The effect of Mayo on the precedential value of regs and other IRS pronouncements

The Supreme Court's decision in Mayo Foundation v. U.S., (S Ct 1/11/2011) 107 AFTR 2d 2011-341 ,  purported to resolve a long-standing dispute regarding the level of deference afforded to interpretive Treasury regs.

Regulations. These may be final (no prefix before the word “Reg.”), temporary (designated with the letter T in the citation), proposed (“Prop Reg”), or proposed reliance regs (designated as “Prop Reg ... Taxpayers may rely”).

A final reg represents IRS's authoritative explanation and interpretation of a Code provision. Final regs sometimes are not amended until many years after enactment of tax laws (or court cases) that affect the subject of a final reg and, until then, may be of little use in interpreting a current Code provision.

Before the Supreme Court's decision in Mayo, the precedential value of a final reg depended on whether it was legislative (i.e., enacted pursuant to a specific grant of authority mandated by the Code itself) or interpretive (enacted under the IRS's general authority to issue Code-related rules and regs). Interpretive regs were typically subject to the standard set out in National Muffler, (S Ct 1979) 43 AFTR 2d 79-828 , under which the reg was evaluated for whether it harmonized with the language, origin, and purpose of the statute, considering factors such as the consistency of IRS's interpretation and whether the reg was contemporaneous with the statute's enactment. Legislative regs were generally subject to “Chevron deference,” meaning that they were afforded controlling weight unless “arbitrary, capricious, or manifestly contrary to the statute.” (Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., (S Ct 1984) 467 U.S. 837) However, there was confusion among the courts and tax practitioners as to which standard governed interpretive regs following Chevron, especially in situations where IRS's authority to issue guidance was implicit (i.e., to address an ambiguity or fill in gaps in the enacted law). Many commentators reasoned that tax law was simply different from other types of law, and tax regs should continue to be analyzed under the National Muffler standard.

In early 2011, the Supreme Court spoke on the issue in the Mayo case. The Court clarified that Treasury regs, whether legislative or interpretive, that are issued under the Administrative Procedures Act's (APA's) “notice and comment” procedures (which was previously identified by the Supreme Court in Mead Corp., 553 US 218, as an indication that Chevron deference is warranted) and fall within the statutory grant of authority are entitled to Chevron deference. In so holding, the Court largely repudiated National Muffler and its factor-based test.

It's not completely clear, however, whether the National Muffler approach will still be viable for regs or other pronouncements that aren't subject to the notice and comment process.

However, despite the Supreme Court's seemingly clear pronouncement, subsequent case law has shown that there is still room for interpretation. For instance, there is currently a split among the courts as to the validity of regs stating that an overstatement of basis is an omission of income for purpose of the six-year limitations period under Code Sec. 6501(e)(1)(A) . These retroactively effective regs were issued by IRS issued after a number of taxpayer victories on the issue. The Fourth Circuit, citing Mayo, stated that Chevron deference didn't apply to the reg since the underlying statute was unambiguous. (Home Concrete & Supply, LLC v. U.S., (CA 4 2/7/2011) 107 AFTR 2d 2011-767. The Tax Court, also citing Mayo, held that the Supreme Court's decision in Colony, Inc. v. Com., (S Ct 1958) 1 AFTR 2d 1894 , that the extended limitations period applies to omissions and not overstatements, remained binding until clearly and unequivocally repudiated by IRS's regs. (Carpenter Family Investments, LLC, (2011) 136 TC No. 17 , see Weekly Alert ¶  18 04/28/2011 ) Thus, while Mayo has clarified a number of issues and arguably made it more difficult to challenge an IRS reg, its precise effect remains to be seen.

A temporary reg provides taxpayers with guidance they can follow pending issuance of final regs, and has the same precedential value as a final reg. (Temporary regs issued after Nov. 10, '88 expire three years after their issuance date, which is why they also must be issued as proposed regs.)

A proposed reg is issued to give taxpayers and practitioners notice of how IRS interprets a provision, and the opportunity to comment on and critique that interpretation. It has little precedential value. Courts have said proposed regs “carry no more weight than a position advanced on brief” and are “suggestions made for comment; they modify nothing.” The Court of Federal Claims similarly stated that “[i]n general, proposed regulations have no legal force or effect until they become final.” (Yocum v. U.S., (2006, Ct Fed Cl) 96 AFTR 2d 2005-5030 )

Nevertheless, proposed regs are useful for tax planning. In many cases (although there have been notable exceptions), final regs follow the broad outline presented in proposed regs. One court has ruled that where a taxpayer relies on proposed regs, differing final regs cannot be imposed to his detriment. This was so even though the proposed regs were not ones IRS said the taxpayer could rely on. (Elkins, Paul, (1983) 81 TC 669 ) However, other courts have leaned the other way. For example, the Court of Appeals for the Federal Circuit held that where existing final regs provided an unfavorable result to a taxpayer while proposed amendments to those regs indicated a position more favorable to him, the taxpayer's reliance on the proposed regs wasn't justified. (Garvey Inc v. U.S., (1983, Cl Ct) 51 AFTR 2d 83-721 , 1 Ct Cl 108 , 83-1 USTC ¶9163 , affd (1984, CA Fed Cir) 53 AFTR 2d 84-776 , 726 F2d 1569 , 84-1 USTC ¶9214 )

A proposed reliance reg is one which states that taxpayers may rely on it, with any more stringent provisions in a later final reg to be effective only prospectively. These regs can be relied on as if they are final regs. In an infrequently used variation, IRS states that it will not challenge tax return positions that are consistent with a proposed reliance reg.

