Amicus Curiae Brief — King v. Burwell, 135 S. Ct. 475 (2014) (No. 14-114)

No. 14-114

: uh te. 12 Court, US.

FILED

JAN 28 2015

OFFICE OF THE CLERK

3u the Supreme Court of the Anited States

DAVID KING, ET AL.,

Petitioners,

SYLVIA BURWELL, SECRETARY OF HEALTH AND

HUMAN SERVICES, ET AL.,

Respondents.

On Writ of Certiorari to the United States Court of

Appeals for the Fourth Circuit

BRIEF OF AMICI CURIAE FORMER

GOVERNMENT OFFICIALS IN SUPPORT OF

RESPONDENTS

NICHOLAS BAGLEY BORIS BERSHTEYN

ORRICK, HERRINGTON & Counsel of Record

SUTCLIFFE LLP ROMAN J. RODRIGUEZ

51 West 524 Street MICHAEL SPRINGER

New York, New York 10019 MICAH F. FERGENSON

(212) 506-5046 BREANNA E. FIELDS

Counsel for Amici Curiae KEVIN HU

Gotbaum, Rabb, Rivlin,

Samuels, and Vladeck

SALLY KATZEN

40 Washington Square

South, Room 426

New York, New York 10012

(212) 992-8981

STEFANIE E. NEALE

SKADDEN, ARPS, SLATE,

MEAGHER & FLOM LLP

Four Times Square

New York, New York 10036

(212) 735-3000

boris.bershteyn@skadden.com

Counsel for Amici Curiae

Gotbaum, Rabb, Rivlin,

Samuels, and Vladeck

i

TABLE OF CONTENTS

Page

pe OP it tye ty) | - SRR eee nee reee

INTEREST OF AMICI CURIAE ............-.scccseesccsssees 1

SUMMARY OF THE ARGUMENT ....................004. 3

IEE hiteiainciidesteiapbdeapsnbitsitiestainniiinsisactdgloosniit 4

I. This Court Should Defer to Treasury’s

Resolution of Any Ambiguity in § 36B................ 4

Il. None of the Canons for Construing Tax or

Appropriations Laws Counsels against

Deferring to Treasury’s Interpretation of

Ambiguous Language in § 36B...................0.....0.. 9

Ill. Treasury, Not HHS, Is Charged with

Resolving Any Ambiguities Arising out of

Es deccinannledeniedsiideietbbbubbindlshdanadiipiaancaiiaanainases 18

IV. Treasury's Regulation Defining the Scope

of the Tax Credit Was the Product of

Reasoned Decision-Making.........................+0000+ 22

Se EEG rictseertnenipecnctmnenentinmionncetentinneniinn 27

i]

TABLE OF AUTHORITIES

Cases Page(s)

AFL-CIO v. Chao, 409 F.3d 377 (D.C. Cir.

ata SiR Aig 2 NR ae 2 FS Soe se Oe 5

Barnhart v. Walton, 535 U.S. 212 (2002)................ 7

Bragdon v. Abbott, 524 U.S. 624 (1998) .............--. 21

Brown v. Gardner, 513 U.S. 115 (1994) ................ 19

Chevron U.S.A., Inc. v. Natural Resources

Defense Council, Inc., 467 U.S. 837

I cae a ae al 3, 4

Citizens to Preserve Overton Park, Inc. v.

me a Fy. 9 ) 23

City of Arlington v. FCC, 133 S. Ct. 1863

REE PRR eNEAG ht EOE ESE REREA SMES DOS ety eee 8,9

Coeur Alaska Inc. v. Southeast Alaska

Conservation Council, 557 U.S. 261

RE ET ETERS MOIS eneele Lew ana Rr 21

Commissioner v. Estate of Hubert, 520 U.S.

SARIS a ESS ED Pas SSeS hone tesa nn 14

Commissioner v. Jacobson, 336 U.S. 28

Sa TSH el ata Bsn ES SSE anC We ae eees 14

Eldred v. Ashcroft, 255 F.3d 849, 850-51

(D.C. Cir. 2001), affd, 537 U.S. 186

SINE ihc alntbh sited ckdoestassadeineashidenenigaateionnien 22

FDA v. Brown & Williamson, 529 U.S.

TN REIL ALSAGER. NE a oe 6, 18

1)

INS. v. Aguirre-Aguirre, 526 U.S. 415

I eintasncsabaccpiigitetnGeina tc conbiel it erie econ 8

INS v. Chadha, 462 U.S. 919 (1983)

Mayo Foundation for Medical Education &

Research v. United States, 131 S. Ct.

Pe ED dob ntlnnasetsaiedeanetadesics 5, 10, 11, 12, 14

Morgan Stanley Capital Group Inc. v.

Public Utility District No. 1, 554

U.S. 527 (2008)

Motor Vehicle Manufacturers Ass'n of

United States, Inc. v. State Farm

Mutual Automobile Insurance Co.,

CE 0 Eee 22

National Association of Home Builders v.

Defenders of Wildlife, 551 U.S. 644

NI siicschasnacadsdnctahitahancan benadetepanecacubeadacacbeoutasd: 21

National Muffler Dealers Association, Inc.

vu. United States, 440 U.S. 472 (1979)......... 14

National Railroad Passenger Corp. v.

Boston & Maine Corp., 503 U.S. 407

III asics cic eat os <anicledcieaetdae cease clemenniogsveicinc cadedoes 6

New Jersey v. New York, 523 U.S. 767

I ecdineeicrns cagubsasiadanedctatacraaicitiniantaluiicaicieiuisiaite 22

In re Permian Basin Area Rate Cases, 390

ee IE caret ea cae. 8

Scialabba v. Cuellar de Osorio, 134 S. Ct.

I a nt 18

SEC v. Chenery, 318 U.S. 80 (1943) ......00...ec ce. 25

iv

Sutton v. United Air Lines, Inc. 527 U.S.

Ba I oschen iechiskinn ibuieseethcescescesanaakatchinepindsienpiannais 21

United States v. Cleveland Indians

Baseball Co., 532 U.S. 200 (2001)...... anime 13

United States v. Correll, 389 U.S. 299

II he vaccine scssintessuidesatidsscaiddaapumemusuiakaskcwniidena 12

United States v. Irvine, 511 U.S. 224 (1994)......... 15

United States v. Mead Corp., 533 U.S. 218

ID inte haiaccoc astts adckeasoiscicaice beaian a ene odds 5

United States v. Pelzer, 312 U.S. 399

en at 15

Utility Air Regulatory Group v. EPA, 134 S.

