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Faces of the American Freedom Initiative's Administrative Abuse Project: Howard and Karen Baldwin

FreedomWorks recently announced the launch of the American Freedom Initiative (AFI), a collaboration headed by former acting U.S. Attorney General Matt Whitaker. This project aims to help relieve injustices committed against Americans under the criminal justice system and the regulatory state. As part of this project, we will shine a spotlight on some of the individuals the AFI has identified under its Administrative Abuse Project who have been the victims of federal regulatory overreach.

Howard and Karen Baldwin are successful, award-winning Hollywood producers, best known for producing the Oscar-winning film Ray. In 2011, the Baldwins filed a quite-complicated tax return claiming losses for their production company, which they believed entitled them to a large tax refund. However, the IRS refused to pay the Baldwins $168,000 in tax refunds because they supposedly never received their claim.

Courts had long held up a common-law “mailbox rule,” under which a document that was postmarked before the IRS’s tax deadline would be deemed to have been delivered on time. If the document were somehow lost in transit, the mailer could enlist witness testimony or other extrinsic evidence to prove they had sent it on time. In the Baldwins’ case, they said they had mailed four months in advance of the October 15th deadline, and had a witness to back them up. A California district court thus sided with the Baldwins and told the IRS to cough up the cash.

The IRS, ever desperate to separate people from their money, appealed to the infamous U.S. 9th Circuit Court of Appeals, which overturned the lower court’s decision on the grounds of Chevron deference to IRS regulations. The IRS, it turns out, had promulgated a rule, Treasury Regulation § 301.7502-1(e)(2), that declared essentially that if you don’t send the claim via certified mail, and the Postal Service loses it, you’re out of luck.

Chevron deference is a controversial doctrine stemming from a 1984 U.S. Supreme Court ruling in Chevron U.S.A. v. NRDC which held that courts ought to defer to regulatory agencies in questions of whether a regulation represents the intent of the authorizing legislation passed by Congress. When the Baldwins’ legal team noted that it was common law, not legislation, that the IRS had overruled, the 9th Circuit ruled that another SCOTUS case, National Cable & Telecommunications Association v. Brand X Internet Services, meant that even prior court decisions do not supercede agency rulemakings.

Thus, the Baldwins’ case, which they have appealed to SCOTUS, could perhaps take on a far greater significance than whether the couple will ever see a cent of the $186,000 that they believe they are owed. The combination of Chevron and Brand X deference invoked by the 9th Circuit court, if upheld by the highest court in the land, would effectively seal the supremacy of the executive bureaucracy’s interpretation of their authority to regulate over the intent of either judges or legislators. Thus the Baldwins, represented by the New Civil Liberties Alliance, specifically appealed the 9th Circuit’s interpretation of Brand X.

In February of 2020, SCOTUS declined to hear the Baldwins’ case, prompting a written dissent from Justice Clarence Thomas. This was especially noteworthy because Thomas authored the Brand X opinion, but noted that he “would revisit” that decision. He called into question his previously ambiguous position towards Chevron deference and noted that, “Even if Chevron deference were sound, I have become increasingly convinced that Brand X was still wrongly decided because it is even more inconsistent with the Constitution and traditional tools of statutory interpretation than Chevron.”

Although the Baldwins are now at an impasse, Thomas’ remarkable dissent leaves open a tantalizing possibility that the Supreme Court may revisit its prior deference to America’s unelected 4th branch of government. Ideally, Congress would write clearer laws and address the IRS’s overreach directly, but rolling back judicial Brand X and Chevron deference would provide legal recourse not only to the Baldwins, but to every American who has been unjustly harmed by unaccountable federal agencies.