Revenue Ruling (“Rev Rul”). Rev Ruls are official interpretations by IRS that have been published in the Internal Revenue Bulletin (IRB) reflecting IRS's conclusion on how the law is applied to a specific set of facts. Because Rev Ruls are interpretive, IRS may issue then without complying with the notice and hearing requirements of the APA. (National Restaurant Assn. v. Simon, (1976, DC Dist Col) 37 AFTR 2d 76-1144 ) They are issued only by the Associate Office and are published for the information and guidance of taxpayers, IRS personnel, and others concerned. They may arise from various sources, e.g., private letter rulings to taxpayers, technical advice to district offices, or court decisions. Most Rev Ruls apply retroactively unless otherwise stated. ( Code Sec. 7805(b)(8) ) A Rev Rul's conclusions are limited to the pivotal facts stated in it.

Rev Ruls don't have the force and effect of regs, but may nonetheless be cited and relied on. (See Exxon Mobil Corp & Affiliated Co., (2011) 136 TC No. 5 ) Assuming that the facts and circumstances at issue are substantially the same as those in a Rev Rul, practitioners and their clients generally may rely on it and don't have to ask for a private ruling for their particular cases. However, Rev Ruls, like regs, can become outdated (e.g., by the passage of subsequent legislation) and may be modified or distinguished by subsequent rulings.

The Supreme Court stated in Skidmore v. Swift & Co., (1944) 323 U.S. 134, that it was not bound by Rev Ruls, and that the weight that they are afforded is dependent on their persuasiveness and the consistency of IRS's position over time. However, this standard has done little to resolve the precise level of deference afforded, and is often cited for the proposition that Rev Ruls are entitled to “some” deference. (See, e.g., U.S. v. Mead, (2001, Sup Ct) 533 U.S. 218)

Cases over the past decade have afforded Rev Ruls varying degrees of deference. For instance, in Ammex, Inc., (2004, CA6) 93 AFTR 2d 2004-2187 , the Sixth Circuit held that Rev Ruls should get the same level of deference as regs, reasoning that they are issued in the same manner and under the same authority. (This reasoning is debated—commentators cite differences ranging from the submission of regs for public comment to who formulates and supervises each.) However, in PSB Holdings, Inc., (2007) 129 TC 131 , the Tax Court stated that it isn't bound by an interpretation in a Rev Rul.

Revenue Procedure (“Rev Proc”). Rev Procs are statements of practice and procedure published in the IRB. They also are published in the Federal Register when required by the APA. They contain information that affects the rights or duties of taxpayers and other members of the public under the tax law and related statutes, or they contain information that should be made public even if it does not affect the rights and duties of the public. They address broad subjects such as accounting method changes, how to compute depreciation allowances, or how to obtain innocent-spouse equitable relief. The precedential value of a Rev Proc is the same as that of a Rev Rul. However, unlike Rev Ruls, Rev Procs fall outside of Code Sec. 7805(b) and apply prospectively.

 Although Mayo didn't address the level of deference afforded to Rev Ruls or other similar types of IRS guidance, there was speculation following the decision that arguments advocating for such published rulings to receive Chevron deference would soon follow. However, on May 7, Gilbert, Rothenberg, appellate section chief in the Department of Justice's (DOJ's) Tax Division, announced that the DOJ would not argue that Chevron deference applies to Rev Ruls or Rev Procs.

Announcement (“Ann”) or Notice (“Not”). These address a timely topic of wide interest (e.g., extension of the period in which a Roth IRA can be recharacterized) and can be relied on and cited as precedent by taxpayers. IRS is bound to what it says in an Announcement or Notice to the same extent it would be with a Rev Rul or Rev Proc.

News release or information release (“IR”). This document is issued to the press to bring public attention to general-interest items, rather than items of a technical nature. IRS's statement of policy in an IR has been held to bind it in its dealings with taxpayers.

General Counsel Memorandum (“GCM”). This is a legal memo prepared by the IRS's Chief Counsel's Office in response to a formal request from within IRS ranks for legal advice. It can't be used or cited as precedent. Some courts have held that a GCM can be relied on for interpretive guidance, but IRS has resisted this conclusion. IRS stopped issuing GCMs after '95.

In a case of first impression, the Second Circuit relied substantially on what IRS had said in GCMs. It noted that while it wasn't giving precedential value to the GCMs cited, it was necessary to rely on them for interpretive advice. (Morganbesser v. U.S., (1993, CA2) 71 AFTR 2d 93-825 ) IRS subsequently nonacquiesced in the decision and revoked a GCM relied on in that case.

Action on Decision (“AOD”). This is a legal memo prepared by IRS Chief Counsel when IRS loses a court case. It sets forth the issue, a brief discussion of the facts, and the reasoning behind the recommendation to acquiesce (“acq,” follow) or nonacquiesce (“nonacq,” not follow) a decision, or to acquiesce in result only. IRS says that an AOD isn't an affirmative statement of its position, isn't intended to serve as public guidance and can't be cited as precedent. As a practical matter, acqs or nonacqs can be relied on (e.g., if the taxpayer's situation is the same as the one decided in a court case to which IRS has acquiesced, the taxpayer may assume his position won't be challenged by IRS).

