When Does the Statute of Limitations Start on the Erroneous Refund Suit? (4/29/21; 6/30/24)

I recently read and posted a comment to the following blog discussion:  Keith Fogg, Late Filed Erroneous Refund Suit (Procedurally Taxing Blog 4/22/21), here.  I wanted to explore further the issue of the starting date for the statute of limitations for erroneous refund suits.  Readers will recall that § 7405 permits an erroneous suit for refund which is "erroneously made.”  Section 6532(b) says that the statute of limitations to initiate the erroneous refund suit is “2 years after the making of such refund, except that such suit may be brought at any time within 5 years from the making of the refund if it appears that any part of the refund was induced by fraud or misrepresentation of a material fact.”  (The Regulation, § 301.6532-2, merely repeats the statute.)  Both the 2- and 5-year statutes of limitations require a starting date.

The Procedurally Taxing Blog linked above discusses a case, United States v. Page, No. 3:20-cv-08072 (D. Ariz. April 16, 2021),  here, involving the following facts:

• 5/5/17 – IRS mails taxpayer an erroneous refund check for $491,104. 
• ??/??/?? – Taxpayer receives the erroneous refund check
• 4/5/18 – Taxpayer cashes the erroneous refund check.
• ??/??/?? – IRS writes to request return of the erroneous refund
• 12/19/19 – Taxpayer responds by returning $210,000.
• 331/20 – IRS sues for erroneous refund.

The Government moved for default judgment.  Taking seriously its obligation to test the validity of the Government’s claims even on default judgment, the Court held (Slip Op. 3):

Under Ninth Circuit law, “[t]he refund is considered to have been made on the date the taxpayer received the refund check.” United States v. Carter, 906 F.2d 1375, 1377 (9th Cir. 1990); see also O’Gilvie v. United States, 519 U.S. 79, 91 (1996) (“[T]he law ordinarily provides that an action to recover mistaken payments of money accrues upon the receipt of payment.” (internal quotation marks and citation omitted)).

Under the facts outlined above, that meant that the statute of limitations foreclosed the erroneous refund suit absent fraud (which the Government did not allege).

There are two problems with the holding.  First, I think it makes no sense (as I noted in my then off-the-cuff comment to the Procedurally Taxing Blog entry because I don’t think the Government could have brought an erroneous refund suit until (i) at the earliest the refund check was cashed and perhaps (ii) until the refund check cleared.  I address that below.  Second, on a more procedural issue, I think the language of the Ninth Circuit precedent was dicta and not persuasive dicta, so the Page Court was not bound by it.  I address that issue below.

Accrual of the Erroneous Refund suit

Is the JCT Blue Book More Persuasive than a Law Review Article? (4/27/21)

Tax procedure fans will know the key role played by the Joint Committee on Taxation, here and Wikipedia here.  It is a nonpartisan committee with deep staff to serve the important role of advising Congress, principally through its tax writing committees (House Ways and Means and Senate Finance) on tax legislation.  It is fair to say that the JCT is deeply involved in the nooks and crannies of major tax legislation.  After major tax legislation, the JCT will often prepare a report, referred to as the Blue Book, summarizing the tax legislation, often adding some nuance not addressed directly in the text of the legislation.  In the past, the Blue Book was frequently used by the IRS, the public and the courts as a guide for interpretation of the legislation.  Although the Blue Book is not legislative history because published after the legislation, it is about as close as it gets to legislative history.  Nevertheless, Justice Scalia claimed the Blue Book was no more relevant and persuasive than a law review article.  United States v. Woods, 571 U.S. 31,47-48 (2013).  The Tax Court adopted the key language from this quote.  Rafizadeh v. Commissioner, 150 T.C. 1, 6. n4 (2018) (“the Blue Book is not legislative history but, ‘like a law review article, may be relevant to the extent it is persuasive, ’"quoting United States v. Woods, 571 U.S. 31, 47 2013)).  Deference fans will note that, as Justice Scalia explained it, that sounds like Skidmore deference.  Skidmore v. Swift & Co., 323 U.S. 134 (1944).  Skidmore may be no deference at all.  See Really, Skidmore "Deference?" (Federal Tax Procedure Blog 5/31/20; 6/3/20), here.

Yesterday, I was rooting around in the Attorney General’s Manual on the Administrative Procedure Act (1947), web format here and pdf format here.  The APA was enacted in 1946.  On further research, I found that the Supreme Court had often “deferred” to the Manual.  E.g., Kisor v. Wilkie, 588 U.S. ___, 139 S.Ct. 2400, 2420 (2019) (plurality opinion, “some deference because of the role played by the Department of Justice in drafting the legislation.”; citing Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 435 U. S. 519, 546 (1978)); Steadman v. SEC, 450 U.S. 91, 102 n. 22 (1981) (also citing Vermont Yankee); and see also Robin J. Arzt, Recommendations for a New Independent Adjudication Agency to Make the Final Administrative Adjudications of Social Security Act Benefits Claims, 23 J. Nat'l Ass'n  Admin. L. Judges 267, 330-31 (2003) (citing Vermont Yankee and Steadman and stating that the Manual is part of the legislative history of the APA;” the statement of its status as legislative history is perhaps hyperbole in today’s refined notions of legislative history, but it does come close).

