Tax and Lucia v. SEC

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

Let me mention a case from the 2017 term: Lucia v. Securities & Exchange Commission. In Lucia, the Court held that SEC administrative law judges are officers of the United States. Officers of the United States must be appointed as specified by Article II, Section 2 of the Constitution. That provision generally requires officers to be appointed by the President with the advice and consent of the Senate but allows Congress to vest the appointment of inferior officers in the President alone, a court of law, or the head of a department. Under Buckley v. Valeo, any federal government employee who exercises significant authority is an officer, but only a small number of cases discuss what it means to exercise significant authority in any depth.

In concluding that SEC administrative law judges are officers of the United States rather than mere employees, Justice Kagan for a six-Justice majority in Lucia drew extensively from the Court’s 1991 decision in Freytag v. Commissioner, which concerned Special Trial Judges of the United States Tax Court. As a side note, Freytag was fascinating in that the Justices unanimously agreed that the Tax Court Special Trial Judges were properly appointed as inferior officers, but divided five to four over whether their appointment was proper because the Tax Court Chief Judge who appointed them was the head of a department or a court of law. Regardless, in Lucia, Justice Kagan focused on analysis in Freytag concluding that Tax Court Special Trial Judges were officers in the first instance, and the particular features of their positions gave them that status. In that regard, the most interesting point in Justice Kagan’s analysis was her express holding that a government official does not need to possess final, legal decisionmaking authority to be an officer of the United States. By contrast, Justices Sotomayor and Ginsburg would have required final, legal decisionmaking authority for someone to be an officer.

Justice Thomas wrote a concurring opinion, joined by Justice Gorsuch. Justice Thomas argued that “all federal civil officials ‘with responsibility for an ongoing statutory duty'” should be considered officers of the United States who should be appointed in a manner consistent with the Appointments Clause. In support of that position, Justice Thomas cited favorably a Stanford Law Review article — Who are “Officers of the United States”? by Jennifer Mascott, who now is serving as Deputy Assistant Attorney General in the Department of Justice’s Office of Legal Counsel. From a tax perspective, Mascott’s article is especially interesting for its extensive discussion of revenue officials during the founding era and her corresponding assessment of present-day Internal Revenue Service personnel. She concludes that numerous officials in the IRS Office of Chief Counsel, the IRS Office of Appeals, and elsewhere in the IRS could be improperly-appointed officers of the United States under the standard advocated by Justice Thomas in Lucia.

Furthermore, Justice Breyer wrote separately in Lucia to point out issues raised by that case and others concerning statutory removal power limitations. Guided by the Supreme Court’s 2010 decision in Free Enterprise Fund v. Public Company Accounting Oversight Board, courts have been striking removal power restrictions from statutes in order to preserve inferior officer status for some government officials (and thereby avoid declaring them unconstitutionally appointed). As Justice Breyer has observed, the courts’ application of this remedy raises serious questions for civil service job protections. Obviously those concerns extend to IRS personnel as well.

It is impossible at present to know just what the aftermath of Lucia will be or how far the Court is prepared to go either in asserting a stricter and more formalist interpretation of the Appointments Clause or in refashioning statutes to preserve the constitutionality of existing offices. Who appoints government officials, and the conditions under which they can be removed from office, have significant implications for decisional independence and accountability. It is apparent that Justice Kagan wrote the majority opinion in Lucia as narrowly as she could and still keep the maximum number of Justices on board, but no one doubts that more cases will come seeking to characterize a wider array of government officials as officers of the United States subject to the Appointments Clause. Given Justice Thomas’s Lucia concurrence, Jennifer Mascott’s article, and the sheer number of tax cases that find their way to court (and thus offering opportunities to raise Appointments Clause challenges), one senses much more to come at this particular intersection of tax and administrative law.

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.