 RIA observation: However, in a December 2010 speech, Commissioner Douglas Shulman cautioned taxpayers not to “read too much” into IRS's AOD regarding the Tax Court's 2009 VERITAS transfer pricing decision ( 133 TC No. 14 ), stating that IRS's attorneys will continue to litigate these types of cases when appropriate to do so.

© 2011 Thomson Reuters/RIA. All

MAYO FOUNDATION FOR MEDICAL ED. & RESEARCH, ET AL. v. U.S., Cite as 107 AFTR 2d 2011-341 (131 S.Ct. 704, 2011-1 USTC P 50,143), 01/11/2011 , Code Sec(s) 3121; 3111; 7422

MAYO FOUNDATION FOR MEDICAL EDUCATION & RESEARCH, ET AL., PETITIONER v. UNITED STATES, RESPONDENT.

Case Information:

Code Sec(s):       3121; 3111; 7422

Court Name:      Supreme Court of the United States,

Docket No.:        No. 09-837,

Date Decided:   01/11/2011.

Prior History:      Court of Appeals, (2009, CA8)  103 AFTR 2d 2009-2649, 568 F3d 675, reversing and remanding (2007, DC MN)   100 AFTR 2d 2007-5449 and Regents of the University of Minnesota v. U.S., (2008, DC MN)  101 AFTR 2d 2008-1532, affirmed.

Tax Year(s):        Year 2005.

Disposition:        Decision for Govt.

HEADNOTE

1. FICA taxes—exemptions—student employment—medical residents—validity of regs—refunds. Supreme Court affirmed 8th Cir. decision that 2004-amended Reg § 31.3121(b)(10)-2(d)(3)(iii) 's fulltime employee limitation on FICA tax student exception was valid: finding that Code Sec. 3121(b)(10) didn't explicitly define student or speak “with precision” to question of whether medical residents were meant to be subject to FICA, Court applied Chevron deference to find that reg, in categorically stating that services of fulltime employee, including any employee with normal work schedule of 40 hours or more per week, weren't incident to and for purpose of pursuing course of study, reflected reasonable statutory interpretation. Court rejected taxpayers' argument that reg's use of categorical limitation was impermissible and that it drew arbitrary distinction between hands on training and classroom instruction, and determined instead that Treas. Dept., in seeking reasonable distinction between students who work and workers who study, reasonably focused on number of hours worked vs. studied as means of distinction. Also, reg promoted administrative convenience and, in subjecting residents to FICA, promoted Social Security Act purposes and comported with Supreme Court precedent. While Court didn't doubt residents were engaged in valuable educational pursuit and were students of their craft, whether they were students for FICA purposes was another question, and one which Court determined to be answered by Treas. Dept.'s reasonable reg interpretation of what Congress said. In so holding, Court clarified standards for reg interpretation and stated that deferential standard employed in Chevron rather than lesser deferential standard of National Muffler provided appropriate framework for evaluating fulltime employee rule.

Reference(s): ¶ 31,115.01 Code Sec. 3121 ; Code Sec. 3111 ; Code Sec. 7422

OPINION

Syllabus CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUITNOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337. Petitioners (hereinafter Mayo) offer residency programs to doctors who have graduated from medical school and seek additional instruction in a chosen specialty. Those programs train doctors primarily through hands-on experience. Although residents are required to take part in formal educational activities, these doctors generally spend the bulk of their time—typically 50 to 80 hours a week—caring for patients. Mayo pays its residents annual “stipends” of over $40,000 and also provides them with health insurance, malpractice insurance, and paid vacation time. The Federal Insurance Contributions Act (FICA) requires employees and employers to pay taxes on all “wages” employees receive,  26 U. S. C.  §§3101(a), 3111(a), and defines “wages” to include “all remuneration for employment,”  §3121(a). FICA defines “employment” as “any service ... performed ... by an employee for the person employing him,”  § 3121(b), but excludes from taxation any “service performed in the employ of ... a school, college, or university ... if such service is performed by a student who is enrolled and regularly attending classes at [the school],”  § 3121(b)(10). Since 1951, the Treasury Department has construed the student exception to exempt from taxation students who work for their schools “as an incident to and for the purpose [pg. 2011-342] of pursuing a course of study.” 16 Fed. Reg. 12474. In 2004, the Department issued regulations providing that “[t]he services of a full-time employee”—which includes an employee normally scheduled to work 40 hours or more per week—“are not incident to and for the purpose of pursuing a course of study.” 26 CFR  §31.3121(b)(10)-2(d)(3)(iii). The Department explained that this analysis “is not affected by the fact that the services ... may have an educational, instructional, or training aspect.” Ibid. The rule offers as an example a medical resident whose normal schedule requires him to perform services 40 or more hours per week, and concludes that the resident is not a student. Mayo filed suit asserting that this rule was invalid, and the District Court agreed. It found the full-time employee rule inconsistent with  § 3121's unambiguous text and concluded that the factors governing this Court's analysis in National Muffler Dealers Assn., Inc. v. United States,  440 U. S. 472 [43 AFTR 2d 79-828], also indicated that the rule was invalid. The Eighth Circuit reversed. Applying Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, the Court of Appeals concluded that the Department's regulation was a permissible interpretation of an ambiguous statute. Held: The Treasury Department's full-time employee rule is a reasonable construction of  § 3121(b)(10). Pp. 6–15.

