The Threat of Law: Regulatory Blackmail or an Answer to Congressional Inaction?

30 Pages Posted: 16 Apr 2016 Last revised: 25 Oct 2017

Date Written: April 13, 2016

Abstract

The administrative state has become an increasingly dominant force in American jurisprudence, at times wielding its power even beyond the reach of judicial and legislative control. Notwithstanding the fact that many legal scholars, regulated entities, and politicians have lamented the expanding role of the administrative state, regulatory agencies are more frequently flexing their newly acquired muscle and acting in contravention to traditional notions of checks and balances.

In this Article, I examine a burgeoning administrative law phenomenon I term the “threat of law,” whereby an administrative agency unilaterally imposes its regulatory will on regulated entities outside of the traditional boundaries of its rulemaking authority. The regulatory body can exercise this threat of law by issuing regulations grounded in dubious statutory authority and daring regulated entities to challenge them in court. In the absence of Congressional action, regulated entities can be left with the options to comply with the disputable regulation, defy the regulation and face penalties and litigation, or fight an often protracted and expensive court battle to get the regulation overturned. The threat of law also ups the ante for an increasingly impotent Congress. By changing the status quo, the threat of law can push Congress to either act to change the questionable regulation or acquiesce.

In order to illustrate the tangible pressure this threat of law can inflict on affected regulatees, this Article focuses on recent actions taken by the Treasury Department in response to the growing tide of corporate tax inversions, whereby entities historically domiciled in the United States move their headquarters to lower-tax jurisdictions. Treasury issued expansive notices attacking inversion transactions, pushing their regulatory powers to the limit. Even though Treasury may have lacked the power to act without congressional intervention, its actions produced a threat of law that, at least temporarily, had the same chilling effect on transactions as a legitimately exercised force of law.

This Article will examine this attempt by Treasury to circumvent congressional action. It will explore the efficacy this threat of law can have on an agency’s ability to act swiftly in response to emerging challenges, particularly in the face of congressional gridlock. Moreover, this Article will address the implications an effective threat of law has on an agency’s statutory retroactivity powers, traditional notions underlying Congress’s perceived delegation of authority, and to the level of justiciability protections that these actions should be afforded.

Keywords: administrative law, APA, abuse of power, congressional authority, Chevron, deference, delegation, federal government, inversion, Internal Revenue Code, IRC, IRS, Mayo Foundation, Mead, regulation, regulatory, Section 7421, 7874, 6662, 7805, tax, taxpayer, treasury

JEL Classification: K34, K23

Suggested Citation

Perkins, Rachelle Holmes, The Threat of Law: Regulatory Blackmail or an Answer to Congressional Inaction? (April 13, 2016). Kansas Law Review, Vol. 65, No. 3, 2017; George Mason Legal Studies Research Paper No. LS 16-17. Available at SSRN: https://ssrn.com/abstract=2764374 or http://dx.doi.org/10.2139/ssrn.2764374

Rachelle Holmes Perkins (Contact Author)

George Mason University School of Law ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States
703-993-8966 (Phone)

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