ORs I os 6

Yazoo & Mississippi Valley Railroad Co. v

Thomas, 132 U.S. 174 (1889)...................... 10

Constitutional & Statutory Provisions

Oe, Ms Re kh 15

BE. SPD RR eh Rl Se 17

TT “Seeing brited ont dard Mee Aine 23

a 4

Dyke 2S gldlnliee ellered ttre deter erdetit 4, 17,19

hl AREA SISE SERIA TURE ies: AL Ae rm erat EN eons 13

Be Ne Oe Me Saiaiclactradeadincicechoncectscanieeneadonneisees 13

a ASCE Seth, Seniesa atten tan 40 12

OO OE Sp feeb aber taeee ar ar EE en Tas 13

ne 6 a 5

ee ET ee ae OPEN 16

PU. © I ike 20

ee OE i 19

Patient Protection and Affordable Care Act,

Pub. L. No. 111-148, 124 Stat. 119:

fe nee 4

CEES te Is CEs deitccdictscatenasas 17

Pub. L. No. 97-258, 96 Stat. 877 (1982) ................ 17

Rules & Regulations

26 C.F.R. §1.1502-0 to 99a (2014).....................0000- 12

Se ai is Wea ee I chica ichctens sacnascsboianncbiadincunes 13

26 C.F .R. § 1.263(e)-10) (BOTS) .........csecscccscescccccees 13

ee Sa ele PD GE Rist hs cveceneseesaineniaciasiecns 20

On es i oe er 20

ee fe | eee eee 20

Other Authorities

1 Government Accountability Office,

Principles of Federal Appropriations

TB RRR SSA TRIES PES SS Sp er 17

Administrative Conference of the United

States, Recommendation 2012-5:

Improving Coordination of Related

Agency Responsibilities (adopted

ERA AE STEN SRS om 21

vi

Antonin Scalia & Bryan A. Garner,

Reading Law: The Interpretation of

SEE WEED Be CED ecicvcsnccscescccsivccies

Black’s Law Dictionary (9th ed. 2009) ...........

Congressional Research Service, Health

Insurance Premium Credits in the

Patient Protection and Affordable

RE IOI i siccncncncodédaditannpiibingcsteictes

Deduction for Qualified Film and

Television Production Costs, 77 Fed.

Reg. 72923-01 (Dec. 7, 2012)..........000+.

Health Insurance Premium Tax Credit, 76

Fed. Reg. 50,931 (Aug. 17, 2011)..........

Health Insurance Premium Tax Credit, 77

Fed. Reg. 30,377 (May 23, 2012)...........

James R. Hines, Jr. & Kyle D. Logue,

Delegating Tax 19 (Univ. of Mich.

Law & Econ. Research Paper No. 14-

Memorandum from Cameron Arterton,

Counsel, Office of Tax Legislative

Counsel, U.S. Treasury Dep’t, to

Emily McMahon, Deputy Assistant

Sec’y, U.S. Treasury Dep’t (May 16,

Memorandum, Pre-Final Rule Analysis

I CPG SUID bsccesdctcncdchinisosedenceiesses

vil

New Markets Tax Credit Non-Real Estate

Investments, 77 FR 59544-01 (Sept.

BED, BE ep ccecncesescvnesesnshenvepasetaneniaanienne 11

Nuclear Decommissioning Funds, 75 FR

90007-01 Gee. BB, BONG) ..cccriveiniigcaneu 11

Reginfo.gov,

http://www.reginfo.gov/public/do/PR

AViewICR?ref_nbr=201404-1545-

009 (last visited Jan. 23, 2015)...........000.000... 9

Research Expenditures, 79 Fed. Reg.

43108-O1 Gulley Bi, DIED cecccocccscuiceiastiscsi 11

Staff of H. Comm. on Oversight & Gov’t

Reform and H. Comm. On Ways &

Means, 113th Cong., Administration

Conducted Inadequate Review of

Key Issues Prior To Expanding

Health Law’s Taxes And Subsidies

CHORD. DB, BRIG, sccensvesissiiiasnssammaaiee 24, 25, 26

Tax Credit for Employee Health Insurance

Expenses of Small Employers, 79

Fed. Reg. 36640-01 (June 30, 2014) ........... 11

INTEREST OF AMICI CURIAE

Amici are former senior officials in the

Department of the Treasury, the Department of

Health and Human Services (HHS), and the Office of

Management and Budget (OMB).' Amici share a

profound concern about the implications of an

argument made by petitioners—and some of the

amici in support of petitioners—that the federal

courts do not owe deference to the rule promulgated

by the Treasury Department in this case even if the

statutory provision that the rule construed is

ambiguous. This argument, if accepted, would

substantially impair the ability of executive branch

officials charged with administering federal tax laws

and health-care programs—and likely many other

significant and well-established federal programs—

to faithfully discharge the responsibilities that

Congress has assigned them.

e Joshua Gotbaum was the _ Assistant

Secretary of the Treasury for Economic Policy

from 1996 to 1997 and the Executive Associate

Director at OMB from 1997 until 2001, as well

as the Controller, Acting Deputy Director for

Management, and, briefly, Acting Director of

1 By letters on file with the Clerk, the parties have consentec to

the filing of this brief. No counsel for a party authored the brief

in whole or in part, and no person or counsel other than amici

curiae or their counsel made a monetary contribution to fund

the preparation or submission of this brief.

Amici submit this brief solely in their individual capacities,

and not as representatives of any agency, institution, or

organization with which they are or have been affiliated.

2

OMB. His federal service began in the Ford

Administration.

Sally Katzen was the Administrator of the

Office of Information and Regulatory Affairs

(OIRA) from 1993 to 1998 and the Deputy

Director for Management at OMB from 1999

to 2001.

Harriet S. Rabb was General Counsel at

HHS from 1993 to 2001.

Alice Rivlin was the Director of OMB from

1994 to 1996 as well as Assistant Secretary for

Planning and Evaluation and the USS.

Department of Health, Education and Welfare

from 1968 to 69.