((a)) Under Chevron's two-part framework, the Court first asks whether Congress has “directly addressed the precise question at issue.” 467 U. S., at 842–843. Congress has not done so here; the statute does not define “student” or otherwise attend to the question whether medical residents are subject to FICA. Pp. 6–7.

((b)) The parties debate whether the Court should next apply Chevron step two or the multi-factor analysis used to review a tax regulation in National Muffler. Absent a justification to do so, this Court is not inclined to apply a less deferential framework to evaluate Treasury Department regulations than it uses to review rules adopted by any other agency. The Court has “[r]ecogniz[ed] the importance of maintaining a uniform approach to judicial review of administrative action.” Dickinson v. Zurko , 527 U. S. 150, 154. And the principles underlying Chevron apply with full force in the tax context. Chevron recognized that an agency's power ““to administer a congressionally created ... program necessarily requires the formulation of policy and the making of rules to fill any gap left ... by Congress.”” 467 U. S., at 843. Filling gaps in the Internal Revenue Code plainly requires the Treasury Department to make interpretive choices for statutory implementation at least as complex as the ones made by other agencies in administering their statutes. It is true that the full-time employee rule, like the rule at issue in National Muffler, was promulgated under the Department's general authority to “prescribe all needful rules and regulations for the enforcement” of the Internal Revenue Code.  26 U. S. C. §7805(a). It is also true that this Court, in opinions predating Chevron, stated that it owed less deference to a rule adopted under that general grant of authority than it would afford rules issued pursuant to more specific grants. See Rowan Cos. v. United States,  452 U. S. 247, 253 [48 AFTR 2d 81-5115]; United States v. Vogel Fertilizer Co.,  455 U. S. 16, 24 [49 AFTR 2d 82-491]. Since then, however, the Court has found Chevron deference appropriate “when 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.” United States v. Mead Corp., 533 U. S. 218, 226–227. Chevron and Mead provide the appropriate framework for evaluating the full-time employee rule. The Department issued the rule pursuant to an explicit authorization to prescribe needful rules and regulations, and only after notice-and-comment procedures. The Court has recognized these to be good indicators of a rule meriting Chevron deference, Mead , 533 U. S., at 229–231. Pp. 7–12.

((c)) The rule easily satisfies Chevron's second step. Mayo accepts the Treasury Department's determination that an individual may not qualify for the student exception unless the educational aspect of his relationship with his employer predominates over the service aspect of that relationship, but objects to the Department's conclusion that residents working more than 40 hours per week categorically cannot satisfy that requirement. Mayo argues that the Treasury Department should be required to engage in a case-by-case inquiry into what each employee does and why he does it, and that the Department has arbitrarily distinguished between hands-on training and classroom instruction. But regulation, like legislation, often requires drawing lines. The Department reasonably sought to distinguish between workers who study and students who work. Focusing on the hours spent working and those spent in studies is a sensible way to accomplish that goal. The Department thus has drawn a distinction between education and service, not between classroom instruction and hands-on train [pg. 2011-343] ing. The Treasury Department also reasonably concluded that its full-time employee rule would “improve administrability,” 69 Fed. Reg. 76405, and thereby “has avoided the wasteful litigation and continuing uncertainty that would inevitably accompany [a] case-by-case approach” like the one Mayo advocates, United States v. Correll,  389 U. S. 299, 302 [20 AFTR 2d 5845]. Moreover, the rule reasonably takes into account the Social Security Administration's concern that exempting residents from FICA would deprive them and their families of vital social security disability and survivorship benefits. Pp. 12–15.

 568 F. 3d 675 [103 AFTR 2d 2009-2649], affirmed. Roberts, C. J., delivered the opinion of the Court, in which all other Members joined, except Kagan, J., who took no part in the consideration or decision of the case.

SUPREME COURT OF THE UNITED STATES,

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT

Opinion of the Court

Judge: Chief Justice Roberts delivered the opinion of the Court.

NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.

Nearly all Americans who work for wages pay taxes on those wages under the Federal Insurance Contributions Act (FICA), which Congress enacted to collect funds for Social Security. The question presented in this case is whether doctors who serve as medical residents are properly viewed as “student[s]” whose service Congress has exempted from FICA taxes under  26 U. S. C. §3121(b)(10).

I

A

Most doctors who graduate from medical school in the United States pursue additional education in a specialty to become board certified to practice in that field. Petitioners Mayo Foundation for Medical Education and Research, Mayo Clinic, and the Regents of the University of Minnesota (collectively Mayo) offer medical residency programs that provide such instruction. Mayo's residency programs, which usually last three to five years, train doctors primarily through hands-on experience. Residents often spend between 50 and 80 hours a week caring for patients, typically examining and diagnosing them, prescribing medication, recommending plans of care, and performing certain procedures. Residents are generally supervised in this work by more senior residents and by faculty members known as attending physicians. In 2005, Mayo paid its residents annual “stipends” ranging between $41,000 and $56,000 and provided them with health insurance, malpractice insurance, and paid vacation time.

Mayo residents also take part in “a formal and structured educational program.” Brief for Petitioners 5 (internal quotation marks omitted). Residents are assigned textbooks and journal articles to read and are expected to attend weekly lectures and other conferences. Residents also take written exams and are evaluated by the attending faculty physicians. But the parties do not dispute that the bulk of residents' time is spent caring for patients.

