Summary of Tax Crimes for Tax Procedure Class (3/31/22)

This past Tuesday, I was a guest lecturer at Jim Malone’s UVA Law Class on Tax Procedure.  My subject was tax crimes.  I circulated in advance a pdf summary of the topic here (which I have changed slightly as indicated in red).  The summary is taken from the corresponding section of my Federal Tax Procedure Book Practitioner Edition but stripping out the footnotes and modifying the text as I thought appropriate).  Readers of this blog can download the summary here.  SSRN links to download either the Student or Practitioner Editions of the book are here. 

Rationality and Chevron (3/22/22)

I am reading Steven Pinker’s book Rationality: What It Is, Why It Seems Scarce, Why It Matters. (Penguin 2021) here, to lead the discussion in a book club.  At the same time, I am preparing an outline—yet another-- on Chevron deference.  The two exercises (reading Pinker’s Rationality and trying to make sense of Chevron deference) have converged. 

Chevron deference, as normally articulated, requires a court sometimes (at least as a conceptual possibility) to apply a “not-best” but “reasonable” agency interpretation of a statute in lieu of what the judge believes is the best interpretation.  In order to apply the best interpretation in lieu of the agency not-best interpretation, a judge can use several escape routes where the judge can fuss around about Chevron and still apply the judge’s best interpretation.  The two key ways built into the Chevron Two-Step Framework to avoid deferring to a “not-best” agency interpretation is (i) at Step One, to find the statutory text not ambiguous and (ii) at Step Two, to find the agency interpretation unreasonable.  There are other ways to avoid as well, such as the “major questions” doctrine and interpretations not within the agency’s expertise where the judges read the tea leaves to conclude that surely Congress did not intend the agencies should have primacy of interpretation authority.  E.g., King v. Burwell, 576 U.S. 473 (2015).

I will focus here on the escape hatches formalized in the Chevron Two-Step.

First, a judge can avoid the agency not-best interpretation by finding it unreasonable at Chevron Step Two.  Judges are trained to derive the best interpretation.  I think that is a judge's preference by education and practice.  I have wondered whether judges having a bias in favor of their own best interpretations might be motivated to find the agency not-best interpretations unreasonable.

Sixth Circuit Creates Circuit Conflict with Eleventh Circuit on Conservation Easement Regulations (3/15/22)

I recently discussed the Eleventh Circuit’s opinion in  Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021). 11th Cir. Invalidates Proportionate Sharing Regulations As Procedurally Arbitrary and Capricious for Failing to Address a Significant Comment (12/30/21; 12/31/21), here; and Regulations Interpreting Pre-1996 Code Provisions; Fixing Hewitt (1/6/22; 1/7/22), here. In Hewitt, the Eleventh Circuit invalidated the regulation § 1.170A-14(g)(6)(ii) requiring for charitable conservation donations of partial interests (such as easements) that the deed does not permit the donor to share in proceeds on extinguishment in the property values attributable to post donation improvements made by the donor. Yesterday, the Sixth Circuit sustained the regulation, thus creating a Circuit conflict between Hewitt and Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700 (6th Cir. 2022), CA6 here and GS here.

The Sixth Circuit in Oakbrook holds the regulations are procedurally valid, rejecting the reasoning of the Eleventh Circuit for holding the regulations procedurally invalid. The Sixth Circuit so holds in separate parts of the majority opinion that

(i)                addresses procedural regularity or “arbitrary or capricious” review (in 5 USC § 706 stated in disjunctive but often stated in conjunctive “arbitrary and capricious review) (28 F.4th at 710-718 and 720- 722); and 

(ii)              Chevron analysis (28 F.4th at 718-720). 

 (It is not clear to me why the Court sandwiched Chevron analysis between components of arbitrary and capricious review, but there is a lot of confusion in this general area.)

Justices Discuss Limited Ambiguity Role for Lenity and by Analogy Chevron Deference (3/11/22)

Ambiguity in statutory text can invoke two interpretive regimes.  Ambiguity in a criminal statute invokes the rule of lenity that says that if a criminal statute is ambiguous (or, sometimes, grievously ambiguous) the statutory ambiguity must be interpreted in the criminal defendant’s favor.  Ambiguity in a statute potentially subject to Chevron deference to an agency interpretation is interpreted consistent with the Chevron-entitled agency interpretation if it is reasonable (permissible).  Both interpretive regimes turn on ambiguous statutory text.

