IRS Offers to Settle Abusive Syndicated Conservation Easement Shelters Pending in Tax Court (6/26/20)

In IR-2020-13, here, the IRS announces that it will offer to settle Conservation Easement Syndication shelters of the BS genre that are currently pending in the Tax Court.  The settlement offer will be made by mail in each pending case.  The announcement says that the following will be the key terms.

• The deduction for the contributed easement is disallowed in full.
• All partners must agree to settle, and the partnership must pay the full amount of tax, penalties and interest before settlement.
• "Investor" partners can deduct their cost of acquiring their partnership interests and pay a reduced penalty of 10 to 20% depending on the ratio of the deduction claimed to partnership investment.
• Partners who provided services in connection with ANY Syndicated Conservation Easement transaction must pay the maximum penalty asserted by IRS (typically 40%) with NO deduction for costs.

Keep in mind that these are not all the terms but only the key terms.  And, I suppose, as presented, they may only be summaries of the key terms so that the actual key terms summarized may present different nuances than one can derive from the summaries.  As I learn more details or obtain more documents or links that may be helpful, I will do update revisions to this blog entry.

One of the key points regarding the offer, it will be made only in those cases pending before the Tax Court.  Cases in the IRS administrative pipeline are not within the scope of the offer as stated.  (Query, will Appeals make the same offer because, once a case gets to Appeals, the same incentive to clear the cases will be presented, because the next step will be litigation in the Tax Court?)

Peter Reilly has a good early discussion of the offer:  IRS Victory In Easement Case Prompts An Offer Not To Be Refused (Forbes 6/25/20), here.  Highly recommended.  And, from knowing Peter and his special interested in the abusive Syndicated Conservation Easement Shelters, he is likely to have more posts as the settlement offer plays out.

In email correspondence with Peter, I offered the following off-the-cuff (meaning not fully considered) comments.  I offer those off-the-cuff comments (modified and expanded but again without detail thought) just for early consideration, but if I have time to try to refine them, I will do so here.

1. The key excerpt, I think, is this:

The IRS realizes that some promoters may tell their clients that their transaction is “better” than or “different” from the transactions previously rejected by the Tax Court and that it may be better for the client to litigate than accept this resolution.  When deciding whether to accept the offer, the IRS encourages taxpayers to consult with independent counsel, meaning a qualified advisor who was not involved in promoting the transaction or handpicked by a promoter to defend it.

2. The penultimate paragraph says that taxpayers not excepting should not expect better terms.  But, as suggested by the above quote, what about those taxpayers who really do have better cases than the very bad cases (i.e., their documents meet the technical requirements of the regulation and their valuation is not grossly inflated as much as the more abusive ones)?  They will have better litigating hazards and the IRS should be willing to settle on a litigating hazards of their cases rather than insisting that one size fits all.

Fourth Circuit Calls Out a Bullshit Tax Evasion/Avoidance Gambit (6/24/20)

In Est. of Kechijian v. Commissioner, ___ F.3d ___ (4th Cir. 6/23/20), here, the Court affirmed the Tax Court’s holding that the bullshit transaction to avoid tax on ordinary income -- $41.2 million of such income -- did not work and that the 20% accuracy related penalty applied.  This particular bullshit transaction was different from other similar genre transactions I have discussed, in the sense that it appears to have been a one-off rather than mass-marketed (although, I am sure components were packaged by various promoters into other bullshit deals).

I won't get into the twists and turns to gerrymander the result the taxpayers and their advisors went through to hide what really happened.  However, I did find the following (Slip Op. 15-16) particularly on point:

            Surprisingly, petitioners double down on their position in this appeal. They candidly acknowledge that the only reason they executed the Surrender Transactions was to enable UMLIC S-Corp. to avoid withholding and remitting approximately $33 million in state and federal payroll and income taxes. Petitioners maintain that this course of action was necessary to ensure UMLIC S-Corp.’s continued viability as a going concern. This is  [*16] because, according to petitioners, UMLIC S-Corp. did not have enough cash on hand to cover its tax withholding obligations, an assertion that the Tax Court found to be unsupported by the evidence at trial. See Austin, T.C. Memo. 2017-69, at *40 n.13. But even if that were true, it does nothing to change the fact that the sole purpose for the Surrender Transactions was the avoidance of tax obligations, both those of UMLIC S-Corp. and, by extension, those of petitioners. Under our case law, that is enough to satisfy the first prong of the economic substance test. See Friedman v. Comm’r, 869 F.2d 785, 792 (4th Cir. 1989) (noting that the first prong “requires a showing that the only purpose for entering into the transaction was the tax consequences”).