B

Through the Social Security Act and related legislation, Congress has created a comprehensive national insurance system that provides benefits for retired workers, disabled workers, unemployed workers, and their families. See United States v. Lee,  455 U. S. 252, 254 [49 AFTR 2d 82-802], 258, and nn. 1, 7 (1982). Congress funds Social Security by taxing both employers and employees under FICA on the wages employees earn. See  26 U. S. C. §3101(a) (tax on employees);  §3111(a) (tax on employers). Congress has defined “wages” broadly, to encompass “all remuneration for employment.”  §3121(a) (2006 ed. and Supp. III). The term “employment” has a similarly broad reach, extending to “any service, of whatever nature, performed ... by an employee for the person employing him.”  § 3121(b).

Congress has, however, exempted certain categories of service and individuals from FICA's demands. As relevant here, Congress has excluded from taxation “service performed in the employ of ... a school, college, or university ... if such service is performed by a student who is enrolled and regularly attending classes at such school, college, or university.”  § 3121(b)(10) (2006 ed.). The Social Security Act, which governs workers' eligibility for benefits, contains a corresponding student exception materially identical to  §3121(b)(10). 42 U. S. C. §410(a)(10). [pg. 2011-344]

Since 1951, the Treasury Department has applied the student exception to exempt from taxation students who work for their schools “as an incident to and for the purpose of pursuing a course of study” there. 16 Fed. Reg. 12474 (adopting Treas. Regs. 127, §408.219(c)); see  Treas.Reg. §31.3121(b)(10)-2(d), 26 CFR  § 31.3121(b)(10)-2(d) (2010). Until 2005, the Department determined whether an individual's work was “incident to” his studies by performing a case-by-case analysis. The primary considerations in that analysis were the number of hours worked and the course load taken. See, e.g.,   Rev. Rul. 78-17, 1978-1 Cum. Bull. 307 (services of individual “employed on a full-time basis” with a part-time course load are “not incident to and for the purpose of pursuing a course of study”).

For its part, the Social Security Administration (SSA) also articulated in its regulations a case-by-case approach to the corresponding student exception in the Social Security Act. See 20 CFR §404.1028(c) (1998). The SSA has, however, “always held that resident physicians are not students.” SSR 78-3, 1978 Cum. Bull. 55–56. In 1998, the Court of Appeals for the Eighth Circuit held that the SSA could not categorically exclude residents from student status, given that its regulations provided for a case-by-case approach. See Minnesotav. Apfel, 151 F. 3d 742, 747–748. Following that decision, the Internal Revenue Service received more than 7,000 claims seeking FICA tax refunds on the ground that medical residents qualified as students under  §3121(b)(10) of the Internal Revenue Code.  568 F. 3d 675, 677 [103 AFTR 2d 2009-2649] (CA8 2009).

Facing that flood of claims, the Treasury Department “determined that it [wa]s necessary to provide additional clarification of the ter[m]” “student” as used in  §3121(b)(10), particularly with respect to individuals who perform “services that are in the nature of on the job training.” 69 Fed. Reg. 8605 (2004). The Department proposed an amended rule for comment and held a public hearing on it. See id., at 76405.

On December 21, 2004, the Department adopted an amended rule prescribing that an employee's service is “incident” to his studies only when “[t]he educational aspect of the relationship between the employer and the employee, as compared to the service aspect of the relationship, [is] predominant.” Id., at 76408;  Treas. Reg. §31.3121(b)(10)-2(d)(3)(i), 26 CFR  § 31.3121(b)(10)-2(d)(3)(i) (2005). The rule categorically provides that “[t]he services of a full-time employee”—as defined by the employer's policies, but in any event including any employee normally scheduled to work 40 hours or more per week—“are not incident to and for the purpose of pursuing a course of study.” 69 Fed. Reg. 76408;  Treas. Reg. §31.3121(b)(10)-2(d)(3)(iii), 26 CFR  § 31.3121(b)(10)-2(d)(3)(iii) (the full-time employee rule). The amended provision clarifies that the Department's analysis “is not affected by the fact that the services performed ... may have an educational, instructional, or training aspect.” Ibid. The rule also includes as an example the case of “Employee E,” who is employed by “University V” as a medical resident. 69 Fed. Reg. 76409;  Treas. Reg. §31.3121(b)(10)-2(e), 26 CFR  § 31.3121(b)(10)-2(e) (Example 4). Because Employee E's “normal work schedule calls for [him] to perform services 40 or more hours per week,”the rule provides that his service is “not incident to and forthe purpose of pursuing a course of study,” and he accordingly is not an exempt “student” under  §3121(b)(10). 69 Fed. Reg. 76409, 76410;  Treas. Reg. §31.3121(b)(10)-2(e), 26 CFR  § 31.3121(b)(10)-2(e) (Example 4).

C

After the Department promulgated the full-time employee rule, Mayo filed suit seeking a refund of the money it had withheld and paid on its residents' stipends during the second quarter of 2005.  503 F. Supp. 2d 1164, 1166– 1167 [100 AFTR 2d 2007-5449] (Minn. 2007); Regents of Univ. of Minn. v. United States, No. 06-5084 (D Minn., Apr. 1, 2008), App. to Pet. for Cert. C-47a. Mayo asserted that its residents were exempt under §3121(b)(10) and that the Treasury Department's full-time employee rule was invalid.

