Citing History in Support of Statutory Meaning (8/30/20)

This is an interesting post on history of legislation in arguing for or explaining the legislation.  Eugene Volokh, TMH (Too Much History), a Form of TMI: Advice for Law Students and Young Lawyers (The Volokh Conspiracy 8/23/20), here.  Professor Volokh laments that, in arguing or just stating a position, writers often provide too much history rather than stating what the law (statute) is. 

An excerpt (longer):

One should generally resist this temptation. Judges are busy people, whose main goal is to figure out the law that is currently applicable to these facts, and then to apply it. The history is sometimes relevant to understanding current law, but often it's not. Give no more history than necessary to show the current law; and that's often zero history, especially if there's a solid binding precedent you can quote for the current rule.

My sense is that such TMH often stems from what I call the "data dump" impulse: You've done a lot of research, learned a lot (including the history of how the law developed), and now you feel like putting it all down on paper. That's fine—but once you write it down, go back over it in your editing passes, and delete everything that's not really necessary to proving and applying the current rule.

Of course, sometimes there's Not Enough History; sometimes understanding how the law developed helps explain what some ambiguous term means, and how it applies in this case. (Perhaps, for instance, you might think that the judge could be distracted by the Gertz principle, which he might already know; if so, you might note that Dun & Bradstreet limited Gertz to speech on matters of public concern.)

But even then, I suggest stating the current rule at the outset, which may help you see just what history you need to include to supplement the current precedent. And in my experience, TMH is much more common in law students' work than Not Enough History.

JAT Comments:

Updated Article: The Report of the Death of the Interpretive Regulation Is an Exaggeration (8/24/20)

I have updated my prior posting on SSRN of my article titled:  The Report of the Death of the Interpretive Regulation Is an Exaggeration.  I did make some significant changes.  The citation and the link in SSRN recommended format is

Townsend, John A., The Report of the Death of the Interpretive Regulation Is an Exaggeration (August 23, 2020). Available at SSRN: https://ssrn.com/abstract=3400489. 

The significant revisions are:

• I provide more discussion to refute the notion that APA § 706 requires de novo review without  deference to agency interpretations.  (See pp. 74-76.)  APA § 706 provides:  “To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions,”
• I add some more discussion on the anomaly of the spurious notion that when agencies interpret ambiguous statutory text they are legislating but when courts interpret ambiguous statutory text they are not legislating.  (See pp. 59-60.)
• I significantly revised the opening discussion of the myth of tax exceptionalism.  (See pp. 8-11; see also p. 110.)  The argument is the same, but stated in a more logical way (I think).

I have made numerous other changes that I hope improve the article but the ones identified above are the significant changes.

FTPB 2020 Update 02 - Revised Editions of Federal Tax Procedure Book for Technical Corrections (8/14/20; 8/15/20)

As Revised 8/15/20

In the original editions of the Federal Tax Procedure Book the headings below the Chapter level in Chapters 16 and 17 were omitted.  In addition one heading in Chapter 18 was omitted.  In order to correct the Table of Contents and certain other very minor matters, I posted new editions on SSRN as of 8/15/20.  Please download the new editions for those corrections.  The content of the 8/15/20 editions is not materially changed from the 8/1/20 editions, but, because of how WordPerfect formats, the page numbers in the new editions may not exactly match those in the editions originally published on SSRN on 8/1/20.  The links to SSRN for download are on the page to the right titled Federal Tax Procedure Book, here.

The Cumulative List of Updates is on the page at the right, titled "Federal Tax Procedure Book Updates," here.  The blog entries for updates may be viewed on the Label titled FTPB 2020 Updates, here.

Peter Reilly on Real Estate Phantom Taxable Income Gaming the Audit Lottery (8/13/20)

Peter Reilly, a friend and frequent tax commenter, has this offering on his Forbes blog:  IRS Veteran Insists That IRS Is Missing Billions In Real Estate Gains (Forbes 8/11/20), here.  Basically, Peter deals with tools that the IRS has in its system that his informant asserts can locate large amounts of income that goes unreported through the phantom income that arises from real estate losses funded by nonrecourse debt.  I am not familiar with the IRS systems that could police the reporting of the income, but I do note (as does Peter) that there is a new IRS initiative for the partnership to report partner level basis.  See Notice 2020-43, here; see also Peter’s discussion on another blog Who Is IRS Aiming At In Recent Partnership Notice? (Your Tax Matters Partner 6/21/20), here.

