulation.

B. Conflicts With Treasury PolicyThe Treasury Department has a long-held practice of

satisfying the notice and comment procedures under theAdministrative Procedures Act (APA) before issuing finalregulations. That practice applies to both legislativeregulations and interpretative regulations, even thoughthe APA does not necessarily require notice and comment

for rules that are interpretative.11 Testing both types ofregulations through notice and comment trials is anadmirable and advisable practice because it producesbetter-informed rules through a more deliberative anddemocratic process.12

If the IRS could issue an interpretation without noticeand comment, and if that interpretation were given theweight of an interpretative regulation — which theSeminole Rock doctrine would do if applicable — it wouldundermine the Treasury’s practice and policy by, in effect,according the status of an interpretative regulation to anadministrative ruling issued without public input. Thatwould result in interpretative rules issued without thedeliberation and democratic qualities that Treasury hasdetermined should exist for rules that potentially bindtaxpayers.

Plainly, courts should not defer to an administrativeinterpretation under circumstances that contravene therelevant agency’s own policy and practice for issuinginterpretations that bind the public and are to receivejudicial deference.

C. Circumvents Supreme Court PrecedentAffording deference to revenue rulings would allow

the IRS to make an end-run around judicial precedentregarding deference when interpreting tax statutes, be-cause the IRS could almost always claim it is interpretinga regulation, not a statute.

The content of most tax statutes is cut and pasted intoa Treasury regulation. Treasury regulations frequentlyecho the statute’s language and then on selected pointsprovide elaboration or clarification, depending on thestatute under which they are promulgated. Opening thedoor for Seminole Rock whenever a regulation parrots thestatute would permit the IRS, at its whim, to circumventSupreme Court precedent such as United States v. Mead,13

in which the Court, in connection with agency interpre-tations of statutes, expressly limited the application of thedeferential standard set forth in Chevron U.S.A. Inc. v.Natural Resources Defense Council Inc.,14 because the IRScould almost always claim that it is interpreting theregulation, not the statute, thus taking the analysis be-yond the reach of Mead and other Supreme Court prece-dent that could be applicable in the case of statutoryinterpretation.15

Said another way, the Seminole Rock doctrine is limitedto agency interpretations of other agency pronounce-ments; it does not apply to interpretations of acts of

6467 U.S. 837 (1984).7323 U.S. 134 (1944).8See ‘‘ABA Section of Taxation Report,’’ supra note 2 at 746

(suggesting that Mead diminished the application of SeminoleRock).

9See Lowy and Vasquez, ‘‘The Revenue Ruling Process,’’supra note 1.

10For a discussion on the IRS’s role in the Treasury regulationprocess, see id.

11Lowy and Vasquez, ‘‘Judicial Deference,’’ supra note 1 at 28.12See id.; ‘‘ABA Section of Taxation Report,’’ supra note 2 at

728; Michael Saltzman, IRS Practice and Procedure at para. 3.02[3](WG&L 1991).

13533 U.S. 218 (2001).14Supra note 6.15As mentioned earlier, there is grave doubt whether the

Seminole Rock doctrine is still viable after Mead; however, thissection assumes arguendo that it is and that Mead does not applyin some instances when an administrative agency interprets itsown regulations.

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Congress. In the tax context, however, most tax statutesare restated in Treasury regulations — often verbatim —so the IRS can almost always claim it is interpreting aregulation, not a statute, thus bootstrapping judicialdeference under the pretense that it is not treading on thewell-charted judicial waters of statutory interpretation.The IRS could thereby receive deference for its rulings,comparable to Chevron-style deference, even though Con-gress has never delegated to the IRS general authority tomake rules carrying the force and effect of law.

In short, permitting the IRS to hide behind the Semi-nole Rock doctrine would invite the IRS to circumventSupreme Court precedent and allow the IRS to preventthe judiciary from making its own, independent judg-ment about the meaning of tax statutes.

D. Policy Reasons for Deference Do Not ApplyCourts interpret statutes; that is their business. Courts

interpret regulations too. That is also their business.Nevertheless, courts do sometimes give deference to anagency’s interpretations of statutes and their own regu-lations, when the regulatory body has particular expertise thatthe court may lack. Specifically, deference to agency inter-pretation may make sense when the interpretation andapplication of the law is not merely a matter of legalanalysis and enters the realm of the agency’s specializedexpertise.