On the penalty issue and reasonable cause, the following is also noteworthy after finding that the taxpayers had done nothing to determine their correct liability (Slip Op. 19):

            Petitioners’ argument that the tax law issues in this case are novel does nothing to change our conclusion. For one thing, we have never recognized novelty as a stand-alone defense to the imposition of accuracy-related penalties. See Baxter, 910 F.3d at 168. More importantly, there is nothing novel about the legal issues presented by or doctrines applied in this case. That the law prohibits a taxpayer from avoiding tax liability by means of a sham transaction is a rule almost as old as the federal income tax system. See, e.g., Gregory v. Helvering, 293 U.S. 465, 468–70 (1935); see also Baxter, 910 F.3d at 168 (rejecting a similar novelty argument on the grounds that “it [is] well-established that transactions lacking economic substance must be disregarded for tax purposes”). There is no reason that petitioners, sophisticated businessmen who were clearly cognizant of the tax consequences of their actions, could have reasonably expected that the Surrender Transactions would be exempted from this longstanding rule. See Treas. Reg. § 1.6664-4(b)(1) (noting that “the experience, knowledge, and education of the taxpayer” is relevant in assessing accuracy-related penalty defenses).

 Well, as Vincent Laguardia Gambini said here:  “Everything That Guy Just Said Is Bullshit.”

Gambini made that assessment of the opposing argument in a trial before a jury.  I am not sure that would be a good argument in an appellate court as was involved in the case above.  But that is the gist of the Court's holding.  (Actually, without getting into the details, I did make a similar argument in a prominent case when I was with DOJ Tax Appellate Section where, rather than filing an amicus brief, a prominent tax lawyer who had exposed clients if the Government won the appeal, wrote a law review article in the premier tax publication, NYU's Tax Law Review, after all the briefs had been submitted.  At oral argument, I advised the Seventh Circuit of the article publication and said that the argument in the article was bullshit (actually, I said that the article was just wrong and that Government could respond to all of the arguments in the article if the court of appeals wanted the Government to do so).  The Government won the case without further ado.

Textualism's Malleability -- Picking Your Friends (6/24/20)

Yesterday, in a Zoom session with a Houston tax group, the Wednesday Tax Forum (which meets on Tuesday), George Connelly, here, discussed § 6751(b), here, which requires supervisor approval before the initial determination of IRS penalty claims.  Since the IRS frequently asserts penalties, this requirement has been a frequent topic in litigation, at least after it surfaced a few years ago.  Basically, the ground covered by § 6751(b) has shifted dramatically and the aftershocks continue to alter the understanding of the requirement, now in more nuanced ways than before.

I do not plan to discuss § 6751(b) in this blog. For those interested in more on § 6751(b), George’s article, titled I.R.C. Section 6751(b) – What You Need to Know, may be viewed and downloaded here.

I do want to address one of the issues that I raised in the Zoom session – that is how the Tax Court which, like other courts, has moved into or at least toward the textualist camp for statutory interpretation (see Jonathan H. Choi, An Empirical Study of Statutory Interpretation in Tax Law, 95 N.Y.U. Law Rev. 363 (2020), here), abandons textualism for § 6751(b) because the text is nonsense, and applies a purposivist reading to get to the result they think Congress must have intended (whether Congress actually intended the result or not).  (There’s that notion, purportedly anathema to textualists, that Congress’ intent, real or imagined, means anything.)

In my prior prior posting, Supreme Court Case on Statutory Interpretation (Federal Tax Procedure Blog 6/16/20), here, I discussed the theme of textualism in Bostock v. Clayton County, 590 U.S. ___, ___ S.Ct. ___ (6/16/20), here.

I just read a more robust discussion of Bostock’s themes of textualism.  Anita S. Krishnakumar, Three Lessons About Textualism from the Title VII Case, by Anita S. Krishnakumar (Notice & Comment 6/24/20), here.  In the article, Professor Krishnakumar (bio here) discusses three key topics / lessons from Bostock that are counter to the oft-repeated claims of textualism:

1. Textualism does not necessarily lead to a single correct reading of a statute.
2. Textualists care about practical consequences and other extratextual considerations.
3. Textualism often involves some speculation about legislative intent or purpose.

