Tag: Supreme Court

The IRS Can’t Overrule the Supreme Court

Since the foundational administrative law case of Chevron v. Natural Resources Defense Council (1984), courts have given significant deference to executive agency interpretations of federal law. United States v. Home Concrete & Supply tests whether there are any meaningful limits on such deference.

The case involves a group of taxpayers who initiated a number of transactions designed to reduce their tax liability by allowing a financial entity they created, Home Concrete, to increase its tax basis and reduce its taxable gain from the sale of certain assets. In June 2003, the IRS ruled that the taxpayers’ use of Home Concrete in this way was improper and issued an adjustment to their tax return (requiring payment of back-taxes). Having missed the standard three-year limit for such actions, however, the IRS argued that the adjustment was timely under a tax-code provision that extends the statute of limitations to six years if the taxpayer “omits from gross income an amount properly includible therein which is in excess of 25 percent of the amount of gross income stated in the return.”

Despite the Supreme Court’s having long ago held otherwise, Colony v. Commissioner of Internal Revenue (1956), the IRS argues that an overstatement of basis qualifies as an omission under that tax provision. Further, during the course of this litigation, the Treasury Department issued a new regulation “clarifying” the provision in a way that supports the IRS’s argument. The IRS now argues that this new regulation is controlling and should be retroactively applied to Home Concrete’s 1999 returns.

After (mostly) winning at the district court, the IRS lost before the Fourth Circuit and asked the Supreme Court to review the case—which involves one of many similar applications of the relevant tax provisions. The Court took the case and now Cato has joined the National Federation of Independent Business on an amicus brief supporting the taxpayers, arguing that sanctioning this sort of ad hoc rule-making would undermine the rule of law and the separation of powers.

We note that “[t]he government’s position is that this regulation is due judicial deference” but the Supreme Court has “consistently held that where a statute has an unambiguous meaning, an agency’s contrary interpretation is not entitled to deference.” As Judge J. Harvie Wilkinson noted in his Fourth Circuit concurrence, “agencies are not a law unto themselves” and the government’s position in this case “seems to [be] something of an inversion of the universe and to pass the point where the beneficial application of agency expertise gives way to a lack of accountability and a risk of arbitrariness.”

In deciding Chevron, the Supreme Court surely never intended to undermine the very structure of the Republic and unleash an administrative state wholly a law unto itself.

The Supreme Court will hear United States v. Home Cincrete & Supply on January 17.

The Government Must Compensate for Property Damage Even If Its Taking Was Only ‘Temporary’

Cato today filed an amicus brief supporting a request that the Supreme Court review Arkansas Game & Fish Commission v. United States.  Here’s the case:

The Arkansas Game & Fish Commission owns and operates 23,000 acres of land as a wildlife refuge and recreational preserve; the preserve’s trees are essential to its use for these purposes. Clearwater Dam, a federal flood control project, lies 115 miles upstream. Water is released from the dam in quantities governed by a pre-approved “management plan” that considers agricultural, recreational, and other effects downstream. 

Between 1993 and 2000, the government released more water than authorized under the plan. AGFC repeatedly objected that these excessive releases flooded the preserve during its growing season, which significantly damaged and eventually decimated tree populations. In 2001, the government acknowledged the havoc its flooding had wreaked on AGFC’s land and ceased plan deviations. By then, however, the preserve and its trees were severely damaged, so AGFC sued the government, claiming damages under the Fifth Amendment’s Takings Clause.

The district court awarded $5.8 million in lost timber and reforestation costs based on the substantiality of the government’s flooding and the foreseeability of the damage it caused. The Federal Circuit reversed that decision, holding that the flooding of private land can never be a taking unless that flooding is permanent. It further held that, in determining whether the government’s intrusion on AGFC’s land was permanent or temporary, courts must focus on the character of the policy behind the intrusion rather the effects of the intrusion itself. A taking cannot have occurred here because each deviation from the plan constituted a “temporary” policy, the court concluded, so AGFC had no constitutional remedy.

