Tax and Gundy v. United States

Continuing with the third of my series of posts on the tax implications of recent non-tax Supreme Court decisions:

Another high-profile case from the last Supreme Court term is Gundy v. United States.  In Gundy, the Court seemingly came within a hair’s breadth of overturning decades of nondelegation jurisprudence and replacing the intelligible principles standard for evaluating the validity of congressionally-enacted statutes under the Constitution’s Article I vesting clause.  Just to refresh your memory, the Article I Vesting Clause gives Congress all legislative powers enumerated in the Constitution.  The nondelegation doctrine says that Congress cannot delegate those legislative powers to the executive branch or anyone else.  But under the Supreme Court’s nondelegation jurisprudence, even sweeping statutory grants of rulemaking power—giving the executive branch the authority to adopt its policy preferences as binding law—are not delegations of legislative power so long as the statutes in question contain “intelligible principles” to guide and constrain the executive branch.  The intelligible principles standard is notoriously weak, having been employed by the Court to invalidate only one statute in history: the National Industrial Recovery Act, in the Panama Refining and Schechter Poultry cases back in 1935.

Gundy concerned the constitutionality of a provision of the Sex Offender Notification and Registration Act, or SORNA, authorizing the Attorney General to adopt regulations providing for registration of sex offenders convicted prior to enactment.  Although SORNA itself was quite detailed in establishing a registration system for post-enactment offenders, the relevant provision offered little to no direction for adapting that system for pre-enactment offenders. Gundy was decided by an eight-Justice Court, without Justice Kavanaugh, who had not yet been seated when the Court heard oral argument.  Justice Kagan wrote for the Court and a plurality of four Justices.  She interpreted SORNA quite aggressively, inferring from the statute’s declaration of purpose and legislative history a feasibility requirement not found anywhere in the statute’s text, and concluding that this feasibility requirement was enough to satisfy the intelligible principles standard.  Justice Alito concurred in the judgment, but only because the Court lacked five participating Justices willing to overturn the intelligible principles standard and he considered it “freakish” to apply the intelligible principles standard to declare SORNA unconstitutional when SORNA was at least no worse than any of the other statutes the Court has upheld in the past as having intelligible principles. 

Justice Gorsuch wrote a dissent in Gundy for himself, Justice Thomas, and Chief Justice Roberts.  Justice Gorsuch called for replacing the intelligible principles standard with a test requiring Congress to make the policy decisions and rules regulating private conduct and leave to the executive branch only the responsibility for resolving “mere details” and making factual determinations.  He acknowledged and seemed to have no problem, however, with the fact that those mere details might be “highly consequential.”  It is difficult to imagine how a standard distinguishing highly consequential details from rules governing private conduct would be any stricter or more determinative than a standard gleaning intelligible principles from statutory text, history, and purpose.  (For a more extended critiques of Justice Gorsuch’s dissent, see here and here.)

Regardless, Justice Gorsuch’s principal target was open-ended statutory terms like “feasible” or “in the public interest” —especially when those terms are merely inferred from statutory text, but also when statutory text uses them explicitly.  The Internal Revenue Code typically does not use terms like that, but nevertheless confers broad, discretionary rulemaking authority on Treasury/IRS.  Exactly how Justice Gorsuch would view any particular bit of discretion-conferring language in the Internal Revenue Code is difficult to say.  But consider, for example, § 1502, which authorizes Treasury/IRS to adopt regulations “as [it] deems necessary” to determine the income tax liability of an affiliated group of corporations making a consolidated return, and further allows those regulations to be “different” from such tax laws “as would apply if such corporations filed separate returns.” (Indeed, § 1502 seems especially like the statutory provision at issue in SORNA, although obviously the subject matter is different.) Or consider the § 482 grant of rulemaking authority to “distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among [affiliated enterprises] if [Treasury/IRS] determines that such … is necessary in order to prevent evasion of taxes or clearly to reflect … income.”  Each of these provisions is implemented by hundreds of pages of rules and regulations. Mere details?  

Still, Gundy featured three Justices on record as supporting Justice Gorsuch’s replacement for the intelligible principles standard, and Justice Alito indicating that he was only waiting for a fifth vote.  And now, with his statement in the Paul cert denial, Justice Kavanaugh has expressed his interest in reconsidering the intelligible principles standard as well, although as I noted in a prior post, his thoughts may suggest a somewhat different approach than Justice Gorsuch’s.  Regardless, it seems entirely possible that the intelligible principles standard’s days are numbered, and taxpayers will be poring through the tax code to find questionable grants of rulemaking power to challenge.

To return to the first post in this series, click here.

kristin hickman

Professor Kristin Hickman is a legal scholar working in the fields of tax administration, administrative law, and statutory interpretation. In addition to the Of Interest blog, Professor Hickman authors the Administrative Law Treatise (with co-author Richard J. Pierce, Jr.) and has published scholarly articles in Columbia Law Review, Virginia Law Review, Cornell Law Review, Duke Law Journal, Georgetown Law Journal, Vanderbilt Law Review, and many other prominent U.S. and international publications. She holds the titles of Distinguished McKnight University Professor and Harlan Albert Rogers Professor of Law at the University of Minnesota Law School.