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Regs
Larry Becraft
It seems like it was about 10 or 12 years ago that the argument about implementing regulations circulated thru the tax movement. The man who promoted this argument most was Karl Granse, who published materials like “Congressional Iron-Brick Wall.” After I had time to digest this argument, I concluded it lacked substance and tried to educate people about it. In my opinion, this is the type of argument that has a superficial gloss, but is nonetheless erroneous.
Let me explain the flaws with this argument. Via the Constitution, only Congress possesses the power to enact federal laws. There is a well developed line of decisional authorities that this power cannot be delegated, even to govt agencies. Since agencies cannot “enact law” because this is a Congressional power, the proposition that “all laws depend on regs” is simply baseless. Laws for the most part stand on their own and are enforceable independently regardless of the existence or non-existence of regs.
The development of regs occurred in the 19th century. With the growth of this country after the War of Northern Aggression, govt agencies started issuing regulations, particularly Treasury (the mother of all agencies).
Suppose Congress enacted a law imposing a tax of a certain amount on all clothing made 50% of silk. Treasury issued regulations that interpreted these laws. For instance, Treasury might state via regs that dresses from China would be subject to the silk tax because, since it watched everything flowing across the border, its experience was that Chinese clothing was mostly made of silk. An importer of clothes from China that was mostly cotton-made would end up contesting the tax; but those importers who, knowing Treasury’s position on the matter, believed it would not be worthwhile to challenge the tax for their product would pay it. There is a real benefit (learned 140+ years ago) for an agency like Treasury to publish its interpretation of a very general law.
Let me offer another example: a heavy tax on margarine. Margarine was developed in the 1880s and 90s, yet Treasury’s margarine regs affected me 100 years later. I was doing historical research about the margarine regs in the late 1990s, 100 years after these regs were first published.
What I read educated me that margarine was not only trash, but also harmful; I quit using margarine as a result, and I suggest that you convert to the butter habit, too. But in any event, Treasury issued its interpretations of what was butter and what was margarine shortly after adoption of the margarine tax, and its opinion regarding the matter surely affected margarine manufacturers. In fact, what hit the Supreme Court regarding the margarine tax was not “what is margarine,” but whether Congress had the power to so tax. Interpretive regs thus are beneficial, contrary to popular “patriot” opinion.
Let me get back to income tax regs. When the 1913 income tax was adopted, Treasury issued Regs 33, which was its interpretation of that act. For subsequent acts, it also issued regs. See Regs 45, 62, 65, 69, 74, 77, 86, 94, and 101. Those regs adopted after 1936 were published in the Fed Register because such was legally compelled by the Fed Register Act of 1936. For the 1939 IR Code, Regs 103 were adopted. Thru much personal effort, I compiled a CD that contains all these old regs (fully words searchable), as well as tax acts (also fully words searchable). I daresay that such effort will be my last because I have learned that the tax movement does not give a damn for being educated, only wanting the soothing words of gurus who offer “that which tickles the ears,” even if utterly baseless from a legal viewpoint. The “tax regs” argument that is currently promoted is of the latter category.
In 1946, Congress adopted the Administrative Procedures Act that required agency regs to be adopted via a specific procedure (notice and comment). At that time, Treasury had already been publishing for about 70 years interpretive regs and it complied (in certain respects) with that act by frequently subjecting proposed regs to the notice and comment procedure dictated by the APA. When the 1954 Code was enacted in Aug. 1954, section 7805 granted the Secretary general authority to issue regs, and the courts have determined that regs based on section 7805 are interpretive. See Rowan Companies, Inc. v. United States, 452 U.S. 247, 253, 101 S.Ct. 2288, 2292 (1981)(“[T]he Commissioner interpreted Congress’ definition only under his general authority to ‘prescribe all needful rules.’ 26 U.S.C. §7805(a). Because we therefore can measure the Commissioner’s interpretation against a specific provision in the Code, we owe the interpretation less deference than a regulation issued under a specific grant of authority...”); and Water Quality Ass’n. Employees’ Benefit Corp. v. United States, 795 F.2d 1303, 1305 (7th Cir. 1986)(“A Treasury Regulation such as the one before us was promulgated pursuant to the Secretary’s general authority to ‘prescribe all needful rules and regulations for the enforcement of [the revenue laws],’ 26 U.S.C. §7805(a); it is an ‘interpretative’ rather than ‘legislative’ regulation. Rowan...”). In summary, regs based on 7805 are interpretive. Such regs cannot legally impose obligations; please read the Clayton brief:
Those regs that are called by the courts as “legislative” regs are those where the statute in question specifically delegates “rule-making” authority to some govt official, like the Treasury Secretary. Such as law would read, in essence, like this: “Regulations. The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph.” If you wish to learn which tax regs are “legislative,” I attach a few pages from the “table of contents” for Vol. 1 of the 2006 tax regs. In this table of regs, those which are “interpretive” are listed above where I have highlighted in yellow. Those regs listed below the yellow are classified as “legislative,” and as you can see, most tax regs are “interpretive”.
Most federal laws are enforceable without any regs. However, there are a few laws like the CTR laws that are written to depend entirely on regs. The CTR laws were the subject of that case, Bankers Assn v. Schulz, but that case does not stand for the proposition that all laws depend on regs. That contention is nothing but fantasy. Most of the tax code is enforceable via the plain language of the various sections thereof, but there are some provisions that do depend on regs. But, this does not mean that no law is enforceable without a reg. The argument that “no law is enforceable without regs” is just another baseless contention, and it has served to mislead too many people.
Larry Becraft