So here are my questions:

Chevron In Oral Argument in Sanchez v. Mayorkas (4/23/21)

On April 19, oral argument was held in Sanchez v. Mayorkas (Sup Ct No. 20-315), see transcript here.  The case was not a tax procedure case; nor was it even a tax case.  But the discussion was interesting and indicates some some confusion about Chevron.  I just make several comments about the discussion.  

First, the Government attorney (Tr. 32, 38, 40, 41, 54) that the Government's reading of the statute at Step Two was the “better reading” so that Chevron deference is  inapplicable.  For that reason, the Government attorney asks that the Court say the Government reading is better and “say no more.”  That is true.  If the Court finds that the Government’s interpretation is the better interpretation, Chevron does not apply.  Chevron applies in an outcome determinative sense only if the Court thinks another interpretation is “better” but the Government’s interpretation of the statute is reasonable.  Some of the Justices’ questions indicate confusion about that correct proposition.

Second, Justice Breyer said (Tr. 37): “aren't we in the world where there is  ambiguity in the statute and we have to get into the Chevron issue”?  The answer is no for the reason noted above.  If the agency interpretation is the better interpretation of the ambiguous statutory text, Chevron deference is not needed and does not apply.  Some of the Justices' discussion indicates confusion on that point.

Third, this confusion led to Brand X issue confusion.  Justice Alito asked (Tr. 40) “Well, but, if we say -- if we say the government's -- the government has the better interpretation, won't that foreclose you from later changing your position?”  Under Brand X, the Government can change an interpretation to an interpretation that is reasonable, thus attracting Chevron deference even if not the better interpretation.  The Government answer nails it, saying that under Brand X: “the agency could theoretically decide that, although it's taken a position, it has had this position since 1991, it -- it studied the question further and concluded that the statute was ambiguous and that it should resolve that ambiguity by taking a different interpretation.”  I think in context he meant a different reasonable interpretation since an unreasonable interpretation flunks Chevron Step Two.

More Thoughts on APA and Legislative and Interpretive Regulations Inspired by Recent Cases (4/8/21; 4/11/21)

As readers of this blog know, I have recently been considering and even obsessing over the distinction between legislative and interpretive regulations for purposes of the APA and Chevron deference.  Just in the past few days, I have focused on four opinions that I think highlight the confusions in this area.  The first three are decisions by three different Circuits on the issue of the validity of a recently adopted regulation including bump stocks within the statutory definition of “machineguns,” thus prohibiting their possession with potential criminal penalty consequences.  Those decisions are:

• Guedes v. BATFE, 920 F.3d 1 (D.C. Cir. 2019), cert. denied, 140 S. Ct. 789 (2020), D.C. Cir. here and GS here; 
• Aposhian v. Barr, 958 F.3d 969 (10th Cir. 2020), 10th Cir. here and GS here; and
• Gun Owners of Am., Inc. v. Garland, 992 F.3d 446  (6th Cir. 3/25/21), 6th Cir. here; GS here.  [Note that the lengthy decision was published on the same day as oral argument.]

The regulation was sustained in Guedes and Aposhian as a Chevron-entitled interpretation of the ambiguous statutory text; the regulation was invalidated in Gun Owners as (i) violating separation of powers and the rule of lenity and (ii) in any event not passing Chevron analysis as a reasonable interpretation of ambiguous statutory text.

The Fourth Opinion, a truly monster opinion, was an en banc opinion in Brackeen v. Haaland, 994 F.3d 24 (5th Cir. 4/6/21), 5th Cir. here; GS here.  The opinions are, in the aggregate, 325 pages long and the portions of the opinions that represent the en banc opinion are scattered in two separate opinions – that of Judge Dennis and that of Judge Duncan.  Here is the Court’s description:

Dennis, J., delivered the opinion of the en banc court with respect to Parts II(B), II(C), and II(D)(2) of his opinion (except as otherwise noted in the Per Curiam opinion, supra). 

Duncan, J., delivered the opinion of the en banc court with respect to Parts III(B)(1)(a)(i)–(ii), III(B)(1)(a)(iv), III(B)(2)(a)–(c), III(D)(1), and III(D)(3) of his opinion (except as otherwise noted in the Per Curiam opinion, supra).

The exercise of working through that stuff to figure out what the en banc holdings were would be daunting indeed.  So, the Fifth Circuit helpfully offers the first opinion, a per curiam opinion, to provide a guide to the en banc opinions embodied in the opinions with the named authors.  Fortunately, for purposes of this blog entry, I and readers interested in the legislative – interpretive distinction do not have to dig through all of that morass.  In relevant part, Judge Dennis’ opinion has the en banc opinion at outline paragraph II.D.2., titled The Scope of the BIA’s Authority, on pages 138-147, beginning here.