Professor Krishknakumar concludes:

In the end, the Court’s trio of textualist opinions in Bostock have much to teach us about what textualism means on the modern Court. And while textualists can certainly celebrate that all three opinions “flew a textualist flag” as Justice Alito put it, they also should take note that textual analysis did not produce a single clear-cut reading of the statute—and that all three opinions took into account extratextual considerations as well.

Which is to say that, well, textualism is malleable.  In that sense, could it be that textualism suffers the same argument against that textualists (at least some of them) assert for legislative history:  It is like "looking over a crowd and picking out your friends."  See Brett M. Kavanaugh, Book Review: Fixing Statutory Interpretation, 119 Harv. L. Rev. 2118, 2149 (2016), here (in fn. 157, citing "Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 568 (2005) (quoting Patricia M. Wald, Some Observations on the Use of Legislative History in the 1981 Supreme Court Term, 68 IOWA L. REV. 195, 214 (1983), in turn borrowing Judge Leventhal's 'memorable phrase'").  Indeed, reading through Bostock, somehow, one might get the Humpty-Dumptian feeling that, with competing dictionaries and definitions, a word " means just what I choose it to mean—neither more nor less."  That is the textualist notion even when textualists reach different definitions.

Altera Cert Denied (6/22/20)

The Supreme Court denied certiorari in Altera Corp. v. Commissioner, 145 T.C. 91 (2015), which the Ninth Circuit reversed 926 F.3d 1061 (9th Cir. 2019), reh. en banc den. 941 F.3d 1200 (9th Cir. 2019), cert. den. 591 U.S. ___, 141 S.Ct. 131  (2020), here.  I have discussed or mentioned the petition for certiorari in several blogs.  The most recent (with links to the key blogs) is:  Altera Reply Brief on Petition for Certiorari (Federal Tax Procedure 6/7/20; 6/11/20), here (noting inter alia that the petition and reply brief indulge in considerable hyperbole).

The traditional mantra is that a denial of certiorari is not an affirmance on the merits.  All it does is to let the Circuit Court opinion stand without any inference that the Circuit Court opinion is approved.

The key point is that the Ninth Circuit is now binding authority in the Ninth Circuit and its lower courts (including the Tax Court for cases appealable to the Ninth Circuit).  In the Ninth Circuit’s analysis, the Tax Court slipped off the rails in Altera.  The question now is what the Tax Court does with the next case appealable to another Circuit.  Does the Tax Court stick to its guns or does it conform its holding as it did in Graev . Commissioner, 149 T.C. 485 (2017) (reviewed opinion), after being corrected by the Second Circuit?  And, then, more importantly, what the next few Circuits to consider the matter do.

The major issues raised in the Altera petition and the proceedings below involved the Administrative Procedure Act (“APA”), including Chevron which is not directly an APA issue but related to it in some ways.  The Supreme Court had already granted a petition for certiorari in a case involving the interface of tax administration and the APA.  CIC Servs., LLC v. IRS, 925 F.3d 247 (6th Cir. 2019), reh. den. 936 F.3d 501  (6th Cir. 2019), cert. granted ___ U.S. ___, ___ S.Ct. ___ (Dkt. No. 19-930, May 4, 2020).  See Certiorari Granted in CIC Servs on AIA Application to Pre-enforcement Guidance Challenges (Federal Tax Procedure Blog 5/12/20), here.  Maybe granting cert in CIC sated the Supreme Court’s appetite for the interface of tax administration and the APA. [Added 5/18/21: The Supreme Court reversed in 593 U.S. ___, 141 S.Ct. 1582 (2021).  See Supreme Court Holds in CIC Services that IRS Micro-Captive Notice May Be Contested Pre-Enforcement (Federal Tax Procedure Blog 5/17/21; 5/18/21), here.]

UT Law Dean Farnsworth on English and Volokh Conspiracy Guest Blogs (6/22/20; 6/26/20)

Earlier this month, I received an email from Bryan A. Garner, the legal writing guru.  Garner recommends three books by Ward Farnsworth, dean of the University of Texas School of Law, here.  Bryan A. Garner,  An important trilogy (LawProse Lesson #334), here. These are not your normal law books, but rather--as you might suspect from Garner's interest--books on the skills of writing and argument.  (Those interested in the subject of writing might check out Garner's web page here; and some of his books, including The Elements of Legal Style -2nd Edition (Oxford U. Press 2002), here (taking off from the iconic William Strunk JR. and E.B. White, The Elements of Style, originally published in 1918 and periodically updated and republished thereafter (see Wikipedia page here)).

