Friday, April 19, 2019

Draft of Article on Interpretive Regulations (4/19/19)

I post here for download my article titled "The Report of the Death of the Interpretive Regulation Is an Exaggeration."  Here is a summary of the article:
In this article, I discuss the claim that of the demise of the APA category of interpretive tax regulations for APA purposes, a claim that, when extended, is that there are no longer any interpretive regulations for any agencies for APA purposes.  Instead, so the claim goes, the regulations that have historically been considered interpretive because all they do is reasonably interpret ambiguous statutory text, are now legislative regulations under the APA.  My understanding is that the claim has considerable traction in the academic community. 
By contrast, in the recent oral argument in Kisor v. Willkie (Sup. Ct. No. 18-15), transcript p. 10, here), Justice Breyer, an administrative law scholar (taught administrative law at Harvard Law School), said “there are hundreds of thousands, possibly millions of interpretive regulations.” 
So which is it?  Are there interpretive regulations as a legitimate APA category? 
I claim that, as the title suggests, interpretive regulations are a viable APA category.  I argue that: (i) the APA original public meaning of the interpretive regulation category remains viable; (ii) there have been no material developments after enactment of the APA (including American Mining Congress and Chevron) that changed the original public meaning; (iii) in particular, the concept of deference (both pre- and post-Chevron) never had any role in the APA distinction between legislative and interpretive regulations; (iv) deference (currently in its Chevron iteration) applies to legislative regulations only in determining the scope of the delegation of legislative authority (an interpretive exercise) and has no application to the arbitrary or capricious / State Farm, a different test for procedural regularity (including failure to make reasoned decisionmaking, by extreme example stating a basis for the interpretation that the moon is made of green cheese); and (v) that other distractions along the way are not relevant to the APA’s distinction between legislative and interpretive regulations. 
To be sure, I suppose that Congress could have framed the APA so that all regulations were treated and tested as legislative regulations.  That is not the choice Congress made.  My claim is that, regardless of one’s interpretive bent or judicial philosophy, Congress’ clearly expressed intent in the original public meaning of the legislative / interpretive distinction should control. 
The article is a revision of a draft of the article that I presented in conjunction with a panel discussion on Altera and the intersection of tax law and administrative law at the Virginia Tax Study Group on April 12. 

I hope that some readers will download the article, read it, and offer me their comments.  I plan on posting the article to SSRN in the near future, but would like comments before doing so.  Please offer any comments whether as to substance, presentation, grammar, etc.

The title of the article takes off from the famous quote (much misquoted) from Mark Twain (Samuel Clemens) that  “The report of my death was an exaggeration.”  See Wikiquotes entry on Mark Twain, here.

Sunday, March 17, 2019

Treasury and IRS Policy Statement on Tax Regulatory Process (3/17/19)

Treasury and the IRS have issued a joint Policy Statement on the Tax Regulatory Process (3/5/19), here.

I am in the midst of finalizing an article titled:  The Report of the Death of the Interpretive Regulation Is an Exaggeration.  I have just included a discussion of this new policy.  I thought I would offer my discussion although framed in the context of the article.  Here is a cut and paste of the discussion.  This discussion in the article has only a few short(er) footnotes, so I omit the footnotes.

I offer this short introduction so that readers will have some context offered by the article. 

In the article, I argue that the Administrative Procedure Act ("APA") permits two types of regulations (those published as regulations in the Federal Register) -- (i)  legislative regulations and (ii) interpretive regulations.  The distinction between the two categories is: 
(i) a legislative regulation is promulgated pursuant to express statutory authority to set the law where the regulation functions like a statute because, within the scope of the delegation, the regulation is the law.  The classic tax example of a legislative regulation is the consolidated return rules promulgated by regulation under § 1502. 
(ii) an interpretive regulation is promulgated as an interpretation of a statute Congress enacted (in the case of tax, generally in the Internal Revenue Code (Title 26)).  There is no classic tax example of an interpretive regulation; I use the example of the away from home regulation addressed in United States v. Correll, 389 U.S. 299 (1967), here.  
As Kenneth Culp Davis, the leading authority on administrative law said shortly after enactment of the APA:  "According to the theory, legislative rules are the product of a power to create new law, and interpretative rules are the product of interpretation of previously existing law."