Leslie B. Samuels was the Assistant

Secretary of the Treasury for Tax Policy from

1993 to 1996.

Bruce C. Viadeck was the Administrator of

the Health Care Financing Administration

(HCFA), now the Centers for Medicare and

Medicaid Services (CMS), from 1993 to 1997.

3

SUMMARY OF THE ARGUMENT

Three decades ago, in a decision that became the

cornerstone of modern administrative law, this

Court announced an enduring principle of judicial

restraint: Where a statute “is silent or ambiguous

with respect to the specific issue, the question for the

court is whether the agency’s answer is based on a

permissible construction of the statute.” Chevron,

U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467

U.S. 837, 843 (1984). The Chevron doctrine rests on

the recognition that a federal agency’s subject-

matter expertise and public accountability counsel

federal courts to defer to that agency's reasonable

construction of a statute that it administers. “The

responsibilities for assessing the wisdom of ... policy

choices and resolving the struggle between

competing views of the public interest are not

judicial ones.” Id. at 866.

Much of the dispute in this case concerns

whether the language of § 36B of the Internal

Revenue Code (added to the Code by the Patient

Protection and Affordable Care Act (ACA), Pub. L.

No. 111-148, 124 Stat. 119) is ambiguous with

regard to the availability of tax credits in states that

declined to establish their own health insurance

exchanges. This brief, however, is not about whether

this ambiguity exists.

Amici focus, instead, on what must happen if this

Court determined that the statutory provision is

ambiguous. In that event, fidelity to the Chevron

doctrine—and sound separation of responsibilities

among the branches of the federal government—

4

would require courts to defer to the Treasury

Department’s interpretation of ambiguous language.

Petitioners do not share that view. They urge this

Court to dispense with deference “even if there were

ambiguity” in the statute. Pet. Br. 51. In so arguing,

however, they do not deny that Congress vested

explicit authority in the Treasury Department to

“prescribe such regulations as may be necessary,” to

implement the ACA’s tax-credit provision. 26 U.S.C.

§ 36B(g). Nor do they contest that Treasury’s

regulation was adopted through an appropriate

notice-and-comment process.

Instead, petitioners make a series of disparate

arguments that are alike in one critica] respect: If

accepted, they would undermine the longstanding

Chevron framework, encourage judicial

superintendence of agency policy choices, limit

agency flexibility to work within the boundaries that

Congress has established, and interfere with the

sound execution of the nation’s laws. If the ACA “has

not directly addressed the precise question at issue,”

Chevron, 467 U.S. at 843, then deference is owed to

Treasury's considered resolution of any ambiguity.

ARGUMENT

Il. This Court Should Defer to Treasury’s

Resolution of Any Ambiguity in § 36B.

The ACA added § 36B to the Internal Revenue

Code in order to extend tax credits to certain

taxpayers who buy health insurance on the newly

established exchanges. See ACA, § 1401 (adding 26

U.S.C. § 36B). To implement this tax-credit program,

5

Congress empowered Treasury to “prescribe such

regulations as may be necessary to carry out the

provisions of this section.” 26 U.S.C. § 36B(g). This

express delegation of rulemaking authority

supplemented Treasury’s preexisting authority to

“prescribe all needful rules and regulations for the

enforcement of this title.” Jd., § 7805(a).

Congress has thus doubly delegated to the

Treasury Department the authority to issue rules to

fill in any gaps or resolve any latent ambiguities in

the statutory provisions governing ACA tax credits.

See AFL-CIO v. Chao, 409 F.3d 377, 393 (D.C. Cir.

2005) (Roberts, J., dissenting) (“[T]he statute speaks

in terms of what is ‘necessary’ ... an inherently

discretionary standard that clearly invites further

definition by the Secretary.”). Treasury has drawn

on that authority in crafting the rule at issue here.

See Health Insurance Premium Tax Credit, 77 Fed.

Reg. 30,377-01, 30,385 (May 23, 2012) (listing both

26 U.S.C. § 7805 and § 36B(g) as authority for the

tax-credit rules). As this Court recently reiterated—

specifically in the tax context—Chevron applies

where “it appears that Congress delegated authority

to the agency generally to make rules carrying the

force of law, and that the agency interpretation

claiming deference was promulgated in the exercise

of that authority.” Mayo Found. for Med. Educ. &

Research v. United States, 131 S. Ct. 704, 713 (2011)

(quoting United States v. Mead Corp., 533 U.S. 218,

226-27 (2001)). Treasury is thus owed Chevron

deference with respect to its interpretation of § 36B.

Petitioners resist this conclusion. In their view,

Treasury's decision to allow tax credits on federally-

6

facilitated exchanges had too much “economic or

political significance” to warrant this Court’s respect.

Pet. Br. 52. Petitioners are mistaken. It is true—but

irrelevant—that “[w]hen an agency claims to

discover in a long-extant statute an unheralded

power to regulate ‘a significant portion of the

American economy,’ [this Court] typically greet([s] its

announcement with a measure of skepticism.” Util.

Air Regulatory Grp. v. EPA (UARG), 134 S. Ct. 2427,

2444 (2014) (citing FDA v. Brown & Williamson

Tobacco Corp., 529 U.S. 120, 159 (2000)). The Court

has thus rebuffed EPA when it relied on decades-old

provisions of the Clean Air Act to assert “[t]he power

to require permits for the construction and

modification of tens of thousands, and the operation

of millions, of small [pollution] sources nationwide,”

UARG, 134 S. Ct. at 2444, and FDA when it

discovered in the 1938 Food, Drug, and Cosmetic Act

the sweeping authority to regulate tobacco products,

Brown & Williamson, 529 U.S. at 160-61.

Treasury's regulation bears no resemblance to

the newfound interpretations of “vast economic and

political significance,” UARG, 134 S. Ct. at 2444

(internal quotation marks omitted), that the Court

reviewed in UARG and Brown & Williamson. Far

from unexpectedly arrogating to itself regulatory

powers on the basis of statutes enacted some decades

earlier, Treasury has issued a predictable—indeed,

indispensable—rule that articulates the basic

parameters governing the availability of new tax

credits. See Nat? R.R. Passenger Corp. v. Boston &

Maine Corp., 503 U.S. 407, 418 (1992) (“Few phrases

in a complex scheme of regulation are so clear as to

be beyond the need for interpretation when applied

7

in a real context.”). It is unclear how Treasury could

have implemented the tax-credit provision at all

without first resolving whether tax credits were

available in states that declined to establish their

own exchanges. See Barnhart v. Walton, 535 U.S.