The Farnsworth books Garner recommends are:

● Farnsworth’s Classical English Rhetoric (2010).
● Farnsworth’s Classical English Metaphor (2016).
● Farnsworth’s Classical English Style (2020).

Garner says:

       They’re all stylishly published by David Godine, the literary publishing house in Boston. They’re bold and they’re innovative, and they’re brimming with examples. In fact, there are more examples than explanatory text. That’s a hallmark of Farnsworth’s approach. It’s quite a feat. 

          Buy them. Read them. You’ll learn.

In addition to alerting readers of the book, I just found out that Dean Farnsworth will be guest-blogging on The Volokh Conspiracy this week on the most recent book, Classical English Style.  See Eugene Volokh, Dean Ward Farnsworth (U Texas Law) Guest-Blogging About Legal Writing (The Volokh Conspiracy), here.

I will post below links to the installments this week by Dean Farnsworth here rather than doing a separate blog entry on each one.  I look forward to learning and sharing.  (BTW, I have ordered each of the three books but because of other book commitments will likely not get to them until July; I won't announce when I have finished any or all the books; perhaps it will show in my writing.  (But, hard to teach an old dog new tricks.)

The Volokh Conspiracy Farnsworth Postings:

• What Did Lincoln Know About Language That We Don't? (6/22/20) here.  (On modern English as built on Old English and French and how Abraham Lincoln played the best resonances of both influences in constructing his iconic statements.)
• What Did Churchill Know About Language That We Don't? (6/23/20), here. ("Churchill also made great use of the reverse pattern: starting with simple words, then using language more complex to create a feeling of ascension." [Illustrated with the What is Our Policy speech.])
• What Did Holmes Know About Language That We Don't (6/24/20), here. (Holmes as master of contrast, setting up the Latinate word and ending in a burst of shorter more pungent Saxon words.)
• Holmes and the Art of the Skewer (6/25/20), here.  (Holmes again using an examplewhere "The higher and more pompous idea is put in words that came into English from Latin * * * *. The hard truth that follows is put mostly in older and simpler words.")
• Rhetoric, Polarities, and Trump (6/26/20), here. ("[R]hetorical force requires two things, not one. The two things might be plain and fancy words, long and short sentences, high or rich substance and low or simple style (or vice versa), the concrete and the abstract, the formal and the informal, or other pairs. If you want your writing to cook, learn how to play with those polarities.")

Readers may also be interested in another Garner article, How to regain the joy of reading (ABA Journal 11/1/14), here.  Excerpts, including one involving Dean Farnsworth:

Distinction Between APA Arbitrary and Capricious Review and Chevron Interpretive Reasonableness Review (6/19/20; 7/24/20)

In DHS v. Regents of the University of California, ___ U.S. ___, 140 S.Ct. 1891 (6/18/20), Sup. Ct. here and GS here, the Court held that the DHS rescission of DACA was procedurally defective (arbitrary and capricious) for failure to satisfy the reasoned decisionmaking requirement of the APA, as interpreted.  (Also often referred to as the State Farm standard.)  DHS v. Regents has created quite a stir in the national political discussion (most of the stir being rhetoric).

I have not dealt much with the State Farm standard on this blog.  But,  I have noted, for example, that failure to satisfy the arbitrary and capricious/ State Farm standard is Altera’s principal argument on petition for certiorari in Altera Corp. v. Commissioner, 145 T.C. 91 (2015), rev’d 926 F.3d 1061 (9th Cir. 2019), reh. en banc den. 941 F.3d 1200 (9th Cir. 2019), petition for cert. pending, No. 19-1009 (filed 2/10/20).  See Altera Reply Brief on Petition for Certiorari (Federal Tax Procedure Blog 6/7/20; 6/11/20), here.