Those who are partnership tax gurus will like Peter’s offerings and maybe even understand them.  As an aside, my practice over the recent years have not focused on partnership tax, so I am a bit long in the tooth on that.  (Except that I do cover the procedural aspects of the TEFRA and CPAR (often called BBA) regimes, and earlier in my private practice while substantially involved with real estate partnerships (and teaching Real Estate Taxation at UH Law School), I did have particular interest in partnership taxation originating from my handling of the appeal Diamond v. Commissioner, 492 F.2d 286 (7th Cir. 1974), here, a leading case in partnership taxation.  (The Diamond opinion was quite controversial, but in my mind just involved elemental tax principles correctly applied; but the real estate industry was quite powerful and managed to whittle away the results and essentially reverse through IRS administrative largesse, hence the carried interest notion, but I won't go off further on that rant here.)

Peter’s Forbes offering did cover some significant tax history related to Crane v. Commissioner, 331 U.S. 1, 14 n.37 (1947), here, and its tax infamous footnote 37. All tax students and practitioners should have at least a passing acquaintance with that footnote, said to be the most famous footnote in tax history.  Footnote 37 should also mitigate against the expression of apparent disdain for footnotes that Justice Scalia once made in oral argument (I cover Scalia’s statement in both editions of my book).  Footnote 37 said:

Obviously, if the value of the property is less than the amount of the mortgage, a mortgagor who is not personally liable cannot realize a benefit equal to the mortgage. Consequently, a different problem might be encountered where a mortgagor abandoned the property or transferred it subject to the mortgage without receiving boot. That is not this case.

That footnote spawned a myriad of offerings exploiting nonrecourse debt to generate deductions with the notion (or hope) that the taxpayer would not have to balance the books with so-called phantom taxable income at the end.  Those shelters proliferated particularly in the 1970s involving both real estate where lenders might make economic nonrecourse loans in the real world and in other contexts where the nonrecourse loan was basically phony (or magic).  The Supreme Court put an end to (or at least curbed somewhat) that magical thinking in Commissioner v. Tufts, 461 U.S. 300 (1983), here, requiring the taxpayer to include the amount of the nonrecourse debt in the amount realized part of the gain calculation upon foreclosure or deed in lieu of foreclosure, thus at least leaving the taxpayer with deferral and conversion shelter from playing the nonrecourse debt game.  

Chevron and Lenity (8/11/20)

Today, I discuss the related topics of Chevron deference and the rule of lenity.  Both topics deal with ambiguity in statutory text.  Chevron deference means that a court may apply some reasonable agency interpretation of statutory text even if the court is convinced that there is a better interpretation.  In other words, within the zone of ambiguity the interpretive tilt goes to the agency's interpretation.  In lenity, a criminal law concept, however, within the zone of ambiguity, the tilt goes to the defendant.

 I was drawn to this topic by a decision I read today, Gallardo v. Barr, 968 F.3d 1053 (9th Cir. 8/6/20), CA9 Slip Op. here; GS here.  The case involved the BIA’s interpretation of the term “aggravated felony” (and its subset, “obstruction of justice”) was subject to the rule of lenity.  The panel took the traditional view that the rule of lenity was not consistent with Chevron deference.  As thus formulated, the lenity issue would be a so-called Chevron Step Zero question (does the Chevron framework apply at all?) that could pre-empt the Chevron framework at the outset.  The panel sidestepped the question by applying the Chevron framework because a prior panel in an earlier appeal in the case had applied the Chevron framework.  (See Slip Op. 11-17.)  The Court offered this general discussion in a footnote (Slip Op. 14 n. 3, here)