I offer this high level summary with limited citations (I am revising my article on the subject for posting to SSRN later).  I begin with what I think should be the starting point for discussing the issue—the original meaning of the APA distinction between legislative and interpretive regulations and how that original meaning played out in deference.  I will then address the cases which evidence the distortions and distractions that have obscured the original meaning.

Original Meaning of the APA

On U.S.C. Titles, Positive Law and NonPositive Law (4/5/21)

In today’s weekly offering of Bryan Camp’s series on Lessons from the Tax Court, Passport Revocation Act Differs From Codification (Tax Prof Blog 4/5/21), here, Bryan gets into the difference between laws and codifications.  The Fast Act of 2015 imposed a regime for encouraging taxpayers to deal with delinquent taxes by imposing potential passport revocation or denial consequences for tax debt that the Treasury certifies to the State Department as being seriously delinquent.  The regime consists of  two key separate acts:

(i) an act by the IRS (the certification to the State Department of seriously delinquent tax debt, which Bryan says is “the Act is codified in title 26”) and 

(ii) an act by the State Department after receiving the IRS certification (action to revoke or deny a passport, which Bryan says "is codified in title 22").

For those not steeped in some of the arcana of legislation, there is a key difference between U.S.C. titles that have been enacted into positive law and those that have not been enacted into positive law.  Those titles that have been enacted as positive law are the law; those  that have not been enacted into positive law are not the law but the codification is “prima facie” evidence of the law.  See U.S.C. § 204(a) (Title 26 compilations “establish prima facie the laws of the United States,” but “whenever titles of such Code shall have been enacted into positive law the text thereof shall be legal evidence of the laws therein contained.”).

Titles 26 and 22 have not been enacted as positive law.  See Office of Law Revision United States Code page identifying the Titles enacted as positive law with an asterisk, here.  In the case of Title 26, the law is the Internal Revenue Code of 1986 and is not its compilation into Title 26.  See 1 U.S.C. § 204, Notes (“The sections of Title 26, United States Code, are identical to the sections of the Internal Revenue Code.”)

What does all this mean in the real world?  Perhaps not much, but focusing on Bryan’s statement that the tax provision of the FAST Act was codified into Title 26, the statement is true but a more accurate statement is that the FAST Act enacted the provision into the IRC 1986 which is then codified into Title 26.

Readers wanting to chase down more on this might review Will Baude’s piece, Reminder: The United States Code is not the law (Volokh Conspiracy in WAPO 5/15/17), here.  Baude cites an article that “rocked my world when I was in law school:” Tobias Dorsey, Some Reflections on Not Reading the Statutes, 10 Green Bag 282 (2007), here.  (Readers of this blog can determine for themselves whether the article rocks, or Baude's susequent one, rocks their worlds; I have to say that I got onto this by reading Baude's and then Tobias's article and, while it did not rock my world, it sent a slight tremor through it.)

I discuss this issue in my book, Federal Tax Procedure (Practitioner Ed. 2020), beginning on page 28, here.

In the 2021 edition, I plan to replace the paragraph on p. 29 beginning “One question”  with the following two paragraphs (footnotes omitted and subject to revision by time of publication in August 2020):

My Distillation of the Legislative - Interpretive Regulation Distinction (4/3/21)

In further considering the legislative-interpretive distinction, it occurred to me that one way to distill the essence of the distinction is as follows (when I cite Chevron, I refer to the Chevron framework):

For a valid legislative regulation, two things are required:  (i) Congress must have enacted express and specific authority to the agency to make the law (with an appropriate intelligible principle limiting the delegation); and (ii) the agency must have promulgated the legislative regulation pursuant to that authority.  Accordingly, if the agency says it is invoking its express and specific authority in the statute to make law, court review of the regulation tests only whether the regulation is within the scope of the delegated authority.  If so, the regulation is the law, just as if it were a statute.

For a valid interpretive regulation, Congress must have conferred upon the agency express or implied authority to interpret ambiguities within statutory text.  If the agency is invoking its express or implied interpretive authority, then, under Chevron, court review tests only whether the interpretation in the regulation is reasonable within the scope of the ambiguity in the statutory text. 

These tests turn upon  what the agency has done – (i) exercise its legislative regulation authority (for which it must cite an express delegation of legislative authority, such as § 1502 for consolidated returns); or (ii) exercise its express or implied authority to interpret statutory text.  If Congress has delegated the agency legislative authority, the agency would want to specifically invoke its legislative authority because, by invoking legislative authority, the regulation is the law and has the force of law just as if it were a statute.  If the agency has no such legislative authority or doesn’t invoke legislative authority in promulgating the regulation and the regulation only interprets ambiguous statutory text, the regulation is an interpretive regulation which, under Chevron, controls (note the conjunctive) (i) if the interpretation is reasonable within the scope of ambiguity in the text of the statute and (ii) the court defers to the agency interpretation even though the court believes there is a better reasonable interpretation.  (It the court interprets the same as the agency, there is no deference to the agency interpretation, there is no deference; if the court is in a state of equipoise as to the better interpretation and defaults to the agency reasonable interpretation, that too is not deference because the court is not substituting the agency interpretation for its own better interpretation.)