Tuesday, February 15, 2011

Hold the Mayo

Occasionally, and usually without knowing it, the Supreme Court has something to say that might affect customs lawyers and their clients. Mayo Foundation v. United States might be one of those occasions.

The issue at the front of the case was whether medical residents are "students" for purposes of the Federal Insurance Contributions Act, or FICA. As you may notice every month, FICA takes a portion of your wages for Social Security. Students who earn wages, however, are exempt. So, if residents are students, they are exempt. Apparently, there had been a period of uncertainty regarding the application of this rule to residents. As a result, in 2004 the Treasury Department created a regulation saying, among other things, that anyone working 40 hours or more in a week is not a student even if the work is related to an educational objective. The regulation specifically used medical residents as an example of a non-exempt student. Mayo started withholding FICA on its residents wages and eventually sued for a refund.

What is possibly relevant for us is the Supreme Court's analysis of this interpretive regulation. As is usually the case in these situations, the Court began by applying the two-step Chevron (1984) analysis. Under this test, if the statute is clear on its face, then the Court applies the statute as drafted by Congress without regard to the agency's interpretation. The Court found that the statute was not clear as to whether residents are students and, therefore, moved on to the second step.

In Chevron step two, the Court generally asks whether the agency's interpretation of the statute, as expressed in the regulation, is manifestly contrary to the statute. Only if it is, does the Court reverse the agency's interpretation. If the agency has adopted a "permissible" interpretation, then the Court will defer to that interpretation.

But, in this case Mayo argued for a different analysis. Rather than Chevron step two, Mayo asked the Court to look at a number of factors indicating the general persuasiveness of the interpretation. Those factors include how long the regulation has been in place, whether it was passed contemporaneous with the statute, and whether Congress has apparently accepted the agency interpretation. These factors come from a 1979 case called National Muffler, which also involved a Treasury Department regulation. Note that National Muffler predates Chevron, but is has been cited post-Chevron in Treasury cases.

Rather than accept Mayo's invitation, the Court found no reason to adopt a different approach to the review of administrative interpretations in tax cases than in all other cases. In his opinion for an 8-0 Court (Justice Kagan did not participate), Chief Justice Roberts stated "We see no reason why our review of tax regulations should not be guided by agency expertise pursuant to Chevron to the same extent  as our review of other regulations."

Why might this be of interest to customs lawyers? If you have read this far, you probably already know where I am going and that is to Skidmore deference. As you probably know, in Mead, the Supreme Court held that some determinations by Customs and Border Protection are not entitled to full Chevron deference but may be treated as persuasive under Skidmore. A decision will be persuasive when it is internally logical, consistently applied, and otherwise carries the indications of persuasiveness. The questions raised by Mayo is whether Mead and Skidmore still apply to Customs.

I think the answer is yes. The easily seen evidence for this is that the Mayo decision cites Mead in several places and makes no indication that it is less than applicable. Second, the regulation is question in Mayo was a full-blown regulation passed after public notice and comment. Under Mead, that is the kind of regulation entitled to Chevron deference. Skidmore applies to less formal decisions like Customs binding rulings and protest determinations.

So, while Mayo dances up to it, I don't think it changes anything for customs practitioners. That, of course, does not mean that the Department of Justice might not want to explore the boundaries of the case as applied to Customs' interpretations of statutes. But, as long a Mead remains the law, it appears we will continue to argue about persuasiveness under Skidmore.

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