212, 222 (2002) (noting that “the importance of the

question to administration of the statute” bolsters

the case for Chevron deference).

Petitioners cannot plausibly claim that Treasury

was obliged to avoid making a decision with “vast

economic and political significance.” It had no such

option. To do its job, Treasury had to decide whether

tax credits would be available in the numerous

states that elected to use HealthCare.gov (the

federally operated exchange). That decision would

have had major economic and political significance

whatever the agency decided.

Even less plausible is any suggestion that federal

courts owe agencies less deference on “important”

questions. If accepted, petitioners’ view would

hamstring the ability of the executive branch to

resolve authoritatively the questions that are most

critical to the administration of law, but that

statutory language does not fully resolve. Chevron

would become not a doctrine of judicial deference to

agency expertise, but an instrument of indecision

and uncertainty—thwarting agencies’ efforts to draw

on their expertise and policy judgment in faithfully

executing the laws.

This Court has never held that the mere

significance of an agency action renders it ineligible

for Chevron deference. To the contrary, this Court

emphasized just two terms ago that “we have

8

applied Chevron where concerns about agency self-

aggrandizement are at their apogee: in cases where

an agency's expansive construction of the extent of

its own power would have wrought a fundamental

change in the regulatory scheme.” City of Arlington

uv. FCC, 133 S. Ct. 1863, 1872 (2013). If anything, the

need for Chevron deference reaches its height when

the courts review agency decisions of substantial

moment. It is then that the agency’s expertise and

political accountability are most essential—and

where the structure of the federal government most

forcefully counsels judicial restraint. Cf. INS v.

Aguirre-Aguirre, 526 U.S. 415, 425 (1999) (“[J]udicial

deference to the Executive Branch is especially

appropriate in the immigration context where

officials exercise especially sensitive political

functions that implicate questions of foreign

relations.” (internal quotation marks omitted)); In re

Permian Basin Area Rate Cases, 390 U.S. 747, 790

(1968) (“We must reiterate that the breadth and

complexity of the [Federal Power} Commission’s

responsibilities demand that it be given every

reasonable opportunity to formulate methods of

regulation appropriate for the solution of its

intensely practical difficulties.”).

What is more, there are no judicially manageable

standards to govern a free-floating inquiry into the

“importance” of a particular agency action. In City of

Arlington v. FCC, this Court rejected the elusive

distinction between “the big, important”

interpretations and “humdrum, run-of-the-mill

stuff.” 133 S. Ct. at 1868. Courts would otherwise be

plunged into unproductive line-drawing exercises,

especially for agencies with responsibilities as

9

substantial as the Treasury Department’s. Consider,

for example, that the time taxpayers take to

complete income-tax forms, the format of which is

almost entirely within Treasury’s control, is

estimated to cost 150.7 million filers a combined

$33.7 billion per year—making the creation of those

forms a “major” decision by any measure.2 Nobody

suggests, however, that the economic significance of

tax forms means Treasury should receive less

deference on designing them. In short, an agency

decision is not less worthy of respect because that

decision is “major”; instead, “the question a court

faces when confronted with an _ agency’s

interpretation of a statute it administers is always,

simply, whether the agency has stayed within the

bounds of its statutory authority.” Id.

Il. None of the Canons for Construing Tax or

Appropriations Laws Counsels against

Deferring to Treasury’s Interpretation of

Ambiguous Language in § 36B.

Petitioners turn next to a frontal attack on the

application of Chevron’ deference’ in __ the

administration of the tax code. In their view, anv

ambiguity in a tax statute pertaining to exemptions,

deductions, and tax credits must be resolved not

with reference to the agency’s policy judgment, but

instead with reference to a rule requiring those

exemptions, deductions, and credits to be “expressed

in clear and unambiguous terms.” Pet. Br. 54

. See Reginfo.gov, http//www.reginfo.gov/public/do/

PRAViewICR?ref_ nbr=201404-1545-009 (last visited Jan. 23,

2015).

10

(quoting Yazoo & Miss. Valley R.R. Co. v. Thomas,

132 U.S. 174, 183 (1889)); see also Br. of Wash. Legal

Found. in Support of Pet. 14-22. This canon of

construction, in petitioners’ view, overrides Chevron

deference in any case involving the construction of a

tax-credit statute.

Petitioners’ argument is puzzling for any number

of reasons, chief among them that it is foreclosed by

precedent. In Mayo Foundation for Medical

Education & Research v. United States, 131 S. Ct.

704 (2011), this Court held that Chevron is the

appropriate framework for measuring the legality of

a Treasury Department interpretation of a statutory

tax exemption. In that instance, the Court

considered the reasonableness of the agency’s

interpretation only after concluding that the Internal

Revenue Code was ambiguous about the scope of

that exemption. See id. at 711 (holding that “the

plain text of the statute” does not “speak with the

precision necessary to say definitively whether [the

statute] applies to medical residents” (alternation in

original) (internal quotation marks omitted)). On

petitioners’ theory, this was analytical error. The

Court should instead have held that taxpayers were

ineligible for the exemption—not because Treasury

reasonably reached that conclusion, but because the

statute, interpreted in light of the clear-statement

rule, commanded that result.

This Court took a decidedly different approach in

Mayo Foundation—and did so unanimously. After

finding the tax exemption ambiguous, the Court

emphasized the importance of drawing on Treasury’s

expertise and policy judgment in the administration

11

of the tax code. “Filling gaps in the Internal Revenue

Code,” it held, “plainly requires the Treasury

Department to make interpretive choices for

statutory implementation at least as complex as the

ones other agencies must make in administering

their statutes.” Jd. at 713. For that reason, “[t]he

principles underlying [the] decision in Chevron apply

with full force in the tax context.” Jd.

Although petitioners claim fidelity to Mayo

Foundation, their argument, if accepted, would

effectively wipe that decision from the U.S. Reports.