Basically, as the Courts have said, legislative regulations are the law (and thus, in the jargon, have the "force of law"), whereas interpretive regulations simply interpret to law (and do not have the force of law, even if courts give the agency interpretation deference under the Chevron framework).

The distinction between legislative and interpretive regulations has a lot of nuance which I develop in the article.  Indeed, I develop that nuance in  the article, perhaps at too great a length in the article (which I post on SSRN after I offer for comments in a conference in April 2019)  Still, the foregoing is the essence of the argument.

With the foregoing, readers with some background in administrative law and the APA specifically should be able to understand the general concepts in the new Policy Statement and my comments below.

IV. New Treasury and IRS Policy Statement on the Tax Regulatory Process.

On March 5, 2019, Treasury issued a document titled Policy Statement on the Tax Regulatory Process.  In this Policy Statement, Treasury announces policies based principally upon “sound regulatory policy.” I attach that Policy Statement as Appendix B to this article.  The Policy Statement was issued after this article was substantially drafted.  I referred to the Policy Statement in appropriate places in the article, but I thought separate discussion of the Policy Statement would be helpful to readers because it overlaps with some of the themes developed in the article.

I offer the key points as separate bullet points with Comments after each bullet point (and caution that I have “cleaned up” some of the quotes):

“The APA generally requires notice and comment for legislative rules. The APA exempts interpretive rules from notice-and-comment requirements. Nonetheless, as a matter of sound regulatory policy, the Treasury Department and the IRS will continue to adhere to their longstanding practice of using the notice-and-comment process for interpretive tax rules published in the Code of Federal Regulations.”

Comments:  This statement is consistent with long-standing practice to promulgate interpretive regulations with Notice and Comment and confirms that the practice, which will continue, is based on “sound regulatory policy,” rather than the legal mandate of the APA.  As respects the key issue in this article–the continuing viability of interpretive regulations–this Policy Statement confirms the IRS position that interpretive regulations remain a viable APA approved category.

Wednesday, February 20, 2019

Federal Tax Procedure Update on Tax Crimes (2/20/19)

Today, I completed revisions to the Tax Crimes section of my Federal Tax Procedure Book so that I could circulate to Jim Malone's Tax Practice and Procedure class to UVA Law School where I will guest teach the subject next week.  I have  circulated it to class members.  Readers of this blog can download it here.  A related spreadsheet is available here.

As always, I would appreciate feedback from readers for improvement.

The next editions of the FTPB will be published in early August 2019.

Thursday, February 14, 2019

Taxpayer Advocate Annual Report with Graphics on the Tax Procedure Processes (2/14/19)

The Taxpayer Advocate has issued the Annual Report to Congress for 2018, here.  There is a lot in the report that I will blog on here (or incorporate in the working draft for my next Federal Tax Procedure Book that will be finalized and posted on SSRN in August 2019).

I offer here seven pages of schematic graphics from the report that show the various stages of the tax procedure process.  I think the graphics are good, but for best use requires some understanding of the various steps in the process.  The graphics are as follows:

  • Tax Return Preparation Roadmap
  • Tax Return Processing Roadmap
  • Notices Roadmap
  • Exam Roadmap
  • Appeals Roadmap
  • Collection Roadmap
  • Litigation Roadmap

Monday, January 21, 2019

More on Fact Finding Tools and Statutory Interpretation through Chevron Deference (1/21/19; 1/25/19)

The Chevron Framework that is so ubiquitous in administrative law now (see e.g., Law Finding (The Chevron Framework) and Fact Finding in Trials (Federal Tax Procedure Blog 1/19/19), here) offers another interesting relationship to fact finding.