AGFC is asking the Supreme Court to review its case; the Court itself has recognized that something less than a permanent invasion of land can constitute a compensable taking. Cato joined the Pacific Legal Foundation on a brief urging the Court to hear the case and uphold the Fifth Amendment rights of property owners whose land is destroyed by the federal government. Our brief highlights the conflict between the Federal Circuit’s decision and both Supreme Court and lower court precedent. First, an invasion of land by flooding is no different from an invasion of land by any other means. Second, the government’s self-professed “intent” that a possible taking be “temporary” should have no bearing on whether a Fifth Amendment remedy exists when that taking has, in fact, occurred. Instead, the relevant inquiry should be whether the government caused permanent damage and, if so, how much.

The Federal Circuit’s new rule — that, so long as it might be “temporary,” no government flooding can be remedied under the Fifth Amendment — runs afoul of the letter and spirit of a constitutional provision meant to compensate property owners for government intrusions on their land. We urge the Court to grant AGFC’s petition and maintain constitutional protections for private property.

The Supreme Court will decide in the new year whether to take the case, and would hear argument in the fall if it does.

Supreme Court Takes Up Arizona Immigration Law

The Supreme Court has agreed to review Arizona v. United States, the case regarding SB 1070, the Arizona law (only) four sections of which have been enjoined by the lower courts: requiring police to check the immigration status of anyone they have lawfully detained whom they have reasonable suspicion to believe may be in the country illegally; making it a state crime to violate federal alien registration laws; making it a state crime for illegal aliens to apply for work, solicit work in a public place, or work as an independent contractor; and permitting warrantless arrests where the police have probable cause to believe that a suspect has committed a crime that makes him subject to deportation.  For my previous analysis of SB 1070 and the legal challenges to it, see here, here, here, and here.

By taking up this case, the Supreme Court is wisely nipping in the bud the proliferation of state laws aimed at addressing our broken immigration system.  One way or another, states will know how far they can go in addressing issues relating to illegal immigrants, whether the concern is crime, employment opportunities (providing or restricting them), registration requirements, or even so-called sanctuary cities.

Of course, states wouldn’t be getting into this mess if the federal government – elected officials of both parties – hadn’t abdicated its responsibility to fix a system that serves nobody’s interests: not big business or small business, not the rich or the poor, not the most or least educated, not the economy or national security, and certainly not the average taxpayer.  For their part, SB 1070 and related laws in Alabama, Georgia, and elsewhere are (with small exception) constitutional – the state laws are merely mirroring federal law, not conflicting with it or otherwise intruding on federal authority over immigration – but bad public policy.  (For more on both these conclusions, read my SCOTUSblog essay from last summer.)

What this country needs is a comprehensive reform that obviates the sort of ineffectual half-measures the states are left with given Congress’s shameless refusal to act.  It’s not very often that Cato calls for the federal government to do something, but the immigration system is quite possibly the most screwed-up part of the federal government – which of itself is a significant statement coming from someone at Cato – and one that is so incredibly counterproductive to American liberty and prosperity.

The Court will hear Arizona v. United States in the spring.  For more immigration-reform developments, see this note in today’s Wall Street Journal and my blogpost on Utah’s plan, which the federal government has also since sued to enjoin.

The Real Trouble With the Defense Authorization Bill

The Senate on Thursday passed the 2012 defense-authorization bill. It includes a controversial provision meant to put al-Qaeda suspects and their associates in military custody rather than prosecute them as criminals. The White House has rather weakly threatened a veto, complaining primarily that the bill undercuts their discretion in dealing with terrorists.

If the White House vetoes the bill, it will be for the wrong reasons. The trouble is not what the law mandates but what it affirms. It does not require the president to put any terrorists in military custody but rather to comply with a new bureaucratic process if he chooses not to do so. Even as we move toward the end of the wars in Iraq and Afghanistan, the law affirms a presidential power to detain anyone, including American citizens, in the name of fighting a nebulous and seemingly permanent terrorist menace. That is bad for both civil liberties and for our ability to think clearly about terrorism.