The question I address in this blog is what ambiguity means for both lenity and Chevron deference.  The only thing that I am sure of is that ambiguity in either context has no litmus test, thus is itself ambiguous.  As I note in The Report of the Death of the Interpretive Regulation Is an Exaggeration 75 n. 296 (SSRN December 14, 2021), here.

   n. 296 The word ambiguous in deference jurisprudence may be ambiguous. E.g., Aditya Bamzai, Delegation and Interpretive Discretion: Gundy, Kisor and the  Formation of Future Administrative Law, 133 Harvard L. Rev. 164, 187 n. 140 (2019) (“The question of how to identify ‘ambiguity’ is a long-running one in both administrative law and elsewhere,” citing scholarly discussions); Brett M. Kavanaugh, Book Review: Fixing Statutory Interpretation, 119 Harv. L. Rev. 2118, 2118-2119 (2016) (“judges often cannot make that initial clarity versus ambiguity decision in a settled, principled, or evenhanded way”); and Ryan D. Doerfler, The “Ambiguity” Fallacy, 88 Geo. Wash. L. Rev. 1110 (2020) (“‘ambiguity,’ is critically ambiguous.”)

Ambiguity in the ambiguity concept also infects lenity.  In Wooden v. United States, 595 U. S. ____ 2022 U.S. LEXIS 1421 (3/7/22), S.Ct. here and GS here, Justices Kavanaugh and Gorsuch, in concurring opinions, weighed in on the issue in ways that evoke the ambiguity discussion for Chevron deference and may offer some guidance in Chevron deference.

I start with Justice Gorsuch’s discussion on p. 9 of his concurring opinion which starts here.  Justice Gorsuch starts with a complaint about the gloss sometimes added to the lenity discussion that the ambiguity must not only be ambiguous but also must be “grievously ambiguous.”  I think he does a pretty good job in demolishing the spurious notion that there are two categories of ambiguity for lenity purpose – grievous in which lenity applies and non-grievous in which lenity does not apply.  Lenity applies where there is ambiguity, period.

This still does not help in determining what ambiguity is.  Is it just that the judge knows it when he or she sees it.  Justice Kavanaugh discusses that issue in his concurring opinion starting here.  Basically, Justice Kavanaugh argues that ambiguity in statutory interpretation for lenity purposes is a rare phenomenon.  Evoking the Chevron / Auer concepts hinging on ambiguity, Justice Kavanaugh says (p. 2 of concurring opinion):

Sixth Circuit Invalidates Notice Identifying Listed Transaction Requiring Reporting and Potential Penalties (3/3/22)

In Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 3/3/22) CA6 here and GS here, the Sixth Circuit panel held invalid IRS Notice 2007-83, 2007-2 C.B. 960, entitled “Abusive Trust Arrangements Utilizing Cash Value Life Insurance Policies Purportedly to Provide Welfare Benefits,” which identified the transactions as listed transaction requiring participants in various categories to report the transactions and be potentially subject to penalties if they did not. The company and two shareholders (“taxpayers”) failed to report. The IRS imposed § 6707A penalties for their failures. The taxpayers apparently made no claim that they did not know of the reporting requirement. Rather, they raised only administrative law issues under the Administrative Procedure Act (“APA”) that the IRS adopted the Notice requirement without following the APA’s procedural requirements or was otherwise outside the statutory authority. 

The Court of Appeals addressed only one issue raised by the taxpayers – whether the IRS’s promulgation of the reporting requirement with penalty regime by Notice, a subregulatory guidance document, was a legislative rule that could only be adopted by notice-and-comment rulemaking. The Court held that the reporting requirement was a legislative rule, thus requiring notice-and-comment rulemaking and thus invalid because the IRS had not undertaken notice-and-comment rulemaking.

I will not attempt a detailed analysis of the Court’s reasoning. One thing I am sure of is that there is a lot of confusion about what precisely is a legislative rule subject to or exempted from the notice-and-comment rulemaking requirement. I think the Court falls into some fallacies in that regard, but won’t go down that rabbit hole here because that is a long and complex discussion, principally because of misreadings of Chevron. 

My reading that, I think, is straight-line. 

 1.  Section 6707A(a), here, imposes the penalty for failure to file a return or statement providing information regarding a “reportable transaction” under § 6011.

2.  Section 6011(a), here, in turn provides

(a) General rule
When required by regulations prescribed by the Secretary any person made liable for any tax imposed by this title, or with respect to the collection thereof, shall make a return or statement according to the forms and regulations prescribed by the Secretary. Every person required to make a return or statement shall include therein the information required by such forms or regulations.