A standard formulation of the preponderance of the evidence fact finding standard is that, if the fact finder is in "equipoise" as to the existence of the fact, the party bearing the burden of persuasion loses on that fact.  Equipoise is that point (stated in percentages at 50% belief in the existence or nonexistence of the fact) where the trier cannot decide with the comfort level of more likely than not (in percentages greater than 50% (existence) less than 50% (nonexistence)).

That same phenomenon conceptually occurs in determining a proper interpretation of a statute.  If there is more than one reasonable interpretation of the statute, then presumably the most reasonable interpretation applies.  The most reasonable interpretation could be the one that is more likely than not the correct one.  In the percentages, it is the interpretation that the court is persuaded to a level greater than 50%.  But the most reasonable interpretation can mean something less than 50% if there is more than two reasonable interpretations of the statute.  Then, presumably, the most reasonable interpretation could be the one at a 40% level if the other two are at 30%.  But, even though not the more likely than not interpretation, a court has to pick one interpretation and would, presumably, pick the 40% level.

But what does a court do when the interpretations are 50-50 with no one of them more likely than not?  I don't have an answer to that question, but I do want to pursue the question in the context of an agency interpretation in a regulation.  The court would then apply the Chevron Framework (based on Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) and its progeny).

Chevron deference would mean, theoretically, if the agency in the above three interpretation choice example, chose a 30% interpretation, the court should defer to it (assuming 30% is within the range of reason even though it believed the 40% interpretation was the most reasonable (actually I would say was the more reasonable)).

Now, going back to the two interpretation choice example, Chevron would say that, if the Choice 1 were 60% and Choice 2 were 40% and the agency interpretation was Choice 2, then the agency interpretation controls (provided the court agrees that Choice 2 is at least a reasonable interpretation).  Perforce, that would mean that if the interpretations are equally persuasive (50% for each, the state of equipoise under the fact finding analogy), then the agency interpretation governs.

I recently picked up this on Chevron and equipoise (Paul A. Larkin, Jr., Reawakening the Congressional Review Act, 41 Harv. J.L. & Pub. Pol'y 187, 209 (2018), here, in discussing judicial review of agency interpretations:
[T]he controversy is biased in the agency's favor. Chevron and other Supreme Court decisions place a thumb on the government's side of the scale when it comes to the meaning of federal law, with the agency winning when it has the better of the argument and when courts find themselves in equipoise.
Notice that the author says Chevron applies (i) when the agency has the better (in percentages more than 50%) or is in equipoise (50%-50%).  As I suggest above, the way I read Chevron is that Chevron deference to the agency interpretation may apply in a third category -- when an agency interpretation is not the better and there is no equipoise, so long as the agency interpretation is reasonable.

Indeed, to work this further, if the agency interpretation is better (in the court's mind), then deference means nothing because that is the interpretation the court would have chosen anyway.  So, deference is meaningful only in the equipoise situation (a rare occurrence in fact-finding and, I think, equally rare in law finding) and where the agency interpretation is not the better interpretation but is reasonable.

Addendum 1/25/19: 

Sunday, January 20, 2019

Yet Another Confluence of Legal Interpretation and Fact Finding--Legislative History (1/20/19)

In statutory interpretation, textualists and their fellow travelers often eschew (or claim to eschew) legislative history as a reliable guide to interpretation of statutory text; instead they insist upon the primacy of some "public meaning" of the text at the time of enactment.  Discerning legislators' subjective "intent," they urge, is not possible. To the extent intent is relevant, it is the intent inferred from the public meaning of the text at the time.  John F. Manning, What Divides Textualists from Purposivists?, 106 Colum. L. Rev. 70, 79-80 (2006) (“Textualists thus look for what they call ‘objectified’ intent—the intent that a reasonable person would gather from the text of the law, placed alongside the remainder of the corpus juris.” (Cleaned up)).  The public meaning inquiry, as stated, is a fact finding inquiry into the meaning at the time the constitutional text or statutory text was adopted.  If it is a fact finding inquiry, then why would not legislative history not be relevant to that inquiry?  At a minimum legislative history is some evidence of public meaning.  Victoria Nourse, Misunderstanding Congress: Statutory Interpretation, the Supermajoritarian Difficulty, and the Separation of Powers, 99 Geo. L. J. 1119, 1166-1167 (2011) (arguing that the legislative history can be “evidence of ordinary or public meaning”).

