Pre-Enforcement Litigation of IRS Guidance (8/6/19)

I just finished today my 2019 editions (Practitioner and Student) of my Federal Tax Procedure Book.  I have submitted those editions to SSRN and expect that they will be published there in the next few days.  I will post the SSRN links on this blog for download and on the page titled 2018 Federal Tax Procedure Book & Supplements, here, in the right hand column.

In the meantime, I offer the following which is new to the 2019 editions.  I offer some (but not all of the footnotes).

Litigating IRS Interpretations in Guidance Documents.

For most agency guidance, particularly guidance in a binding format such as legislative regulations, affected parties have an opportunity to raise procedural challenges in court under the APA upon promulgation of the guidance and before the agency attempts to enforce the guidance against the affected parties. n371  The statute of limitations for such review is the general six-year statute of limitations in 28 U.S.C. § 2401(a).  However, for Treasury guidance documents, such pre-enforcement litigation challenges are prohibited under the Anti-Injunction Act (“AIA”), § 7421(a), and related statutory and common law prohibitions which have historically channeled tax litigation, including challenges to agency guidance, into post-enforcement litigation venues such as deficiency, refund or collection suits.  Those post-enforcement venues have their own statutes of limitations triggered by the enforcement being challenged (e.g., a deficiency notice, denial of a claim for refund, or collection action).  Accordingly, historically, IRS guidance has not been allowed for pre-enforcement procedural challenges to agency guidance. n375 If § 2401(a) were applicable, post-enforcement review would not be adequate for APA procedural challenges in tax litigation because, in most cases, the six-year statute would have expired before IRS enforcement action made the case ripe for the traditional tax challenge venues.  As a result, the general six-year statute of statute of limitations in § 2401(a) has not barred procedural challenges to IRS guidance in post-enforcement cases outside the six-year period in § 2401(a).

  n371 See Altera Corp. v. Commissioner, 926 F.3d 1061, 1075 n. 6 (9th Cir. 2018); see generally Kristin E. Hickman & Gerald Kerska, Restoring the Lost Anti-Injunction Act, 103 Va. L. Rev. 1683 (2017) (referred to in the footnotes in this section as Hickman & Kerska, supra.
  n375 See generally Hickman & Kerska, supra.  As noted in the article, there have been cracks in this pre-enforcement prohibition scheme, citing Chamber of Commerce v. IRS, No. 1:16-cv-944-LY, 2017 WL 4682050 (W.D. Tex. Oct. 6, 2017), where the IRS appeal to the Fifth Circuit was withdrawn as moot.  But see CIC Services LLC v. IRS, 925 F.3d 247 (6th Cir. 2019) (holding pre-enforcement procedural challenge to an IRS Notice was barred).
In Altera Corp. v. Commissioner, 926 F.3d 1061 (9th Cir. 2018), the taxpayer challenged in a straight-forward Tax Court deficiency redetermination case a regulations interpretation of § 482.  The challenge was well after six years from the date the regulation was adopted.  The Ninth Circuit panel on the reargument in Altera asked the parties to brief the issue of whether § 2401(a) was a potential bar to the suit, because Altera was raising procedural challenges. DOJ Tax responded that § 2401(a) 's six-year statute of limitations did not apply from the date of the regulation and that, rather, the statutes of limitation normally applying to post-enforcement tax litigation applied.  Under this position, Altera Corp’s challenge to the regulation in a deficiency redetermination proceeding in the Tax Court was clearly timely.  In any event, DOJ Tax argued that the Commissioner had waived the statute of limitations defense.  In the final opinion, the Court relegated the issue to a footnote (p. 1075, n. 6), concluding that the Commissioner had waived the statute of limitations defense by not asserting it.  The Court seems to have skirted the issue of whether there was a defense that could be waived.  It is not at all clear that, given the well-established methods for contesting the validity of regulations in post-enforcement proceedings (such as deficiency proceedings in the Tax Court and refund suits), a pre-enforcement post promulgation review is available for tax regulations because of § 7421(a), the Anti Injunction Act and related statutes and concepts pushing litigation to the standard post-enforcement procedures.  One could argue that the Court could not have gotten to waiver without a defense in the first place and there could be a defense in the first place only if the taxpayer had a post-promulgation, pre-enforcement right to contest the regulation, thus invoking the six-year statute that could be waived.  Under that way of thinking, the Court decided the issue.  But, I don’t think that is what the Court intended to do, because it concludes “Therefore, we need not address it.”  The “it,” I think, is whether § 2401 applied in the first place, which would have required that there be some post-promulgation, pre-enforcement remedy.  For a succinct discussion of the issue, see Kristin Hickman, Altera Meets Chamber Of Commerce (Tax Prof Blog 10/17/17) and for more detail see Alan Horwitz, Supplemental Briefing Completed in Altera (Tax Appellate Blog 10/10/18) (with links to the supplemental briefing in Altera and a Government Statute of Limitations Letter Brief).  Now, tax procedure students should thank me for relegating this to a footnote, and a long one at that, which even practitioners are unlikely to encounter.
Finally, in Bullock v. IRS, 2019 U.S. Dist. LEXIS 126921 (D. Mont. 2019), prompt APA review was allowed but not in a context where the aggrieved parties (States of Montana and New Jersey) had  traditional post-enforcement review.