For example, the Environmental Protection Agencyissues regulations on air quality standards. Similarly, theLabor Department issues regulations on ergonomics inthe workplace. If the EPA determines that X particles of Ypollutant may be emitted by manufacturers, or if theLabor Department determines that every business with Xnumber of workers should have available nonreflectivecomputer screens and chairs that have lumbar support,courts should be reluctant to second-guess the agency’sjudgment, provided the regulation does not exceed theagency’s rulemaking authority. In those instances, regu-lations depend largely on scientific studies and judg-ments about public policy — matters committed to theexpertise of the administrative agency. That differs frompure issues of statutory construction.

The distinction may be analogized to expert witnessesat trial. Courts tend to permit expert witnesses on issuesof fact. If the expert’s methods seem reasonable, theexpert’s judgment is afforded at least some degree ofdeference. In contrast, courts usually do not permitexperts to testify as to what the law is; that is the job ofjudges. That is so even if the judge has no experiencewith the area of the law involved in the case, and even ifthe expert is one of the preeminent scholars in that area oflaw. Likewise, when an agency is merely engaging intraditional legal interpretation that does not depend onspecialized expertise on some factual or scientific matter,courts may exercise their own, independent analysis,without deference to an administrative body.

Applying that paradigm to IRS interpretations of taxstatutes and regulations suggests that in most instancesthe courts should not give deference to revenue rulings.In contrast to the interpretation and application of mat-ters involving air quality and ergonomics, interpretationof tax statutes and regulations is usually pure interpre-tation of law. Said another way, while the internal rev-

enue laws may be complex, they do not ordinarily turnon science and the type of specialized factual expertisefor which some agency’s are singularly suited. Accord-ingly, the interpretation of tax statutes and regulationsshould be matters on which judges may pass their own,independent judgment.

E. Encourages Poorly Drafted RegulationsEmpowering the IRS to issue outcome determinative

rulings whenever Treasury regulations present ambigu-ity encourages the government to promulgate unclearregulations. All the government would have to do is‘‘occupy the field’’ with a general regulation on a subjectfor the IRS to be permitted to bind taxpayers with specificinterpretations. That is both a bad idea and contrary tothe statutory scheme.

Taxpayers in litigation are already disadvantaged bytheir burden of proof and the presumption of correctnessthat are ordinarily given to IRS determinations; allowingthe government to issue ambiguous regulations and thenrender self-serving interpretations during litigationwould represent an unprecedented slanting of the play-ing field against taxpayers. The IRS should not be able todictate the outcome of litigation by issuing a revenueruling based on the fact pattern of the case to guaranteeits victory.16

Moreover, ambiguous regulations foster uncertaintyfor taxpayers seeking to comply with the tax laws andproperly report their federal taxes, and thus regulationdrafters should be encouraged to strive for clarity, notobfuscation.17

ConclusionThe question is unsettled whether a revenue ruling

should be given greater deference when it claims tointerpret a Treasury regulation as opposed to an act ofCongress. The better view appears to be that it shouldnot. That is the view adopted by the ABA Tax Section’sJudicial Deference Tax Force and endorsed in this article.Giving revenue rulings controlling weight under thosecircumstances would encourage vague and ambiguousregulations and unfairly tilt the playing field againsttaxpayers. It would also conflict with Treasury’s policy topermit the public to participate in the promulgation of allbinding interpretations of the tax code, and it would takequestions of statutory interpretation out of the hands ofthe judiciary and into the hands of bureaucrats.

16Cf. Thomas Jefferson University v. Shalala, supra note 4(Thomas, J., dissenting) (arguing that the Seminole Rock doctrinewould encourage vague and ambiguous regulations because itwould maximize the agency’s power and give it greater latitudeto make expedient decisions).

17See id. (Thomas, J., dissenting) (explaining that regulationsshould be clear and definite so that affected parties haveadequate notice concerning the agency’s understanding of thelaw).

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