Our legal tradition has developed the concept of relevant evidence of facts.  FRE 401 provides that evidence is relevant if “(a) it has any tendency to make a fact more or less probable than it would be without the evidence; and (b) the fact is of consequence in determining the action.”  FRE 402 further provides that relevant evidence is admissible for consideration by the fact finder unless there is some provision otherwise.  Of course, that does not mean all evidence is equally persuasive, but it may be admissible for the fact finder to consider.  I think that same analysis should be true of legislative history; it may not be the most persuasive evidence of statutory meaning (or public meaning), depending upon context, but it should not be categorically rejected.  Categorical rejection of persuasive legislative history is inconsistent with the concept of relevance in fact finding.

There is pretty good anecdotal evidence that circuit judges (and by extrapolation, Supreme Court Justices) actually do consider, in the foreground or in the background, legislative history in their deliberations.  Abbe R. Gluck & Richard A. Posner, Statutory Interpretation on the Bench: A Survey of Forty-Two Judges on the Federal Courts of Appeals, 131 Harv. L. R. 1298, 1324-1327 (2018) (noting that in the sample, most conservative judges, even the most text-centric, consulted legislative history and concluding that the issue of use of legislative history “is no longer interesting and should be put to rest.”). 

And, of course, the original public meaning, even if discernible via the fact finding inquiry, is not static.  As Justice Kavanaugh said in his confirmation hearing on 9/5/18, originalism which is “constitutional textualism, meaning the original public meaning of the constitutional text” is “informed by history, tradition and precedent.”   See Will Baude, The Best Parts of the Kavanaugh Hearing (Volokh Conspiracy 9/5/18) (the incorporated video clip has it and I transcribed it from the video clip); Supreme Court Nominee Hearing Before the Senate Continues...And it is Heated (The Takeaway WNYC Studios 9/5/18). The "informed by" qualification seems to substantially dilute the primacy of original public meaning.  But, some textualists in pledging allegiance to the original public meaning would not so qualify it, treating originalism and public meaning somewhat like “fundamentalism,” evoking the bibilical interpretation notion that the meaning of biblical text is fixed, ascertainable and timeless.  See Peter J. Smith & Robert W. Tuttle, Biblical Literalism and Constitutional Originalism, 86 Notre Dame L. Rev. 693, 694 (2011) (citing e.g., at p. 694 n.1  Cass Sunstein who believes that originalism “bears an obvious resemblance to religious fundamentalism,” (Cass R. Sunstein, Radicals in Robes, at xiii (2005)) and noting similarities and differences between originalism and biblical fundamentalism/literalism.) 

Saturday, January 19, 2019

Another Confluence of Legal Interpretation and Fact Finding (1/19/19)

Earlier today I posted on a confluence of legal interpretation and fact finding:  Law Finding (The Chevron Framework) and Fact Finding in Trials (Federal Tax Crimes Blog 1/19/19), here.  I offer here another instance of that.

In my current working draft of my Federal Tax Procedure Book, I discuss the more likely than not standard for legal opinions as to tax benefits.  That more likely than not standard says, in effect, that the legal opinion or belief in the legal opinion must be greater than 50% in order to avoid some penalties. 

A similar more likely than not construct is often used to describe the level of belief that a fact finder (judge or jury) in a trial must have in order to find by a preponderance of the evidence that the party bearing the burden of persuasion (usually a plaintiff) has met the burden.