Tax law is so arcane mainly because of the

thousands of exemptions and deductions that stud

the Internal Revenue Code. Interpreting those

provisions occupies much of §Treasury’s

administrative time and attention. See, e.g.,

Research Expenditures, 79 Fed. Reg. 42,193-01 (July

21, 2014) (defining expenditures eligible for the

Research and Experimental Expenditure Deduction);

Tax Credit for Employee Health Insurance Expenses

of Small Employers, 79 Fed. Reg. 36,640-01 (June

30, 2014) (defining small employers’ eligibility for

the credit); Deduction for Qualified Film and

Television Production Costs, 77 Fed. Reg. 72,923-01

(Dec. 7, 2012) (defining the deduction’s eligibility

requirements); New Markets Tax Credit Non-Real

Estate Investments, 77 Fed. Reg. 59,544-01 (Sept.

28, 2012) (amending the eligibility requirements for

the New Markets Tax Credit); Nuclear

Decommissioning Funds, 75 Fed. Reg. 80,697-01

(Dec. 23, 2010) (defining eligibility for deductions for

payments made to the Nuclear Decommissioning

Reserve Fund).

12

As this Court reasoned in Mayo Foundation, the

complexity of this task—the difficulty of interpreting

all those exemptions and deductions—militates in

favor of, not against, Chevron deference. 131 S. Ct.

at 713-14. Petitioners, by contrast, invite the federal

courts, not the experts at Treasury, to take the lead

in administering huge swathes of the tax code. This

Court has declined such invitations time and again,

emphasizing that it does “not sit as a committee of

revision to perfect the administration of the tax

laws.” United States v. Correll, 389 U.S. 299, 306-07

(1967). The Court should not change course in this

case.

In fact, Treasury routinely interprets ambiguous

tax provisions, including those involving exemptions

and deductions. In § 482 of the Internal Revenue

Code, for example, Congress instructed the agency to

“distribute, apportion, or allocate gross income,

deductions, credits, or allowances” among

organizations that are owned or controlled by the

same interests in order “to prevent evasion of taxes.”

26 U.S.C. § 482. Congress left the interpretation of

this provision to Treasury's sound judgment. In

response, the agency “has issued voluminous

regulations under section 482, thereby assuming the

entire responsibility for its definition and

enforcement.” James R. Hines, Jr. & Kyle D. Logue,

Delegating Tax 19 (Univ. of Mich. Law & Econ.

Research Paper No. 14-005)3; see also 26 C.F.R. §§

1.1502-0 to 99a (2014) (507 pages of regulations

issued under § 1502, which directs the Treasury

Secretary to prescribe all regulations “necessary” to

3 Available at http://ssrn.com/abstract=2402047.

13

“prevent avoidance” of the tax liability of

corporations that file consolidated returns, 26 U.S.C.

§ 1502). On petitioners’ theory, however, Treasury

should be given no deference on any regulation that

addresses the apportionment of deductions. The

agency's true task (as petitioners presumably would

have it) would be a robotic one: to minimize

deductions and maximize federal revenue. This is

not—and should not be—the law.

Similarly, § 162 of the tax code ullows taxpayers

to deduct their “ordinary and necessary” business

expenses, including those for repairs on a building.

26 U.S.C. § 162. But § 263(a) prohibits those same

taxpayers from deducting any amounts “for new

buildings or for permanent improvements.” 26

U.S.C. § 263(a). Putting aside the interpretive

breadth of such terms as “ordinary” and “necessary,”

drawing the line between ordinary repairs and

permanent improvements demands policy expertise

of the sort that the federal courts generally lack. Yet

petitioners would have this Court discard the

regulations that Treasury has laboriously crafted,

see 26 C.F.R. §§ 1.162-4, 1.263(a)-1(b) (2014), in favor

of a rule that would resolve any doubtful case

against the taxpayer. This unduly blunt interpretive

approach would impede the sound administration of

the tax laws.

Perhaps that explains why this Court, in cases

involving Treasury interpretations of exemptions

and deductions, has never so much as hinted that

the clear-statement rule trumps Chevron deference.

See, e.g., United States v. Cleveland Indians Baseball

Co., 532 U.S. 200, 218-19 (2001) (deferring to a

14

Treasury rule governing an exclusion); Comm’r v.

Estate of Hubert, 520 U.S. 93, 120 (1997) (O’Connor,

J., concurring in the judgment) (deferring to a

Treasury rule governing a deduction); id. at 127

(Scalia, J., dissenting) (“[W]hen a provision of the

Internal Revenue Code is ambiguous .. ., this Court

has consistently deferred to the Treasury

Department’s interpretive regulations so long as

they implement the congressional mandate in some

reasonable manner.” (internal quotation marks

omitted)). In fact, the leading pre-Chevron case

endorsing deference to the Treasury Department,

National Muffler Dealers Association, Inc. v. United

States, involved the interpretation of an income-tax

exemption. 440 U.S. 472, 473 (1979).

Notwithstanding any clear-statement rule, the Court

held that deference was essential to assure that “the

rules will be written by masters of the subject, who

will be responsible for putting the rules into effect.”

Id. at 477 (citation omitted) (internal quotation

marks omitted). And when this Court departed from

its approach in National Muffler Dealers Association,

it charted a course of even greater deference to the

Treasury Department. See Mayo Found., 131 S. Ct.

at 713-14.

Rigidly applying any purported clear-statement

rule would be especially anomalous in a case

involving tax credits. Exemptions and deductions

must be denominated with clarity because, as the

Court explained in Commissioner v. Jacobson, “(t]he

income taxed is described in sweeping terms and

should be broadly construed in accordance with an

obvious purpose to tax income comprehensively.” 336

U.S. 28, 49 (1949). But neither petitioners nor their

15

amici identify any case in which this Court applied a

clear-statement rule to tax credits. For good reason:

Tax credits do not reduce the amount of a taxpayer’s

taxable income or otherwise diminish the tax base.

To the contrary, credits offset the amount the

taxpayer must pay only after her tax liability has

already been established. See Black’s Law Dictionary

1599 (9th ed. 2009) (defining “tax credit” to be “[a]n

amount subtracted directly from one’s total tax

liability”). Credits—especially refundable credits—

are thus more akin to subsidies than they are to

exemptions or deductions. There is no reason to give

tax-credit statutes a more grudging reading than

any other statute extending a government benefit.‘

Even if this case triggers the principle that

exemptions and deductions should be read narrowly,

that principle is outweighed by a competing principle

of statutory construction: that “revenue laws are to

be construed in the light of their general purpose to

establish a nationwide scheme of taxation uniform in

its application.” United States v. Irvine, 511 US.