Most debate about the bill concerns section 1032. It says that the armed forces “shall hold” anyone that is part of al-Qaeda or an associated force and participants in an attack on the United States or its coalition partners for the course of hostilities authorized by Congress in 2001—and dispose of those suspects under laws of wars. American citizens are excluded. Thanks to a compromise negotiated by Armed Service Committee Chair Carl Levin (D-MI) and Ranking Member John McCain (R-AZ), the section now allows the secretary of defense, after consulting with the secretary of state and director of national intelligence, to keep the suspect in civilian courts by informing Congress that doing so serves national security.

The administration objects to 1032 largely because it undercuts their discretion. However, as Levin and McCain note in a recent op-ed, the administration still “determines whether a detainee meets the criteria for military custody.” The president could presumably just decline to label a detainee as someone fitting the requirements of military detention in the first place and try him in civilian court without getting a waiver from the secretary of defense.

The provision’s main relevance is as a talking point. Republicans already fond of castigating the president for allowing alleged terrorists to have their day in court can pretend that he is ignoring this law when he does so.

The real trouble with the bill is the preceding section, 1031. It “affirms” that the authorization of military force passed prior to the invasion of Afghanistan allows the president, through the military, to detain without trial al-Qaeda members, Taliban fighters, associated forces engaged in hostilities against the United States and those that support those groups. Nothing excludes American citizens.

The section says that it does not expand presidential war powers, but that contradicts its other language and common sense. By explicitly endorsing constitutionally dubious powers that the president already claims, Congress makes those claims more likely to survive legal challenge.

The 2001 Authorization of Military Force allows the president to make war on “nations, organizations, or persons” that he determines to have been involved in or aided the September 11 attacks and those that harbored these groups. Effectively, that meant al-Qaeda and the Taliban. Our last two presidents have used that authority to claim the right to kill or indefinitely detain anyone, anywhere that they decide is associated with some arm of al-Qaeda. The courts have trimmed these powers in ways that remain uncertain, particularly as applied to U.S. citizens. In Hamdi v. Rumsfeld, the Supreme Court held that the U.S. military has the power to detain without trial Americans captured on foreign battlefields but that the detainee can challenge the detention in court. Contrary to Carl Levin’s assertions, the ruling did not say that people seized in the United States fit that category.

This defense bill’s expansive list of enemies strengthens the president’s claim that he can detain almost anyone without trial in the name of counterterrorism. Future White House lawyers will cite it to justify those powers. Courts may tell Americans that challenge their detention on constitutional grounds that Congress’s endorsement of the president’s claims to detention powers makes them sounder.

The bill may even strengthen the president’s case for using other war powers, like killing citizens with drone strikes. That interpretation is bolstered by the detainee language’s similarity to the reauthorization of force contained in the House’s defense bill. That legislation explicitly gives the president the power to make war on al-Qaeda, the Taliban and associated forces. By using nearly identical language to describe who the president can detain under his war powers, the Senate bill may stealthily achieve the same end.

Liberalism means minimizing the exercise of war powers. To say, as backers of this legislation do, that the constitution allows our government to kill and detain people without trial is not an argument that we should do so often. Because those powers so offend liberalism, those that advocate them should have the burden of explaining why they are necessary, even if they are constitutional.

Instead, advocates of these extraordinary powers take it as nearly self-evident that military detention is somehow safer than criminal trials. But criminal proceedings, because they are adversarial, produce better information than military interrogations. That information makes the public better consumers of counterterrorism policies. Public debate does not always make better public policy, but it often helps.

You can see how by looking at the footnotes of books about terrorism, like the 9-11 report. Many of sources are records of criminal trials of terrorists. Had all those suspects been held without trial, their testimony and the government’s claims about them might have remained secret. What did become public would be less trustworthy because it would not have been vetted by an institutional adversary, as in court.

Take the case of Umar Farouk Abdulmutallab, the Underwear Bomber, and its connection to the killing of Anwar al-Awlaki, the jihadist propagandist killed earlier this year in Yemen. Both before and after getting a Miranda warning, Abdulmutallab apparently told his FBI interrogators a great deal of information about his trip to Yemen to prepare the explosives he tried to detonate in plane over Detroit. Had he not plead guilty on the first day of trial, prosecutors were set to argue that Awlaki had aided the plot. The government would have had to substantiate its claim that Awlaki, an American citizen, had graduated from being a propagandist to plotting attacks and therefore become a combatant they could legally kill—something they still have not done. The trial would have shed light on how the White House decides which of its citizens it can kill in the name of counterterrorism. That information would at least inform debate.