The District Court granted Mayo's motion for summary judgment. The court held that the full-time employee rule is inconsistent with the unambiguous text of  §3121, which the court understood to dictate that “an employee is a “student” so long as the educational aspect of his service predominates over the service aspect of the relationship with his employer.” 503 F. Supp. 2d, at 1175. The court also determined that the factors governing this Court's analysis of regulations set forth in National Muffler Dealers Assn., Inc. v. United States,  440 U. S. 472 [43 AFTR 2d 79-828] (1979), “indicate that the full-time employee exception is invalid.” 503 F. Supp. 2d, at 1176; see App. to Pet. for Cert. C-54a.

The Government appealed, and the Court of Appeals reversed.  568 F. 3d 675 [103 AFTR 2d 2009-2649]. Applying our opinion in Chevron U. S. A. Inc. v. Natural Resources Defense [pg. 2011-345] Council, Inc., 467 U. S. 837 (1984), the Court of Appeals concluded that “the statute is silent or ambiguous on the question whether a medical resident working for the school full-time is a “student”” for purposes of  §3121(b)(10), and that the Department's amended regulation “is a permissible interpretation of the statut[e].” 568 F. 3d, at 679–680, 683.

We granted Mayo's petition for certiorari. 560 U. S. ___ (2010).

II

A

[1] We begin our analysis with the first step of the two-part framework announced in Chevron, supra, at 842–843, and ask whether Congress has “directly addressed the precise question at issue.” We agree with the Court of Appeals that Congress has not done so. The statute does not define the term “student,” and does not otherwise attend to the precise question whether medical residents are subject to FICA. See  26 U. S. C. §3121(b)(10).

Mayo nonetheless contends that the Treasury Department's full-time employee rule must be rejected under Chevron step one. Mayo argues that the dictionary definition of “student”— one “who engages in “study” by applying the mind “to the acquisition of learning, whether by means of books, observation, or experiment””—plainly encompasses residents. Brief for Petitioners 22 (quoting Oxford Universal Dictionary 2049–2050 (3d ed. 1955)). And, Mayo adds, residents are not excluded from that category by the only limitation on students Congress has imposed under the statute—that they “be “enrolled and regularly attending classes at [a] school.”” Brief for Petitioners 22 (quoting  26 U. S. C. §3121(b)(10)).

Mayo's reading does not eliminate the statute's ambiguity as applied to working professionals. In its reply brief, Mayo acknowledges that a full-time professor taking evening classes—a person who presumably would satisfy the statute's class-enrollment requirement and apply his mind to learning—could be excluded from the exemption and taxed because he is not ““predominant[ly]”” a student. Reply Brief for Petitioners 7. Medical residents might likewise be excluded on the same basis; the statute itself does not resolve the ambiguity.

The District Court interpreted  §3121(b)(10) as unambiguously foreclosing the Department's rule by mandating that an employee be deemed “a “student” so long as the educational aspect of his service predominates over the service aspect of the relationship with his employer.” 503 F. Supp. 2d, at 1175. We do not think it possible to glean so much from the little that  § 3121 provides. In any event, the statutory text still would offer no insight into how Congress intended predominance to be determined or whether Congress thought that medical residents would satisfy the requirement.

To the extent Congress has specifically addressed medical residents in  §3121, moreover, it has expressly excluded these doctors from exemptions they might otherwise invoke. See  26 U. S. C. §§3121(b)(6)(B), (7)(C)(ii) (excluding medical residents from exemptions available to employees of the District of Columbia and the United States). That choice casts doubt on any claim that Congress specifically intended to insulate medical residents from FICA's reach in the first place.

In sum, neither the plain text of the statute nor the District Court's interpretation of the exemption “speak[s] with the precision necessary to say definitively whether [the statute] applies to” medical residents. United States v. Eurodif S. A., 555 U. S. ___, ___ (2009) (slip op., at 13).

B

In the typical case, such an ambiguity would lead us inexorably to Chevron step two, under which we may not disturb an agency rule unless it is ““arbitrary or capricious in substance, or manifestly contrary to the statute.”” Household Credit Services, Inc. v. Pfennig, 541 U. S. 232, 242 (2004) (quoting United States v. Mead Corp., 533 U. S. 218, 227 (2001)). In this case, however, the parties disagree over the proper framework for evaluating an ambiguous provision of the Internal Revenue Code.

Mayo asks us to apply the multi-factor analysis we used to review a tax regulation in National Muffler,  440 U. S. 472 [43 AFTR 2d 79-828]. There we explained:

“A regulation may have particular force if it is a substantially contemporaneous construction of the statute by those presumed to have been aware of congressional intent. If the regulation dates from a later period, the manner in which it evolved merits inquiry. Other relevant considerations are the length of time the regulation has been in effect, the reliance placed on it, the consistency of the Commissioner's interpretation, and the degree of scrutiny Congress has devoted to the regulation during subsequent reenactments of the statute.” Id., at 477.

The Government, on the other hand, contends that the National Muffler standard has been superseded by Chevron. The sole question for the Court at step two under the Chevron analysis is “whether the agency's answer is based on a [pg. 2011-346] permissible construction of the statute.” 467 U. S., at 843.

Since deciding Chevron, we have cited both National Muffler and Chevron in our review of Treasury Department regulations. See, e.g., United States v. Cleveland Indians Baseball Co.,  532 U. S. 200, 219 [87 AFTR 2d 2001-1706] (2001) (citing National Muffler); Cottage Savings Assn. v. Commissioner, 499 U. S. 554, 560–561  [67 AFTR 2d 91-808] (1991) (same); United States v. Boyle,  469 U. S. 241, 246 [55 AFTR 2d 85-1535], n. 4 (1985) (citing Chevron); see also Atlantic Mut. Ins. Co. v. Commissioner,  523 U. S. 382, 387 [81 AFTR 2d 98-1566], 389 (1998) (citing Chevron and Cottage Savings).