I won’t get further into either DHS v. Regents or Altera today (except as an aside at the end), but I did pick up a new case, that  makes a nice (and correct) distinction between Chevron review for interpretive regulations and arbitrary and capricious review applicable to both legislative and interpretive regulations.  The case is:  Natural Resources Defense Council, Inc. v. U.S. EPA, 961 F. 3d 160 (2d Cir. 2020), GS here.  The relevant excerpt is (pp. 169-171) (cleaned up). I bold face parts that I think require particular attention):

II. Legal Standard 

            "We evaluate challenges to an agency's interpretation of a statute that it administers within the two-step Chevron deference framework." Catskill Mountains Chapter of Trout Unlimited, Inc. v. EPA, 846 F.3d 492, 507 (2d Cir. 2017).  At Chevron Step One, we ask "whether Congress has directly spoken to the precise question at issue." If Congress's directive is unambiguous, both the agency and the courts are bound by that mandate. If, instead, "the statute if silent or ambiguous with respect to the specific issue," the analysis proceeds to Chevron Step Two. At that step, "the question for the court is whether the agency's answer is based on a permissible construction of the statute."  

            In evaluating reasonableness at Chevron Step Two, "we will accord deference to the agency's interpretation of the statute so long as it is supported by a reasoned explanation, and `so long as the construction is a reasonable policy choice for the agency to make.'" Catskill Mountains, 846 F.3d at 507. Because "a statute's ambiguity constitutes an implicit delegation from Congress to the agency to fill in the statutory gaps," the agency's interpretation must only be reasonable, and need not be the sole permissible or even most reasonable interpretation of the statute.

Supreme Court Case on Statutory Interpretation (6/16/20; 6/24/20)

In Bostock v. Clayton County, 590 U.S. ___, ___ S.Ct. ___ (6/16/20), here, the Supreme Court Justices took up a public intramural debate that I describe as “what is it about sex that you don’t understand?”  That’s a bit flip.  The debate the Justices engaged in was about the prohibition in Title VII of the Civil Rights Act of 1964 against discrimination “because of * * * sex.”  (There are some other prohibited categories such as race, color, religion, etc., but the one in issue in Bostock was “sex.”)  Essentially, debate was among three conservative justices of the Court—Gorsuch for the majority of six with dissents by Alito and Kavanaugh.  Justice Gorsuch’s opinion attracted both Chief Justice Roberts and the liberal Justices (Ginsburg, Breyer, Sotomayor and Kagan, so I suspect that his opinion reflects some of their influence as well, but the opinion is very much Gorsuch in style).  The dissenting opinions are, in my view, hyperbolic, perhaps reflecting some disappointment that the conservative compadre, Justice Gorsuch, didn’t see the case as they did.

Bostock was not a tax case.  I discuss it on the Federal Tax Procedure Blog because it offers insight into an issue I do discuss in the Federal Tax Procedure book–statutory interpretation.  (See Practitioner Edition  pp. 9-14; and Student Edition pp. 6-9; since I have substantially revised that discussion, I offer for download here the discussion as revised to today from the working draft of the 2020 editions that will be published in August 2020.)  As I note, there are two key approach categories to statutory interpretation – textualism and purposivism.  Those are broad categories with much blending in between, but proponents of these approaches to statutory interpretation claim that their use of their preferred approach makes them more faithful agents to Congress which enacted the statute.  Generally, politically conservative judges are textualists, and politically liberal judges are purposivists (at least relative to each other, with some crossover from time to time).  Influenced by Justice Scalia, even politically liberal judges have trended toward textualism–e.g., Justice Kagan famously proclaimed in 2015 that “we’re all textualists now.”  That claim was hyperbolic but not much, as purposivist judges drifted toward the textualist camp.  But even textualist judges have a broad field to play in between pure textualism and textualism bordering on purposivism.

In Bostock, all of the judges authoring the opinions are political conservatives firmly in the textualist camp.  Hence, to see them fight about statutory interpretation is noteworthy.  I won’t try here to sort out the dynamics of what exactly happened.  I just state it in overview.

Justice Gorsuch for the majority concluded that the statutory word “sex” was broad enough to cover the type of discrimination in issue–discrimination against homosexuals or transgender.  Justices Alito and Kavanaugh, in separate opinions, concluded that the word sex was not used that way in the statute because there was no expectation, at the time of enactment, that the word was so used.  There is much subtlety in those broad statements of position which I just won’t get into here.  Rather, I offer some comments that are relevant to my discussion of the statutory interpretation issue in the Federal Tax Procedure book editions.