224, 238-39 (1994) (quoting United States v. Pelzer,

312 U.S. 399, 402 (1941)). This canon of uniform

application reinforces Treasury’s view that the ACA

authorizes tax credits across the United States,

whether or not an individual state has elected to

establish its own exchange. Cf. U.S. Const., art. [,

§ 8, cl. 1 (providing that “all Duties, Imposts and

‘ Cf. Antonin Scalia & Bryan A. Garner, Reading Law: The

Interpretation of Legal Texts 362 (2012) (arguing that the canon

that exemptions must be strictly construed lacks a sound

justification and that “the terms of [a tax] exception ought to be

reasonably, rather than strictly, construed”).

16

Excises shall be uniform throughout the United

States”). Petitioners nowhere explain why the

uniformity canon should (let alone must) give way to

the canon narrowly construing exemptions and

deductions, nor could they. The fact that different

tax canons point different ways counsels against

petitioners’ wooden approach to the tax code.

Finally, petitioners are simply wrong to suggest

that Treasury improperly gave an _ overbroad

interpretation to an appropriations law, purportedly

in violation of the Appropriations Clause. See Pet.

Br. 54-55; see also Br. of Amici Curiae Admin. &

Const. Law Profs. in Support of Pet. 6-17. Contrary

to petitioners’ suggestion, §36B is not an

appropriations statute—and therefore interpreting

§ 36B does not implicate any interpretive canons

that apply to such statutes. Rather, § 36B permits

Treasury to make payments out of funds

appropriated by a separate statutory provision

codified in a different volume of the U.S. Code: 31

U.S.C. § 1324. See, e.g., Congressional Research

Service, Health Insurance Premium Credits in the

Patient Protection and Affordable Care Act 1-2 n.7

(2014), available at https://www.fas.org/sgp/crs/misc/

R41137.pdf (“For tax years beginning after

December 31, 2013, 31 U.S.C. 1324 appropriates

necessary amounts to the Treasury Secretary for

disbursements due under § 36B of the IRC. This

permanent appropriation means that the premium

credits do not require annual appropriations.”).

Section 1324 is a longstanding, permanent

appropriation stating that “[n]ecessary amounts are

appropriated to the Secretary of the Treasury for

refunding internal revenue collections as provided by

17

law.” Pub. L. No. 97-258, 96 Stat. 877, 923 (1982)

(adding 31 U.S.C. § 1324(a) to the U.S. Code); 1

Government Accountability Office, Principles of

Federal Appropriations Law, p. 2—16 (3d ed. 2004)

(citing 31 U.S.C. §1324 as an example of a

permanent appropriation).5 The ACA explicitly

added § 36B to the list of tax provisions that were

eligible for refunds under § 1324. ACA, Pub. L. No.

111-148, § 1401(d), 124 Stat. 220 (2010).

There is thus no question that Treasury may

refund to taxpayers any amount in excess of their

tax liability, including money due on account of a

refundable tax credit under the ACA. Nor is there

any question, again, that Congress has vested

Treasury with authority to resolve statutory

ambiguities pertaining to the availability of those

tax credits. See 26 U.S.C. § 36B(g) (authorizing

Treasury to “prescribe such regulations as may be

necessary to carry out the provisions of this

section”).

5 Amici Citizens’ Council et. al argue that permanent

appropriations are unconstitutional, because they require

future Congresses to repeal appropriations rather than simply

waiting for them to expire. See Br. of Amici Curiae Citizens’

Council et. al in Support of Pet. at 22-27. The argument has no

foundation. No one doubts that Congress may pass laws that

remain in effect until a future Congress repeals them. That

includes, with one express exception, appropriations statutes.

See U.S. Const. art. I, § 8, cl. 12 (The Congress shall have

power]—To raise and support Armies, but no Appropriation of

Money to that Use shall be for a longer Term than two Years.”).

18

lil. Treasury, Not HHS, Is Charged with

Resolving Any Ambiguities Arising out of

§ 36B.

Petitioners’ final contention is that, because

Treasury does not actually administer any

provisions of the ACA that give rise to any

ambiguity, it is not entitled to deference. See Pet. Br.

55-56. Petitioners’ premise is false: the ambiguity

does arise in the Internal Revenue Code. But even if

their premise were true, Chevron deference would

nonetheless be appropriate.

The disputed language in the ACA arises, as

petitioners acknowledge, in § 36B of the Internal

Revenue Code. The question in this case is whether

a particular phrase in §36B—“an Exchange

established by the State under [42 U.S.C. §18031]’—

eliminates subsidies in states that declined to

establish their own exchanges. See Pet. Br. 1

(framing their “question presented” around the

language of § 36B). This case is thus about—indeed,

it is principally about—what that phrase means.

Against that backdrop, petitioners’ claim that

“nobody contends that th[is] language ... is itself

ambiguous” is baffling. Pet. Br. 55.

It is irrelevant that HHS bears responsibility for

administering ACA provisions that may make

apparent the ambiguity in § 36B. This Court has

emphasized that “[t]he meaning—or ambiguity—of

certain words or phrases may only become evident

when placed in context.” Brown & Williamson, 529

U.S. at 132; see also Scialabba v. Cuellar de Osorio,

134 S. Ct. 2191 (2014) (plurality opinion) (noting

19

that where two statutory clauses give clear guidance

when read separately, but “[do] not easily cohere

with each other,” the resulting “internal tension

makes possible alternative reasonable

constructions”). That is why the exchange-

authorizing provisions of the ACA, together with

other provisions of the statute, help to make sense of

the phrase “an Exchange established by the State

under 42 U.S.C. § 18031.” See Gov't Br. 27-35.

An agency decision does not become ineligible for

Chevron deference whenever an agency adheres to

the statutory maxim that statutes should be read as

a whole. See Brown v. Gardner, 513 U.S. 115, 118

(1994) (“Ambiguity is a creature not [just] of

definitional possibilities but [also] of statutory

context.”). Nor does that maxim lose its force when

Congress charges’ different agencies with

implementing different statutory provisions.

Treasury's regulation did not offer—and did not

purport to offer—an authoritative, legally binding

interpretation of any statutory provisions within the

jurisdiction of HHS.