   n3 Statutory ambiguity is a trigger for applying both the rule of lenity and Chevron deference. However, we apply the rule of lenity when a criminal statute is ambiguous so that "legislatures, not courts" define the scope of the statute. Crandon v. United States, 494 U.S. 152, 158 (1990). By contrast, we apply Chevron deference in construing ambiguity in other statutes because the lack of textual clarity is a signal that Congress expected an "agency to be able to speak with the force of law when it addresses [the textual] ambiguity." United States v. Mead Corp., 533 U.S. 218, 229 (2001). In other words, because lenity is a rule we apply to ensure that the legislature has the final say, and Chevron is a rule we apply to permit agencies to fill in the details of a statute, we do not typically apply both principles at the same time. See Whitman, 135 S. Ct. at 354 (Scalia, J., respecting the denial of certiorari) ("[O]nly the legislature may define crimes and fix punishments. Congress cannot, through ambiguity, effectively leave that function . . . to the administrative bureaucracy." (emphasis omitted)); see also Transcript of Oral Argument at 12, Esquivel-Quintana v. Lynch, 137 S. Ct. 1562 (2017) (Chief Justice Roberts stating that the rule of lenity and Chevron cannot "coexist" because, at least in that case, "[t]hey each point in the opposite direction based on the same predicate, which is a degree of ambiguity in the statutory provision"); William N. Eskridge, Jr. & Lauren E. Baer, The Continuum of Deference: Supreme Court Treatment of Agency Statutory Interpretations From Chevron to Hamdan, 96 Geo. L.J. 1083, 1115 (2008) (regarding "anti-deference" in the context of a criminal statute). However, some have discussed ways that the two rules may be harmonized. See Note, William T. Gillis, An Unstable Equilibrium: Evaluating the "Third Way" Between Chevron Deference and the Rule of Lenity, 12 N.Y.U. J.L. & Liberty 352 (2019).

 I offer the following (text only) (Those wanting the footnotes can get them with the text in pdf format here).

FTPB 2020 Update 01 - Reliance Regulations (Category of Proposed Regulations) (8/8/20)

I provide Federal Tax Procedure book update to the discussion on proposed regulations to add the category of reliance regulations.  The update is here.  (The cumulative list of updates is on the page linked in the right column titled Federal Tax Procedure Book Updates, here.)  In brief, although taxpayers may generally not rely on proposed regulations, they may rely if:  (i) there are no applicable final or temporary regulations and (ii) the IRS so states in the preamble to the proposed regulation.  In addition, IRS attorneys should should generally take positions consistent with proposed regulations.

Ninth Circuit Holds that Taxpayer Waived Attorney-Client Privilege and Factual Work Product Protection (8/8/20)

In United States v. Sanmina Corp., ___ F.3d ___ (9^th Cir. 2020), here, the taxpayer’s in-house counsel prepared two memoranda supporting a very large deduction the taxpayer claimed.  The taxpayer provided the memoranda to an outside law firm which prepared a valuation report supporting the claim.  The valuation report referenced the memoranda.  The taxpayer gave the  valuation report to the IRS in support of the claim.  The IRS summonsed the memoranda.  The taxpayer resisted, asserting the attorney-client privilege and work product protection.  The IRS petitioned to enforce the summons.  When the smoke cleared in the opinion, the Court held that the taxpayer’s disclosure to the firm preparing the valuation report waived the attorney-client privilege and was not consistent with work-product protection, so that the factual matter in the memoranda (as opposed to the opinion work product) must be disclosed to the IRS pursuant to the summons.

The holding is important but not that exceptional, so I provide readers here the summary offered by the Court of Appeals (a feature for Ninth Circuit precedential opinions similar to the Tax Court’s summary for T.C. opinions; the Ninth Circuit  summary is not precedential and is prepared by staff for the convenience of readers):

SUMMARY

Tax

The panel affirmed in part and reversed in part the district court’s determination, that taxpayer Sanmina Corporation  had waived attorney-client privilege and workproduct protection for certain memoranda prepared in support of a  worthless stock deduction on Sanmina’s federal tax return, in a petition by the Internal Revenue Service to enforce a summons for those memoranda.

The memoranda in question (Attorney Memos) were authored by Sanmina’s in-house counsel and referenced in a valuation report prepared by DLA Piper (DLA Piper Report) in support of the worthless stock deduction. The district court initially denied enforcement of the summons. This court remanded for in camera review of the Attorney Memos. On remand, the district court determined that the Attorney Memos were covered by both attorney-client privilege and work-product protection, but that those privileges had been waived. On appeal, the parties did not dispute that the Attorney Memos were privileged.

The panel first held that Sanmina expressly waived the attorney-client privilege when it disclosed the Attorney Memos  to DLA Piper. The panel next held that Sanmina did not expressly waive work-product immunity merely by providing the  Attorney Memos to DLA Piper, but it impliedly waived the privilege when it subsequently used the DLA Piper Report to support its tax deduction in an IRS audit, because such use was inconsistent with the maintenance of secrecy against its adversary. The panel ordered disclosure of only the factual content of the Attorney Memos on which the DLA Piper Report relies, and remanded for the district court to determine the specific portions of the Attorney Memos that  should be disclosed to the IRS.