1.  The opinions agree that the touchstone of statutory interpretation is the “ordinary public meaning” (sometimes called original public meaning, particularly in constitutional interpretation; but imported to statutory interpretation because constitutional interpretation is really statutory (perhaps super-statutory) interpretation).  (See Gorsuch Slip op. 4; Alito Slip Op. 23 (stating issues as "How would the terms of a statute have been understood by ordinary people at the time of enactment?"); and Kavanaugh ("The ordinary meaning that counts is the ordinary public meaning at the time of enactment."); on treating constitutional and statutory interpretation the same, see Evan D. Bernick, Envisioning Administrative Procedure Act Originalism, 70 Admin. L. Rev. 807, 834 (2018).  What does ordinary or original public meaning mean?  The competing Justices have different views on that but the standard is the same.  At least as formulated, the ordinary or original public meaning is the meaning some hypothesized reader or hearer of the statutory text at the time of enactment would have ascribed to the text.  That is the be contrasted with the meaning that the drafters or speakers of the text (Congress) intended the text to mean.  I discuss some of the subtleties in that approach in the attached revised version (see particularly footnote 44.)

Publication in ABA Tax Lawyer Townsend Burden of Proof Article (6/8/20)

The ABA Tax Lawyer publication has published my article:  John A. Townsend, Burden of Proof in Tax Cases: Valuation and Ranges—An Update, 73 Tax Lawyer 389 (2020).  I have posted the article as published to SSRN where it can be reviewed or downloaded in pdf format.  The suggested citation on SSRN is:  Townsend, John A., Burden of Proof in Tax Cases: Valuation and Ranges — An Update (2020). 73 Tax Lawyer 389, 2020. Available at SSRN: https://ssrn.com/abstract=3599481

I had posted an earlier blog entry of the posting of an earlier draft to SSRN.  See Townsend Article on Burden of Proof and Valuation in Tax Cases (Federal Tax Procedure Blog 12/9/19), here.  The final as published has substantial changes, so I recommend that the final published article be used rather than the earlier draft.

The SSRN Abstract is.

Abstract

In this Article, the author discusses the difficulty in many valuation cases of determining a definite valuation point by the required degree of persuasion (more likely than not in most civil cases). This point was made cogently in Cede & Co. v. Technicolor, Inc., a frequently cited opinion by the Delaware Court of Chancery, a forum for significant litigation involving corporate valuations:

[I]t is one of the conceits of our law that we purport to declare something as elusive as the fair value of an entity on a given date. . . . [V]aluation decisions are impossible to make with anything approaching complete confidence. Valuing an entity is a difficult intellectual exercise, especially when business and financial experts are able to organize data in support of wildly divergent valuations for the same entity. For a judge who is not an expert in corporate finance, one can do little more than try to detect gross distortions in the experts’ opinions. This effort should, therefore, not be understood, as a matter of intellectual honesty, as resulting in the fair value of a corporation on a given date. The value of a corporation is not a point on a line, but a range of reasonable values, and the judge’s task is to assign one particular value within this range as the most reasonable value in light of all the relevant evidence and based on considerations of fairness.

Corporate valuations for estate tax are just one context of tax litigation, but there are many other contexts. A prominent example for some time now has been transfer pricing.

Altera Reply Brief on Petition for Certiorari (6/7/20; 6/11/20)

I have previously written on the Altera Corporation petition for certiorari from the decision in Altera Corp. v. Commissioner, 926 F.3d 1061 (9th Cir. 2019), reh. en banc den. 941 F.3d 1200 (9th Cir. 2019).  Altera Petition for Certiorari (Federal Tax Procedure Blog 2/12/20; 2/13/20), here; see also Excellent Blog Postings on the State of the Altera Petition for Certiorari (Federal Tax Procedure Blog 5/22/20), here.  The Supreme Court docket page is here; the SCOTUSBlog case docket page is here.  

Altera Corporation has now filed its Reply Brief for Petitioners, here.  Professor Christopher Walker, an observer of the intersection between tax and administrative law (and counsel for an amici supporting Altera's petition), has posted notice of the Reply Brief and excerpted the introduction:  Altera v. IRS: Major Tax and Administrative Law Cert Petition Before the Supreme Court (Notice & Comment 6/5/20), here; see also Susan C. Morse and Stephen E. Shay (Guest Bloggers), In Altera Reply Brief, Taxpayer Doubles Down on Flawed Argument That the Government Changed Its Tune (Procedurally Taxing Blog 6/11/20), here, cross posted at Notice and Comment here.  [The latter citation was added 6/11/20.]