I have added the following as a footnote:
Fact burden of proof theory has a similar analysis.  As I discuss later in the book (starting on p. ___), the preponderance of the evidence as to a fact is often described as more likely than not, which is quantified in percentages as being greater than 50% in order to find the fact.  Conversely, if the trier is either 50-50 (called a state of equipoise) or less as to the fact, the fact cannot be found, meaning that the party bearing the burden of persuasion on the issue loses.  That same type of analysis applies to legal conclusions for tax opinions.  If the adviser is 50-50 (state of equipoise) or less on the legal issue, then the adviser cannot render a more likely than not opinion.  If the adviser is more than 50% on the legal issue, he can render a more likely than not opinion.  Of course, the difference between 49% and 51% opinions is razor thin and probably impossible to quantify with sufficient confidence to render a more likely than not legal opinion.  And the potential for error is compounded when subsequent legal conclusions depend upon the correctness of an earlier conclusion that itself may be uncertain.  Example: Legal issue 1 is barely more likely than not, say 51%; Legal issue 2, which depends on Legal issue 1 is at 51%.  Is the overall opinion that the tax benefits will be achieved at 51% or some lesser number (in this case around 26%).  How does the legal adviser render the opinion?  Heather Field, Tax Opinions & Probability Theory: Lessons From Donald Trump, 156 Tax Notes 61 (7/3/17).

Law Finding (The Chevron Framework) and Fact Finding in Trials (1/19/19)

As a trial lawyer and an observer of statutory interpretation, I have observed some parallel in statutory interpretation (a law finding process) with fact finding in trials.  The Chevron Framework,  illustrates this relationship.  The Chevron Framework is the framework developed based on Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) to test whether courts defer to an agency interpretation of law related to the congressional delegation of authority to administer an administrative agency..

The Chevron Framework allocates the law finding process between the court and a federal agency.  In traditional civil procedure theory, the trial fact finding process allocates fact finding between judge and jury.

While working on the current draft of a substantial revision to an earlier article today, I dropped a footnote in the Chevron Framework discussion for statutory interpretation that describes the phenomenon.  I thought I would offer that explanation in summary, but first state the Chevron Framework from the current draft of the revised article (footnotes omitted):
The First Step–called Step One–inquires whether the meaning of the statute is unambiguous?  Synonyms for unambiguous used in this First Step are plain and clear.  I generally use the word unambiguous but readers should be alert to the synonyms plain or clear used by other authors, some of whom I quote.  Ambiguity is determined by using the traditional tools of statutory construction.  If unambiguous, the agency interpretation in the regulation is irrelevant because the unambiguous meaning of the statute pre-empts the interpretive field.   
The Second Step–called Step Two–reached only if the text is determined to be ambiguous in Step One inquires whether the agency interpretation is unreasonable? Under this Second Step reached if the text is ambiguous (either on its own ambiguous text or by explicit delegation), the agency’s interpretation in the regulations is given deference so long as not unreasonable. The agency may choose between or among reasonable–or not unreasonable–interpretations within the scope of the statutory ambiguity (sometimes referred to as the Chevron space). Some have argued that, in practice, the Chevron two-step inquiry is often conflated into a single inquiry–deference is given if the regulation is reasonable without first doing the Step One drill; but, at least in my observation, Courts almost always pay homage to Step One before addressing reasonableness which is the Step Two inquiry.
[Footnote - have not yet decided exactly where in the text I will place the footnote]

   fn I take a brief detour to note that the Chevron Two-Step Framework is akin to the traditional roles of judge and jury in finding facts.  If on summary judgment or motion for directed verdict, the judge finds that there is only one reasonable interpretation of the facts, the judge awards judgment accordingly without the jury (either not submitting the fact issue to the jury or giving judgment notwithstanding the jury verdict).  That is analogous to Chevron Step One where, the judge finds, the facts are not ambiguous.  If the facts are ambiguous, then the judge goes to Step Two to permit the jury to interpret and find the facts within the scope of the ambiguity and judge will not disturb the jury finding unless it is unreasonable (that is outside the scope of the ambiguity).  That is analogous to Chevron Step Two.