Although we have not thus far distinguished between National Muffler and Chevron, they call for different analyses of an ambiguous statute. Under National Muffler, for example, a court might view an agency's interpretation of a statute with heightened skepticism when it has not been consistent over time, when it was promulgated years after the relevant statute was enacted, or because of the way in which the regulation evolved. 440 U. S., at 477. The District Court in this case cited each of these factors in rejecting the Treasury Department's rule, noting in particular that the regulation had been promulgated after an adverse judicial decision. See 503 F. Supp. 2d, at 1176; see also Brief for Petitioners 41–44 (relying on the same considerations).

Under Chevron, in contrast, deference to an agency's interpretation of an ambiguous statute does not turn on such considerations. We have repeatedly held that “[a]gency inconsistency is not a basis for declining to analyze the agency's interpretation under the Chevron framework.” National Cable & Telecommunications Assn. v. Brand X Internet Services, 545 U. S. 967, 981 (2005); accord, Eurodif S. A., supra, at ___ (slip op., at 10). We have instructed that “neither antiquity nor contemporaneity with [a] statute is a condition of [a regulation's] validity.” Smiley v. Citibank (South Dakota), N. A., 517 U. S. 735, 740 (1996). And we have found it immaterial to our analysis that a “regulation was prompted by litigation.” Id., at 741. Indeed, in United Dominion Industries, Inc. v. United States,  532 U. S. 822, 838 [87 AFTR 2d 2001-2377] (2001), we expressly invited the Treasury Department to “amend its regulations” if troubled by the consequences of our resolution of the case.

Aside from our past citation of National Muffler, Mayohas not advanced any justification for applying a less deferential standard of review to Treasury Department regulations than we apply to the rules of any other agency. In the absence of such justification, we are not inclined to carve out an approach to administrative review good for tax law only. To the contrary, we have expressly “[r]ecogniz[ed] the importance of maintaining a uniform approach to judicial review of administrative action.” Dickinson v. Zurko, 527 U. S. 150, 154 (1999). See, e.g., Skinner v. Mid-America Pipeline Co., 490 U. S. 212, 222–223 (1989) (declining to apply “a different and stricter nondelegation doctrine in cases where Congress delegates discretionary authority to the Executive under its taxing power”).

The principles underlying our decision in Chevron apply with full force in the tax context. Chevron recognized that “[t]he power of an administrative agency to administer a congressionally created ... program necessarily requires the formulation of policy and the making of rules to fillany gap left, implicitly or explicitly, by Congress.” 467 U. S., at 843 (internal quotation marks omitted). It acknowledged that the formulation of that policy might require “more than ordinary knowledge respecting the matters subjected to agency regulations.” Id., at 844 (internal quotation marks omitted). Filling gaps in the Internal Revenue Code 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. Cf. Bob Jones Univ. v. United States,  461 U. S. 574, 596 [52 AFTR 2d 83-5001] (1983) (“[I]n an area as complex as the tax system, the agency Congress vests with administrative responsibility must be able to exercise its authority to meet changing conditions and new problems”). 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.

As one of Mayo's amici points out, however, both the full-time employee rule and the rule at issue in National Muffler were promulgated pursuant to the Treasury Department's general authority under  26 U. S. C. §7805(a) to “prescribe all needful rules and regulations for the enforcement” of the Internal Revenue Code. See Brief for Carlton M. Smith 4–7. In two decisions predating Chevron, this Court stated that “we owe the [Treasury Department's] interpretation less deference” when it is contained in a rule adopted under that “general authority” than when it is “issued under a specific grant of authority to define a statutory term or prescribe a method of executing a statutory provision.” Rowan Cos. v. United States,  [pg. 2011-347] 452 U. S. 247, 253 [48 AFTR 2d 81-5115] (1981); United States v. Vogel Fertilizer Co.,  455 U. S. 16, 24 [49 AFTR 2d 82-491] (1982) (quoting Rowan).

Since Rowan and Vogel were decided, however, the administrative landscape has changed significantly. We have held that Chevron deference is appropriate “when 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.” Mead, 533 U. S., at 226–227. Our inquiry in that regard does not turn on whether Congress's delegation of authority was general or specific. For example, in National Cable & Telecommunications Assn., supra, we held that the Federal Communications Commission was delegated “the authority to promulgate binding legal rules” entitled to Chevron deference under statutes that gave the Commission “the authority to “execute and enforce,”” and “to “prescribe such rules and regulations as may be necessary in the public interest to carry out the provisions” of,” the Communications Act of 1934. 545 U. S., at 980–981 (quoting 47 U. S. C. §§151, 201(b)). See also Sullivan v. Everhart, 494 U. S. 83, 87, 88–89 (1990) (applying Chevron deference to rule promulgated pursuant to delegation of “general authority to “make rules and regulations and to establish procedures, not inconsistent with the provisions of this subchapter, which are necessary or appropriate to carry out such provisions”” (quoting 42 U. S. C. §405(a) (1982 ed.))).