Like the petition and amici submissions in support of the petition, the Reply Brief indulges in considerable hyperbole.  For example, the Reply Brief (p. 5) claims that the Government does not dispute the importance of the case and simply argues the merits.  I think that claim is exaggerated.

To be sure, significant tax revenue is at issue and if that is all that makes a case important for certiorari purposes, the Government could have / should have acquiesced in certiorari.  Cf. Alan Horwitz, Government Acquiesces in Beard Petition for Certiorari (Tax Appellate Blog 7/29/11), here.  Dollars at issue do not make a case important for certiorari purposes, otherwise the next time a tax protester claims that his wages are not income, he could claim importance on petition for certiorari.  (Well, a tax protester would do that anyway, but Altera and its amici are not tax protesters, at least not often characterized that way.)

The administrative law principles are really not at issue either (in my opinion).  They are fairly settled unless Altera were asking for Chevron to be overruled.  At best, Altera's argument is that the Ninth Circuit improperly applied those principles.  The Morse and Shay posting linked above addresses Altera's claim that the process was procedurally flawed under the arbitrary and capricious standard in § 706/State Farm, and assert that the process was not procedurally flawed.  But the Ninth Circuit articulated the right scope of review on that issue, so that Altera's claim is just that the Ninth Circuit made a mistake in application of the arbitrary and capricious standard.  The Supreme Court is generally not a court to correct errors in the Courts of Appeals, but to take cases of true systemic importance to issue new guidance or perhaps affirm old guidance for the proper application in the courts in the future. For example, if the Ninth Circuit had erroneously stated the standard it was applying in a way that would be precedential in the Ninth Circuit and perhaps influential in other Circuits (including their lower courts, which include the Tax Court), there might be some systemic importance to the Supreme Court addressing the issue to insure that the inferior courts can know and properly articulate the correct standard.  But if the Ninth Circuit articulated the correct standard (as it certainly did) and, at worst, only made a mistake in its application, that does not seem to me to be worthy of the Court's attention at this time. [The redlined text was added 6/11/20.]

It's All About Interpretation (6/4/20)

I have written often on statutory interpretation (including subsets related to deference to agency interpretation).  Statutory interpretation is a related topic to constitutional interpretation.  For example, originalism has its principal application to constitutional interpretation, but the originalist interpretive strategy can apply equally to statutory interpretation.  And, interpretation applies equally to biblical interpretation.  As my favorite Hebrew Bible scholar, James Kugel, says, it is all about interpretation.  Kugel says that it is not about what the original author(s) (or redactors in the current lingo) meant, it is how it is interpreted at the critical moment in time – in the case of the Bible when the Jewish community decided that the text was canonical for them (long after, in most cases, it was written (or finally redacted)).  (His principal anecdote proving his point is the Hebrew Bible book Song of Songs (Song of Solomon in the Christian New Testament).  That process of going from original writing through the redaction and community adoption process took a long time, often hundreds of years.  And then, once canonical, it is about how the community of faith interprets it over time to meet the community needs.  (Great midrash about how the text can expand or change in interpretation over time, a process that can equally apply with constitutional and statutory interpretation.)

There was no (or little) lapse of time between writing and adoption of the constitution and statutes, where the two are roughly contemporaneous (although both get reinterpreted over the years to meet the needs of the community).  At any rate, I thought this offering, here, from John Sexton, a prominent legal scholar and force of nature, talking about his seminar at NYU might be interesting to readers of this blog.  The reading list for Sexton's course is here,

Disclosure:  I am a long-time Brooklyn Dodgers fan.  And a long-time John Sexton fan (he interviews John Sexton).  And when those two flow together in an interview with Bill Moyers to talk about the confluence of baseball, particularly baseball through the Brooklyn Dodgers, and religion, particularly with sacred texts such as the Bible and the Constitution, well that is irresistible .

This comes up as I am considering offering a course at my Church on Sexton's book, Baseball as a Road to God, here.

BTW, it strikes me that there is a further parallel at least for statutory interpretation.  The analog with Chevron deference is that the religious community, in whatever form, often "defers" to interpretations offered by their rabbis, priests, pastors, shamans or whatever, rather than making its own individual interpretations de novo (as a lawyer would say) or sola scriptura as Martin Luther might say.  The analog is imperfect, but, I think, worth considering.