Moreover, this case offers no occasion to

hypothesize whether Treasury’s regulation might

clash with HHS’s views about the meaning of

provisions that HHS administers. Congress largely

addressed such concerns by directing the Treasury

and HHS to consult one another in implementing the

tax-credit provisions of the ACA. See 42 U.S.C.

§ 18082(a) (providing that “[t]he Secretary [of HHS],

in consultation with the Secretary of the Treasury,

shall establish a program” to make advance

payments of tax credits); 26 U.S.C. § 36B(g)(1)

20

(directing Treasury to issue regulations for

“coordination of the [tax] credit allowed under” § 36B

with HHS’s “program for advance payment of the

credit”). The two agencies thus “work[ed] in close

coordination to release guidance related to

Exchanges.” Health Insurance Premium Tax Credit,

76 Fed. Reg. 50,931, 50,932 (Aug. 17, 2011).

That coordinated effort led to consistent

definitions of statutory terms: Treasury’s regulation,

for example, cross-references the HHS definition of

“Exchange,” which HHS defined to include federally-

facilitated exchanges. See 26 C.F.R. § 1.36B-1(k)

(2014) (“Exchange has the same meaning as in 45

CFR § 155.20.”). Close interagency coordination may

explain, too, why HHS regulations are in complete

accord with Treasury’s position that people who buy

qualified health plans “through an Exchange” are

eligible for advance tax credits. See 45 C.F.R.

§ 155.20 (2014) (defining “Exchange” to include

federally-facilitated exchanges); 45 C.F.R. § 155.340

(2014) (setting rules for an “Exchange” to administer

tax credits).®

6 Amicus State of Indiana suggests that Treasury is not owed

deference because HHS has already acted to resolve any

anomalies that petitioners’ reading of the ACA would cause—

particularly in connection with the ACA’s definition of

“qualified individual.” Indiana Br. 15. But HHS’s interpretation

of “qualified individual” would presumably be greeted with the

same objection that has been lodged in this litigation against

Treasury's interpretation of § 36B: that it fails to attend to

statutory language purportedly restricting the provision’s scope

to state-established exchanges. Sew 42 U.S.C. § 18032(f)(1)(A).

In any event, if either Treasury or HHS must act to prevent an

absurd reading of a statute, no principle of law or logic suggests

that HHS must act instead of Treasury. To the contrary, the

21

This Court has never suggested that a

coordinated effort by multiple agencies to interpret

the same statute deserves less deference than a

single agency's standalone interpretation. To the

contrary, in Coeur Alaska, Inc. v. Southeast Alaska

Conservation Council, the Court extended Chevron

deference to a Clean Water Act regulation jointly

issued by the Environmental Protection Agency and

the Army Corps of Engineers. 557 U.S. 261, 277-78

(2009); see also Nat? Ass’n of Home Builders v.

Defenders of Wildlife, 551 U.S. 644, 665 (2007)

(applying Chevron deference to a regulation issued

by the National Marine Fisheries Service and the

Fish and Wildlife Service “acting jointly”).’

Nor would a no-deference rule have a sound

policy rationale. Coordination allows two agencies

with very different missions to bring their respective

expertise and experience to bear on a statutory

scheme that touches on the jurisdictions of both—a

practice that should be encouraged, not deterred. See

generally Administrative Conference of the United

States, Recommendation 2012-5, Improving

Court should defer, under Chevron, to the executive branch’s

considered judgment about how the federal agencies dually

charged with administering a complex statute can most

effectively construe ambiguous language to resolve or minimize

any tensions within that statute’s provisions.

7 In two earlier cases, the Court noted, but did not resolve, the

question of deference owed to interpretations of certain

provisions of the Americans with Disabilities Act and the

Rehabilitation Act by one of multiple agencies charged with

administering those statutes. See Sutton v. United Air Lines,

Inc., 527 U.S. 471, 478-480 (1999); Bragdon v. Abbott, 524 US.

624, 642 (1998).

22

Coordination of Related Agency Responsibilities

(adopted June 15, 2012). The fact that Treasury

worked in coordination with HHS offers a powerful

additional reason to defer to Treasury’s regulation—

and certainly does not supply a reason to withhold

deference altogether.

IV. Treasury’s Regulation Defining the Scope

of the Tax Credit Was the Product of Reasoned

Decision-Making.

Amict supporting the petitioners—but not

petitioners themselves—have leveled a different

accusation at Treasury’s regulation: that it is not

owed deference because it was “not the product of

reasoned decision-making.” See Br. for Sen. Cornyn

et al. in Supp. of Pet. 30-33 (quoting Motor Vehicle

Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto.

Ins. Co., 463 U.S. 29, 52 (1983)) [Cornyn Br.]. Amici’s

argument is not properly before the Court. See New

Jersey v. New York, 523 U.S. 767, 781 n.3 (1998)

(observing that the Court “must pass over the

arguments of the named amici for the reason that ...

the party to the case[] has in effect renounced them,

or at least any benefit they might provide”); Eldred

v. Ashcroft, 255 F.3d 849, 850-51 (D.C. Cir. 2001)

(refusing to pass on claims that the parties to the

litigation have declined to advance), affd, 537 US.

186 (2003).

Even if the argument were before the Court, it is

incorrect. The Administrative Procedure Act (APA)

authorizes a reviewing court to “hold unlawful and

set aside agency action, findings, and conclusions

found to be arbitrary, capricious, an abuse of

23

discretion, or otherwise not in accordance with law.”

5 U.S.C. § 706(2). In measuring the reasonableness

of an agency decision, the courts ask “whether the

decision was based on a consideration of the relevant

factors and whether there has been a clear error of

judgment.” Citizens to Preserve Overton Park, Inc. v.

Volpe, 401 U.S. 402, 416 (1971). A court, however,

will not lightly invalidate an agency decision, for it

“is not empowered to substitute its judgment for that

of the agency.” Id.