Saturday, January 12, 2019

Treasury Regulations and the APA Categories of Legislative and Interpretive Regulations (1/12/19; 1/19/19)

NOTE: THIS WAS SUBSTANTIALLY REVISED AND EXPANDED ON 1/13/19)

Note that Bob Probasco, Senior Lecturer and Director of the Low Income Tax Clinic at Texas A&M University School of Law, here, and I have an ongoing discussion in the comments below about the issues I try to present in this blog.  I strongly encourage the readers to read at least Bob's comments and, secondarily my replies.  And to engage in the discussion!

A prominent argument among academicians is that, after Chevron (as interpreted in the later cases), Treasury tax regulations promulgated after notice and comment are "legislative regulations" under the APA.  I am among the distinct minority who disagree.  Indeed, I may be the distinct minority who disagree, although, as I shall note, the IRS also disagrees.  I am not aware that any court has specifically addressed the issue.

Here's the background.  Legislative regulation is one category of regulation (or rule, as the APA calls it).  The other category is interpretive regulation (called "interpretative regulation" in the APA, but now generally called interpretive).  Under the APA, legislative regulations generally require notice and comment and prospective application.  The APA specifically exempts interpretive regulations from notice and comment and from prospectivity.  Treasury/IRS generally issues all regulations under the notice and comment procedure without regard to the legislative and interpretive categories in the APA.  Regulations that the IRS views as interpretive, however, may be retroactive subject to the limitations in § 7805 and the IRS often provides retroactive effective dates.  The issue addressed here -- the brouhaha so to speak -- is whether Chevron means that there is no such thing as an interpretive IRS regulation (as one prominent author claims).

I have written an article where I address this issue in the article at various points.  Townsend, John A., IRS Guidance – Rulemaking and Deference to IRS Statutory Interpretation (July 27, 2018), Available at SSRN: https://ssrn.com/abstract=3212060.

In my ongoing discussions with a respected colleague who is among the majority on the issue as to which I am a (maybe the) minority, I produced what I call an Executive Summary of JAT Position on the Brouhaha.  I post it below (and offer it in pdf format here).  I invite readers to comment in the comments below (so all can benefit from the comments) or by email to me at jack@tjtaxlaw.com.  For the email comments, I will not post them with attribution or even post them at all without the author's permission.

Executive Summary of JAT Position on the Brouhaha

1. Before 1946 (the year the Administrative Procedure Act (“APA”), 5 U.S.C. § 551ff. was enacted), there was a clear understanding of the difference between legislative regulations and interpretive regulations.  (I use the current terminology for these categories – legislative and interpretive.)  The distinction:
a. Legislative regulations created the rules within the scope of the authority Congress delegated.  Section 1502, authorizing consolidated return regulations, is that classic tax example of delegated legislative regulation authority.  In a bare few lines of authority, the IRS has promulgated hundreds of pages of mind-numbingly detailed and complex rules that, while within the scope of the authority delegated, cannot be derived on the basis of the statute alone.  The consolidated return regulations are the law.  If the IRS had no consolidated return regulations, there would be none and the courts could not create them.  Legislative regulations could be prospective only, except in very rare circumstances not relevant here.  For example, the IRS could not require corporate taxpayers to comply with the consolidated return regulations for conduct completed before the regulations were promulgated.
b. Interpretive regulations merely interpret the law without setting new law not fairly derived from the text of the statute.  Section 7805(a) authorized interpretive (sometimes called general authority) regulations.  There is no classic tax example of an interpretive regulation, but the sleep or rest rule for § 162 deductions approved in United States v. Correll, 389 U.S. 299 (1967) is a well-known example.  If there is no interpretive regulation for the statute text, the courts can interpret and apply the law.  And, because by their nature, interpretive regulations interpret the statute, the interpretation can apply retroactively.
c. The distinctions I draw in subparagraphs c. and d. are highly theoretical.  Between the clearest cases of legislative regulations and administrative regulations lies a continuum where, toward the center, the theoretical distinctions may be difficult to apply.  But, for purposes of this discussion, I will assume that at least at the ends of the continuum, the distinctions are valid and can be applied meaningfully.