District Court Applies Tax Exception to Declaratory Judgment Jurisdiction (6/1/20)

In Rivero v. Fidelity Investments, Inc. (E.D. Tex. 5/19/20, Memorandum Opinion & Order Dtd 5/19/10), GS here, the Court held that the tax exception to its declaratory judgment jurisdiction precluded a declaratory judgment that an IRS Form permitting transfer of title to a financial account was not necessary.  In summary, the plaintiff had a financial account in a joint tenancy with right of survivorship (JTWROS) with a nonresident non-citizen, Medrano.  (The relationship between Rivero and Medrano is not given.)  Medrano died.  Rivero sought to have the financial institution (Fidelity) transfer the JTWROS account to her sole name, because she was the sole owner as the survivor.  Fidelity requested that she provide a Form 5173, Transfer Certificate Filing Requirements for the Estates of Nonresidents not Citizens of the United States, here.  The transfer certificate requirement is a back stop to insure that nonresident non-citizen estate tax, if any, is paid.  Basically, the Court said that, in order to declare that the transfer certificate was not needed for Fidelity to transfer title, it would have to determine that no estate tax was due.  And that ran afoul of the tax exception to the declaratory judgment statute.

  

The opinion does not state whether the account, although titled JTWROS, was beneficially owned by Rivero before Medrano's death because she was the source of the assets in the account.  If she owned the assets, then presumably Fidelity could effect the transfer to her sole name without potential liability.  Note in this regard that such right of survivorship titling is often use as a method to transfer ownership at death and, at least as between the parties, does not transfer ownership until the owner dies.  If that were the case, then there would be no estate tax due with respect to the asset because Medrano had an expectancy at best.  

I wonder, therefore, whether Rivero could have brought a proceeding in the state court to declare the pre-death ownership of the asset.  Of course, that might not be an adversarial proceeding and the IRS might not be bound to accept the determination.  But that proceeding might give Fidelity enough cover that it might agree to transfer without further ado.  Or Rivero might still try to work through the IRS to show that there is no estate tax due and obtain an appropriate transfer certificate.

Still another possibility, I suppose, would be for Rivero just to withdraw the assets which, I suppose, her joint tenancy may have given her the power to do (subject to any state law requirement precluding that upon the death of the other tenant).

Tax Court Administrative Orders on Trials in Pandemic Times (6/1/20)

Readers of this blog will be interested in two orders of the Tax Court issued last week:

• Administrative Order No. 2020-02 on Remote Court Proceedings During COVID-19 Pandemic, here.  The order attaches sample Notice of Setting Case for Trial and Standing Pretrial Order (with Pretrial Memorandum Form) for regular cases as small cases and a Getting Ready for Trial Checklist.  The order says:

Given the ongoing uncertainties and the Court’s desire to continue essential operations, on May 29, 2020, the Court adopted procedures for conducting Court proceedings remotely. These procedures will be in effect until further notice. Sample orders and notices incorporating these procedures are attached to this Administrative Order and will be posted on the Court’s website under “Forms”. 

Public access to the Court’s remote proceedings will be made available via realtime  audio with dial-in information for each session posted on the Court website. 

This Order is effective immediately and shall continue in effect until terminated by this Court.

• Administrative Order No. 2020-03 on Limited Entry of Appearance Procedures, Effective June 1, 2020, here.

Bob Probasco, here, of the Texas A&M Law School has an excellent Guest Blogger posting -- Significant Changes For Tax Litigation (Procedurally Taxing Blog 6/1/20), here.  So I won’t re-create the wheel here.  Bob does ask readers of the PT posting to offer their observations and questions.  So I encourage readers to watch the comments to Bob's posting and any replies that Bob or other readers may make to those comments.

Bob also noted in the posting:  

Another press release the same day informed us that on June 1st the court will resume accepting requests for copies of documents from non-parties.  But the process will be more flexible than before; requests can be made by phone and received by email.  You won’t have to – because you can’t – visit the court building in person.

I suspect that this "innovation" will survive the Pandemic--at least the email request or perhaps an internet form to make the request and any payment required.

A Detour:  I note that the order has a quote around Forms at the end of the sentence and places the period outside the endquote.  The secret Tax Court style manual, as it was explained to me, should have required that period (consistent with the American practice) to be placed inside the endquote.  See Updates on the Tax Court's Continued Love Affair with Periods Outside Quotations (1/4/20; 2/29/20), here.  Perhaps the style manual applies only to decisions and the like and not to administrative orders.  Or perhaps the explanation I received is incorrect.  At any rate, does the Tax Court really need to keep its style manual secret?