JAT Comments:

True or False: "Treasury and the IRS do not have a great history of complying with APA procedures" (8/5/20; 10/27/22)

I have substantially revised this blog entry to address the issue of Chevron's period of being controversial.  In my original posting, I suggested that, despite claims to the contrary, Chevron was not always controversial.  The modifications here clarify that deference to reasonable agency interpretations of statutory text was not controversial, particularly at the Supreme Court level, pre-Chevron and then post-Chevron until fairly recently.  I provide more nuance on that claim and cite to academic "controversy" much longer than the core concept began certain Supreme Court Justices' recent noisings about Chevron deference.  I indicate in red (sort of like red-lining) the significant revised statements.

As I previously blogged, the Supreme Court granted the petition for writ of certiorari in CIC Services LLC v. IRS, 925 F.3d 247 (6th Cir. 2019), here, reh. den.  936 F.3d 501 (6th Cir. 2019), cert. granted 2020 U.S. LEXIS 2605 (U.S., 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.  The question in the Supreme Court is:

Whether the Anti-Injunction Act’s bar on lawsuits for the purpose of restraining the assessment or collection of taxes also bars challenges to unlawful regulatory mandates issued by administrative agencies that are not taxes.

Basically, the issue is whether the affected public (generally referred to in a tax context as “taxpayers”) may litigate IRS positions that may have penalty consequences soon after the IRS publishes the positions in some type of guidance document or must await enforcement of the penalties which may be years after publication.  Historically, taxpayers must await enforcement of IRS tax positions because of certain policies related to the need for prompt collection of revenue.  Those policies are most prominently seen in the Anti Injunction Act, § 7421(a), the focus of CIC.

There is a general rule in administrative law that agency positions may be challenged in pre-enforcement litigation.  That general rule may be subject to exceptions.  In the tax arena, that general rule has not applied for fiscal imperatives embodied in legislation, particularly the Anti-Injunction Act, § 7421(a), playing prominently in CIC.  I will not delve further into the merits of the issue the Supreme Court will consider.

But I do want to address something that I think is misinformation in the trajectory of CIC that may bleed into the Supreme Court’s consideration.  The original panel opinion in CIC, here, concluded with something like a lament that it drew from a law review article as follows (pp. 258-259):

The broader legal context in which this case has been brought is not lost on this Court. Defendants "do not have a great history of complying with APA procedures, having claimed for several decades that their rules and regulations are exempt from those requirements." Hickman & Gerska (sic), supra, at 1712-13. And despite the jurisdictional nature of this appeal, Plaintiff has made its thoughts on the merits abundantly clear, emphasizing that "Notice 2016-66's Issuance and Enforcement is an Obvious Violation of the APA." (Reply Brief for Appellant at 4.) But that does not  in and of itself give federal district courts subject matter jurisdiction over suits seeking to enjoin the assessment or collection of taxes. Absent further instruction from Congress or the Supreme Court, such suits are barred by the AIA.

The article cited is Kristin E. Hickman & Gerald Kerska, Restoring the Lost Anti-Injunction Act, 103 Va. L. Rev. 1683, 1686 (2017), here.  (In the quote, the Court does misspell Kerska, which is surprising because it got the spelling right when citing the article earlier in the opinion; and the misspelling may have been corrected by the time the case was printed for F.3d.)

The issue I address is the quoted proposition asserted in the article and apparently accepted by the Sixth Circuit panel.  To repeat that proposition is:  “Treasury and the IRS do not have a great history of complying with APA procedures, having claimed for several decades that their rules and regulations are exempt from those requirements.”  The Sixth Circuit thought the claim so significant that it quoted it in the conclusion to the opinion.  I think the claim is wrong.

2020 Federal Tax Procedure Book Editions Finished; Available on SSRN (8/1/20)

I just finished my 2020 Federal Tax Procedure Book Student and Practitioner Editions.  I have submitted them to SSRN.  They now appear on my SSRN author page (even though not yet formally approved by SSRN; I can't explain that, but just take it as it is).  These editions may be downloaded as follows:

• Federal Tax Procedure (2020 Student Ed.), here.
• Federal Tax Procedure (2020 Practitioner Ed.), here.

Information about these editions is presented on the page to the right titled "2020 Federal Tax Procedure Book," here.

SSRN Technical Note:  Those who look at my SSRN author page, here, may note that doing a reverse chronological sorting will not show these books as the latest.  I presume that is because SSRN has not yet approved; hence in the list on the author page there is no date.  I presume that a date is added on the SSRN author page listing when SSRN approves, so, for example, reverse chronological sorting by date posted will work.