2. Deference before 1946.
a. Courts deferred in some cases to agency interpretations of statutes, although there was no formal test or framework for how and when courts would defer.  In the final analysis, deference was important only when the court applied an agency interpretation although the court believed that there was a more reasonable interpretation that, absent deference, the court would have applied in a case.  In other words, in the Correll case, the court might have been able to formulate other reasonable interpretations, even perhaps, other more reasonable interpretations for the sleep or rest rule but deferred to the agency interpretation in the regulation.

3. In 1946, Congress enacted the APA applying a regulations framework recognizing and applying different requirements for the two categories of regulations – legislative regulations and interpretive regulations as discussed in paragraph 1.a. And 1.b.  Congress gave no indication in the APA or its legislative history that it was concerned with court deference to agency interpretation discussed in paragraph 2.
a. Terminology Caveat:
i. The APA uses the term “rules” to mean agency regulations.  The IRC, however, commonly uses the term “rules” to mean guidance below the level of regulations, which I and others call subregulatory guidance.  For example,§ 7805(a) refers to “rules and regulations” and § 6662(b)(1) refers to “rules or regulations;” as thus presented in the IRC, the two are different categories, with “rules” being subregulatory guidance.  To illustrate, Reg. § 1.16(a) defining “gross income” in § 61 is a rule in the meaning of the APA and is a regulation in the IRC; Rev. Rul. 76-75, 1976-1 C.B. 14, defining gross income to include certain interest reduction payments is not a regulation in the IRC (subregulatory guidance) and is not a rule under the APA.  In this analysis, I will use the term regulation as the same as rule in the APA.
ii. The APA does not use the term “legislative regulations”; rather, it (i) states a general rule requiring that all regulations generally must be promulgated with notice and comment and be prospective; and (ii) exempts interpretive rules from that general rule .  Regulations subject to the general rule (in part relevant here, not interpretive regulations) are commonly called legislative regulations.
b. The APA requires:
i. Legislative regulations must generally be (i) issued with notice and comment; and (ii) be prospective from 30 days after made final.  5 U.S.C. § 553(b) & (d).
ii. Interpretive regulations are exempt from both requirements; interpretive regulations may thus be (i) issued without notice and comment (although, at agency’s discretion may be issued with notice and comment) and (ii) retroactive to the date of the statute.  5 U.S.C. § 553(b) & (d).   At the agency discretion, interpretive regulations may have lesser retroactivity or may be prospective only.  E.g., § 7805(a).
c. The APA said nothing, explicitly or implicitly, about the deference that courts should give agency regulations.

Monday, January 7, 2019

Sex and Tax (1/7/19)

I have just posted this Sex and Tax (Including the Tax Division) in the Movies (DOJ Tax Division Alumni Blog 1/7/18), here.  This is about the new movie,  On the Basis of Sex (Wikipedia page here) which revolves around a tax case, Moritz v. Commissioner, 469 F.2d 466 (10th Cir. 1972), here, cert. denied, 412 U.S. 906 (1973).  The case involved gender discrimination in a statute, the constitutionality of which was contested by two formidable lawyers -- Ruth Bader Ginsburg and her husband, Marty Ginsburg.  Their opponents were attorneys from the Tax Division.  At any rate, the relation to tax procedure is a stretch, but it does involve a Government victory in the Tax Court, a taxpayer / Ginsburg victory in the Court of Appeals and a Supreme Court certiorari denied.  And the players in adventure are interesting.  So, if you are interested in this type of stuff, see the movie and go to the Tax Division Alumni Blog where I have further links.

Wednesday, January 2, 2019

Centralized Partnership Audit Regime (CPAR) Update -- Looking for Reviewer Volunteers (1/2/19)

I am in the process of finishing up a substantial revision of my discussion of the relatively new Centralized Partnership Audit Regime ("CPAR") (Code Sections 6221 through 6241) applicable for audit years after 2017.  I would greatly appreciate it if anyone would be willing to read and comment on a draft.  You can contact me at jack@tjtaxlaw.com.  (I can provide the draft in WordPerfect, MS Word and Adobe pdf.)