Civil liberties are a sufficient reason to oppose handing the executive the power to detain more or less whomever it wants. But our system of government does not divide powers simply for fairness. Unilateral decisions are more likely to be foolish ones.

Cross-posted from the Skeptics at the National Interest.

Should You Need a License to Help Someone Find an Apartment?

Kansas City Premier Apartments v. Missouri Real Estate Commission is quite similar to the occupational licensing case of Locke v. Shore, in which Cato also recently filed a brief, except that the speech-licensing regulation here concerns not artistic expression but rather the dissemination of consumer-demanded commercial information — specifically, rental property listings that are free to the public.

The Missouri Real Estate Commission, acting on a complaint by a licensed realtor, decided that Kansas City Premier Apartments, which provides local rental listings, was acting as an unlicensed real estate broker and was therefore subject to fine and even criminal prosecution. (Before KCPA began operations, it had asked the Commission whether it needed a license and did not receive a clear answer other than that it was a “grey area” of law.)

KCPA challenged the Commission’s decision on First Amendment grounds, but the trial court found it to be constitutional without giving a reason for its conclusion. The Missouri Supreme Court affirmed the trial court after simply presuming the constitutionality of the speech restriction — contrary to the U.S. Supreme Court holding in Bolger v. Youngs Drug Products Corp. that “[t]he party seeking to uphold a restriction on commercial speech carries the burden of justifying it” — and placing the burden of proving unconstitutionality on KCPA.

Cato has now joined the Pacific Legal Foundation on a brief supporting KCPA’s request that the U.S. Supreme Court hear the case. Our brief notes that “this case combines the nationally important commercial speech issue with the equally nationally important question of the extent to which the Constitution tolerates occupational licensing.” We explain the difficulties that the Court’s “commercial speech doctrine” has caused and argue for a movement toward greater protection for collective and commercial speech, and away from a confusing four-part test established in a 1980 case called Central Hudson.

As in Locke, this latest case raises the question of whether occupational licensing schemes that have an effect on speech are constitutional. Also as in Locke, an infinite array of professionals and ordinary people could get caught up in this regulation, including even a friend helping another friend find an apartment.

Beyond the technical legal points, the case implicates broader policy issues such as the right to earn a living and the impact that speech monopolies have on consumers. Indeed, the consumer impact may be even more apparent here than in other occupational licensing cases because so many people struggle to find affordable apartments and other rentals in this economy — not to mention over the course of their lives.

The Supreme Court will decide early in the new year whether to hear Kansas City Premier Apartments v. Missouri Real Estate Commission.

Obamacare Is Bigger than Roe v. Wade

This morning, as expected, the Supreme Court agreed to take up Obamacare.  What was unexpected – and unprecedented in modern times – is that it set aside five-and-a-half hours for the argument.  Here are the issues the Court will decide:

  1. Whether Congress has the power to enact the individual mandate. - 2 hours
  2. Whether the challenge to the individual mandate is barred by the Anti-Injunction Act. - 1 hour
  3. Whether and to what extent the individual mandate, if unconstitutional, is severable from the rest of the Act. - 90 minutes
  4. Whether the new conditions on all federal Medicaid funding (expanding eligibility, greater coverage, etc.) constitute an unconstitutional coercion of the states. - 1 hour

In addition to the length of argument, which we can expect to be heard over multiple days in March or April, perhaps the biggest surprise is the Court’s decision to review that fourth issue.  There is no circuit split here – in large part because 26 states are already in this one suit – and no judge has yet voted to uphold what also be described as a claim that the federal government is “commandeering” the states to do its bidding.  The Court probably took the case precisely because so many states have brought it; that former solicitor general Paul Clement is their lawyer also doesn’t hurt.  As a practical matter, this could be a bigger deal than the individual mandate because, while Congress had never before tried an economic mandate, it certainly does attach plenty of strings to the grants it gives states – and the spending power is thought to be even broader than the power to regulate commerce.