We believe Chevron and Mead, rather than National Muffler and Rowan, provide the appropriate framework for evaluating the full-time employee rule. The Department issued the full-time employee rule pursuant to the explicit authorization to “prescribe all needful rules and regulations for the enforcement” of the Internal Revenue Code.  26 U. S. C. §7805(a). We have found such “express congressional authorizations to engage in the process of rulemaking” to be “a very good indicator of delegation meriting Chevron treatment.” Mead, supra, at 229. The Department issued the full-time employee rule only after notice-and-comment procedures, 69 Fed. Reg. 76405, again a consideration identified in our precedents as a “significant” sign that a rule merits Chevron deference. Mead, supra, at 230–231; see, e.g., Long Island Care at Home, Ltd. v. Coke, 551 U. S. 158, 173– 174 (2007).

We have explained that “the ultimate question is whether Congress would have intended, and expected, courts to treat [the regulation] as within, or outside, its delegation to the agency of “gap-filling” authority.” Id., at 173 (emphasis deleted). In the Long Island Care case, we found that Chevron provided the appropriate standard of review “[w]here an agency rule sets forth important individual rights and duties, where the agency focuses fully and directly upon the issue, where the agency uses full notice-and-comment procedures to promulgate a rule, [and] where the resulting rule falls within the statutory grant of authority.” 551 U. S., at 173. These same considerations point to the same result here. This case falls squarely within the bounds of, and is properly analyzed under, Chevron and Mead.

C

The full-time employee rule easily satisfies the second step of Chevron, which asks whether the Department's rule is a “reasonable interpretation” of the enacted text. 467 U. S., at 844. To begin, Mayo accepts that “the “educational aspect of the relationship between the employer and the employee, as compared to the service aspect of the relationship, [must] be predominant”” in order for an individual to qualify for the exemption. Reply Brief for Petitioners 6–7 (quoting  Treas. Reg. §31.3121(b)(10)-2(d)(3)(i), 26 CFR  §31.3121(b)(10)-2(d)(3)(i)). Mayo objects, however, to the Department's conclusion that residents who work more than 40 hours per week categorically cannot satisfy that requirement. Because residents' employment is itself educational, Mayo argues, the hours a resident spends working make him “more of a student, not less of one.” Reply Brief for Petitioners 15, n. 3 (emphasis deleted). Mayo contends that the Treasury Department should be required to engage in a case-by-case inquiry into “what [each] employee does [in his service] and why ” he does it. Id., at 7. Mayo also objects that the Department has drawn an arbitrary distinction between “hands-on training” and “classroom instruction.” Brief for Petitioners 35.

We disagree. Regulation, like legislation, often requires drawing lines. Mayo does not dispute that the Treasury Department reasonably sought a way to distinguish between workers who study and students who work, see  IRS Letter Ruling 9332005 (May 3, 1993). Focusing on the hours an individual works and the hours he spends in studies is a perfectly sensible way of accomplishing that goal. The Department explained that an individual's service and his “course of study are separate and distinct activities” in “the vast majority of cases,” and reasoned that “[e]mployees who are working enough hours to be considered full-time employees ... have filled the conventional mea [pg. 2011-348] sure of available time with work, and not study.” 69 Fed. Reg. 8607. The Department thus did not distinguish classroom education from clinical training but rather education from service. The Department reasonably concluded that its full-time employee rule would “improve administrability,” id., at 76405, and it thereby “has avoided the wasteful litigation and continuing uncertainty that would inevitably accompany any purely case-by-case approach” like the one Mayo advocates, United States v. Correll,  389 U. S. 299, 302 [20 AFTR 2d 5845] (1967).

As the Treasury Department has explained, moreover, the full-time employee rule has more to recommend it than administrative convenience. The Department reasonably determined that taxing residents under FICA would further the purpose of the Social Security Act and comport with this Court's precedent. As the Treasury Department appreciated, this Court has understood the terms of the Social Security Act to ““import a breadth of coverage,”” 69 Fed. Reg. 8605 (quoting Social Security Bd. v. Nierotko , 327 U. S. 358, 365 (1946)), and we have instructed that “exemptions from taxation are to be construed narrowly,” Bingler v. Johnson,  394 U. S. 741, 752 [23 AFTR 2d 69-1212] (1969). Although Mayo contends that medical residents have not yet begun their “working lives” because they are not “fully trained,” Reply Brief for Petitioners 13 (internal quotation marks omitted), the Department certainly did not act irrationally in concluding that these doctors—“who work long hours, serve as highly skilled professionals, and typically share some or all of the terms of employment of career employees”—are the kind of workers that Congress intended to both contribute to and benefit from the Social Security system. 69 Fed. Reg. 8608.

The Department's rule takes into account the SSA's concern that exempting residents from FICA would deprive residents and their families of vital disability and survivorship benefits that Social Security provides. Id., at 8605. Mayo wonders whether the full-time employee rule will result in residents being taxed under FICA but denied coverage by the SSA. The Government informs us, however, that the SSA continues to adhere to its longstanding position that medical residents are not students and thus remain eligible for coverage. Brief for United States 29–30; Tr. of Oral Arg. 33–34.

***

We do not doubt that Mayo's residents are engaged in a valuable educational pursuit or that they are students of their craft. The question whether they are “students” for purposes of  §3121, however, is a different matter. Because it is one to which Congress has not directly spoken, and because the Treasury Department's rule is a reasonable construction of what Congress has said, the judgment of the Court of Appeals must be affirmed.

It is so ordered.

Justice Kagan took no part in the consideration or decision of this case.

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