For others who are thinking about getting into the CPAR, I offer the following from Introduction to this new discussion:
III. The Centralized Partnership Audit Regime (“CPAR”) After 2017.
A. Introductory Caveat Regarding Code and Regulations Sections.
Reminder:  All Code section citations in this section III are to the CPAR in the Internal Revenue Code applicable for years after 2017.  The PAR replaced the TEFRA Code sections, some of which have the same numbers.  Students and practitioners should be careful to ensure that they refer to the CPAR Code sections and, where applicable, the Regulations under the CPAR Code sections.  All references to the Regulations in this section are to the regulations promulgated under the CPAR Code sections. 
Students and practitioners should assure that the statutes and regulations they refer to incorporate all changes to these provisions (a good practice always, but particularly with major new regimes such as CPAR that require corrections and refinements).  The latest statute changes I incorporate in this discussion occurred in 2018 in Tax Technical Corrections Act of 2018, contained in Title II of Division U of the Consolidated Appropriations Act of 2018, Public Law 115-141 (“TTCA”).  For this purpose, I have used the Code sections offered on the web by the Office of Law Revision Counsel (the link is here).  The latest regulations I have incorporated in the discussion was by T. D. 9844, published in December 2018. 
B. Introduction to the CPAR.
1. General - Audit Adjustments Assessed and Collected at Partnership Level. 
Effective for tax years beginning after 2017, the Code provides a new regime for partnership audits and litigation. This regime is called the Centralized Partnership Audit Regime (“CPAR”), and is contained in§§ 6221-6241 of the Code.
A partnership is generally required to file a partnership return (Forms 1065) each year reporting entity level results of partnership activity and report on Schedules K-1 to partners and to the IRS each partners’ allocable share of partnership items and related items so that the partners report the appropriate tax consequences at the partner level.  This long-time requirement was retained under TEFRA and is retained under CPAR.  As with TEFRA, CPAR applies to audit and related activities after the the partnership year (the reviewed year).  In general, the CPAR carries forward the prior practice of making audit adjustments for partnership-related items in the reviewed year at the partnership level but imposes the tax consequences of the adjustments upon the partnership (rather than the partners) in the year the adjustments are made (the adjustment year).  There are many complexities in implementing the CPAR and there are some situations in which this general regime for partnership level payment will not apply so that the tax consequences, including assessment and payment, apply at the partner level.  But, in broad strokes, the default rule is that CPAR allows one assessment of the tax, penalties and interest at the partnership level and one “taxpayer”–the partnership– from whom to collect the amounts assessed. 
In the text in this section, I provide only a relatively high-level summary addressed to the student of tax procedure.  I provide some detail in the footnotes, but not enough that practitioners should rely either upon the text summary or the footnotes for the detail necessary to actually practice in this CPAR area. 
2. CPAR Code and Regulations Sections and Citations in Text. 
In the text, I generally cite only the major Code section when introducing a topic.  I will not cite subsections in the text, but will provide subsections in the footnotes (along with other explanatory material).  I do offer the following list of the Code sections for CPAR and their titles: 
§ 6221 - Determination at partnership level
§ 6222 - Partner’s return must be consistent with partnership return
§ 6223 - Partners bound by actions of partnership
§ 6225 - Partnership adjustment by Secretary
§ 6226 - Alternative to payment of imputed underpayment by partnership
§ 6227 - Administrative adjustment request by partnership
§ 6231 - Notice of proceedings and adjustment
§ 6232 - Assessment, collection, and payment
§ 6233 - Interest and penalties
§ 6234 - Judicial review of partnership adjustment
§ 6235 - Period of limitations on making adjustments
§ 6241 - Definitions and special rules 
The Regulations (all of which have not yet been finalized) will not be cited in the text but will be cited in the footnotes.  The regulations format is the format for procedural regulations.  The following is an example of the first CPAR regulation: Regs. § 301.6221-1, titled “Tax treatment determined at partnership level.”