In any event, the Supreme Court has now set the stage for the most significant case since Roe v. Wade.  Indeed, this litigation implicates the future of the Republic as Roe never did.  On both the individual-mandate and Medicaid-coercion issues, the Court will decide whether the Constitution’s structure – federalism and enumeration of powers – is judicially enforceable or whether Congress is the sole judge of its own authority.  In other words, do we have a government of laws or men?

Obamacare’s Footnote Four

This post was co-authored by Cato legal associate Chaim Gordon.

Freedom-loving lawyers everywhere recoil in horror at the mere mention of “footnote four.” In that infamous citation in the 1938 case of Carolene Products, the Supreme Court officially renounced judicial review of laws that infringe on economic liberty. This week, in his dissent from the D.C. Circuit opinion that upheld the individual mandate on Commerce Clause grounds, Judge Brett Kavanaugh added his own dubious “footnote four.”

Judge Kavanaugh’s 65-page dissent was devoted to his parsimonious reading of various provisions in the Internal Revenue Code, culminating in the conclusion that the Anti-Injunction Act robbed federal courts of jurisdiction to hear the case until the mandate penalty is actually enforced. As Judge Kavanaugh noted, “the Tax Code is never a walk in the park.” But the Tax Code is even more grueling when you are given lousy legal advice. And that is why footnote four – in which Judge Kavanaugh inexplicably decides to publicly thank former IRS commissioners Mortimer Caplin and Sheldon Cohen and their counsel for their amicus brief – is so troubling. Here is his footnote four:

Both sides before us want this case decided now and contend that the Anti-Injunction Act does not bar this suit. The amicus brief of former IRS Commissioners Mortimer Caplin and Sheldon Cohen, submitted by able counsel Alan Morrison, cogently argued the opposite position. The Court is grateful to amici and counsel for their assistance.

But it is entirely unclear why Commissioners Caplin and Cohen and Counsel Morrison deserve the court’s thanks. For starters, the Caplin and Cohen brief was not advocating either of Judge Kavanaugh’s nuanced readings – be they correct or not – of various provisions in the Internal Revenue Code. (It did, however, make one of Kavanaugh’s main arguments in response to one of the government’s arguments toards the end of the brief.) Rather, the Caplin and Cohen brief broadly asserts that the AIA “prevents courts from reviewing all claims involving payments under the Code, not just those labeled taxes.”

The problem is that, in support of this broad, sweeping assertion, the Caplin and Cohen brief misleadingly cites cases that do not support its claim. That is, almost all the cases cited by the Caplin and Cohen brief specifically relied upon the fact that the penalties at issue were found in chapter 68 of the IRC or were part of a larger taxing scheme (as in the Mobile Republican case). But you would not know that from reading the Caplin and Cohen brief.

Take, for example, the Caplin and Cohen brief’s citation to Shaw v. United States and Botta v. Scanlon as “perhaps the best illustration of the breadth of the applicability of” the AIA. What the Caplin and Cohen brief does not say is that both of these cases specifically rely upon provisions in the IRC that define the penalty at issue in those cases (under section 6672) as taxes for the purposes of the AIA. Those provisions, by their own terms, only apply to penalties under chapter 68 of the Code, and the penalty for violating the individual mandate is in chapter 48.

This is really green-eyshade stuff, we know, but that’s what this litigation has come to – and it’s why tax lawyers are not suffering the higher rates of unemployment of their peers in other specialties.

To make matters worse, Caplin and Cohen filed essentially the same amicus brief with the Supreme Court in one of the cases that the Court will take up at its cert petition conference this week. This is especially alarming because the government has urged the Court to appoint an amicus counsel to argue for the position that the AIA applies to the penalty for violating the individual mandate (even though the government now agrees with the mandate’s challengers that the AIA does not apply).

We think the justices’ clerks are fully capable of advising their bosses on the pro-AIA arguments, which in any event does not apply to the 26 state plaintiffs in the Eleventh Circuit case.  Plus the Court has the Fourth Circuit’s and now Judge Kavanaugh’s thorough “briefs.” If the Court does decide to appoint an amicus to argue that issue, however, let’s hope that it receives better legal advice than the D.C. Circuit got from Caplin and Cohen.