Treasurys regulation easily satisfies the APA

standard. To begin with, Treasury explained in its

final rule that the text of the ACA “support([s] the

interpretation that credits are available to taxpayers

who obtain coverage through ... the Federally-

facilitated Exchange” and that “the relevant

legislative history does not demonstrate that

Congress intended to limit the premium tax credit to

State Exchanges.” Health Insurance Premium Tax

Credit, 77 Fed. Reg. at 30,378. The very amici who

challenge Treasury’s decision-making process rely on

sources that, in turn, contain materials that

demonstrate the care that Treasury took in reaching

that conclusion. For example, amici point to a report

that quotes at length from an _ internal

memorandum—written in February 2012, well

before Treasury’s regulation was issued—expanding

the agency’s rationale:

The term “established by a state” may be read

as a restriction on the term “exchange” or it

may be read as simply descriptive language.

Interpreting the language as a restriction is

inconsistent with the broad scheme of the

24

ACA to increase health insurance availability.

Denying a premium tax credit to taxpayers

enrolled in a QHP through the fed exchange

while allowing a credit to those enrolled

through state exchanges would be an

incongruous result and could not have been

Congress’ intent. The term “established by a

state” should be interpreted to encompass the

federal exchange because under [42 U.S.C.

§ 18041] of the ACA, the federal exchange

steps into the shoes of a state exchange if a

state declines to establish an exchange or if a

state’s establishment of the exchange is

delayed. A conclusion that the language [of]

§ 36B(b)(2)(A) is descriptive and _ not

restrictive is further supported by the

language of § 36B(f(3), which imposes

information reporting requirements’ on

exchanges, including the federal exchanges,

established under [§ 18041(c)] of the ACA.

Memorandum, Pre-Final Rule Analysis Memo (Feb.

2012) (quoted in Staff of H. Comm. on Oversight &

Gov't Reform and H. Comm. On Ways & Means,

113th Cong., Administration Conducted Inadequate

Review of Key Issues Prior To Expanding Health

Law’s Taxes And Subsidies 22 (Feb. 5, 2014),

available at http://oversight.house.gov/wp-

content/uploads/2014/02/IRS-Ruie-OGR-WM-Staff-

Report-Finall.pdf (“Joint Report”)) (cited in Cornyn

Br.). A separate internal memorandum from a

Treasury official, also written prior to the rule's

release, offered still further explanation:

25

[W]e carefully considered the language of the

statute and the legislative history and

concluded that the better interpretation of

Congressional intent was that premium tax

credits should be available to taxpayers on

any type of Exchange. For example, § 36B(f)(3)

provides that “Each exchange ... shall provide

the following information to the Secretary and

to the taxpayer with respect to any health

plan provided through the Exchange ...” The

reference to [§ 18041(c)] is a reference to the

section authorizing the federally-facilitated

Exchange. There would be no reason for

Congress to include—within the Code section

that creates the premium tax credit—an

obligation for a federally-facilitated Exchange

to report data about enrollments to the

Secretary unless the enrolling individuals

were eligible for the premium tax credit.

Memorandum from Cameron Arterton, Counsel,

Office of Tax Legislative Counsel, U.S. Treasury

Dep't, to Emily McMahon, Deputy Assistant Sec’y,

U.S. Treasury Dep’t (May 16, 2012) (quoted in Joint

Report 23).

These are the very arguments that the

government advances today: that Treasury “steps

into the shoes of a state exchange,” that the

language of § 36B “is descriptive and not restrictive,”

and that requiring federally-facilitated exchanges to

report data on tax credits would be senseless if no

tax credits were available. See Gov't Br. 19-27. The

government is thus neither pressing a post hoc

rationale for its decision, see SEC v. Chenery, 318

26

U.S. 80, 88 (1943) (holding that judicial review

would be “confinfed] ... to a judgment upon the

validity of the grounds upon which the [agency] itself

based its action”), nor “offer{ing] a justification in

court different from what it provided in its opinion,”

Morgan Stanley Capital Grp. Inc. v. Pub. Util. Dist.

No. 1, 554 U.S. 527, 544 (2008). To the contrary,

Treasury has been consistent—and reasonable—

throughout. It is beside the point whether the

agency’s reasoning comes in “a single paragraph,” see

Cornyn Br. 31 (internal quotation omitted); an

explanation does not become unreasonable by virtue

of being concise. And the memoranda confirm that

Treasury gave the matter serious, reasoned

consideration. That is all the APA requires.

It is similarly irrelevant that the staffs of two

committees in the House of Representatives

expressed the view that “neither the IRS nor

Treasury engaged in reasoned decision-making.”

Joint Report 31. That position—which is not a

legislative act, cf. INS v. Chadha, 462 U.S. 919

(1983), and which is not binding on the executive, let

alone on the judicial, branch of government—is

unconvincing on its own terms: It ignores or

minimizes the uncontroverted evidence, including

but not limited to the two memoranda, that Treasury

gave serious consideration to the question at issue in

this case. See, e.g., Joint Report at 6-7 (reporting that

Treasury officials canvassed, among other things,

the ACA’s legislative history). Treasury’s deliberate

and reasoned final interpretation, adopted after

giving due consideration to a range of views,

deserves deference.

27

CONCLUSION

For the foregoing reasons, if this Court were to

determine that § 36B of the Internal Revenue Code

is ambiguous with regard to the availability of tax

credits in states that declined to establish their own

health insurance exchanges, then fidelity to Chevron

requires judicial deference to ‘Treasury’s

interpretation of ambiguous statutory language. Tax

credits should thus be available to taxpayers who

obtain health insurance coverage through federally-

facilitated exchanges.

NICHOLAS BAGLEY

ORRICK, HERRINGTON

& SUTCLIFFE LLP

51 West 52™ Street

New York, NY 10019

(212) 506-5046

Counsel for Amici

Curiae Gotbaum,

Rabb, Rivlin,

Samuels, and Viadeck

SALLY KATZEN

40 Washington Square

South, Room 426

New York, NY 10012

(212) 992-8981

Pro se

January 28, 2015

28

Respectfully submitted,

BORIS BERSHTEYN

Counsel of Record

ROMAN J. RODRIGUEZ

MICHAEL SPRINGER

MICAH F. FERGENSON

BREANNA E. FIELDS

KEVIN Hu

STEFANIE E. NEALE

SKADDEN, ARPS, SLATE,

MEAGHER & FLOM LLP

Four Times Square

New York, NY 10036

(212) 735-3000

boris.bershteyn@skadden.com

Counsel for Amici Curiae

Gotbaum, Rabb, Rivlin,

Samuels, and Vladeck