Chevron and Equipoise In Statutory Interpretation (5/26/22)

In FDRLST Media, LLC v. NLRB, ___ F.4th ___, Slip Op. 13 n. 8 (3rd Cir. 5/20/22), CA3 here and GS here, in a nontax case, Judge Matey said in a concurring opinion:

In short, deference arises in the rare case when no superior statutory reading can be found, not when an inferior construction competes with a best reading.

Judge Matey also said in footnote 8 (somewhat cleaned up by omitting some quotation marks and some case citations; however boldface is supplied by JAT):

   n8 * * * * [The potential for deference] is decreased with a searching application of the statutory text, after which a “court will almost always reach a conclusion about the best interpretation,” leaving “no need to adopt or defer to an agency’s contrary interpretation.” Kisor, 129 S. Ct. at 2448 (Kavanaugh, J., concurring). In other words,” the interpretation requirement of Chevron, “taken seriously, means that courts will have no reason or basis to put a thumb on the scale in favor of an agency.” Id.

As I read that, Judge Matey says that Chevron deference applies only in a state of interpretive equipoise; conversely, if the court determines the better interpretation, the court applies that interpretation without deference.

In my article, John A. Townsend, The Report of the Death of the Interpretive Regulation Is an Exaggeration 120-121 (SSRN http://ssrn.com/abstract=3400489 December 14, 2021), I discussed the application of Chevron when a court is in equipoise as to the legal interpretation. By equipoise, I mean at least two equally persuasive interpretations, one of which is an agency interpretation entitled to application of the Chevron framework (say, an interpretive notice and comment regulation). Here is the discussion (pp. 120-121, footnotes omitted and boldface in the original):

Adjudications of Agency Actions and the Right to Jury Trial (5/21/22; 6/26/24)

Added 6/26/24 3pm: The Supreme Court affirmed and remanded the case to the Fifth Circuit. SEC v. Jarkesy,  603 U. S. ____ (2024), here. The Court held (per the syllabus): “When the SEC seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial.” The jury trial must occur in the federal district court.

I don't know if readers have paid any attention to the Fifth Circuit's decision in Jarkesy v. SEC. 34 F. 4th 446 (5th Cir. 5/18/22), CA5 here and GS here. Jarkesy is not a tax case but, I think, might have potential implications in Tax Court cases.  Jarkesy seems to be driven by fear of the administrative state that can be mitigated by constitutional generalities in service of ideology. If that were all that was involved and did not at least potentially implicate tax procedure issues, I would not discuss it here. But I do have concerns about tax procedure. I apologize to readers if my concerns are not fully fleshed out here, but I would appreciate any readers' contributions to my education.

Judge Jennifer Walker Elrod for the majority offers a summary in the opening (pp. 1-2):

            Congress has given the Securities and Exchange Commission substantial power to enforce the nation's securities laws. It often acts as both prosecutor and judge, and its decisions have broad consequences for personal liberty and property. But the Constitution constrains the SEC's powers by protecting individual rights and the prerogatives of the other branches of government. This case is about the nature and extent of those constraints in securities fraud cases in which the SEC seeks penalties.

            The SEC brought an enforcement action within the agency against Petitioners for securities fraud. An SEC administrative law judge adjudged Petitioners liable and ordered various remedies, and the SEC affirmed on appeal over several constitutional arguments that Petitioners raised. Petitioners raise those same arguments before this court. We hold that: (1) the SEC's in-house adjudication of Petitioners' case violated their Seventh Amendment right to a jury trial; (2) Congress unconstitutionally delegated legislative power to the SEC by failing to provide an intelligible principle by which the SEC would exercise the delegated power, in violation of Article I's vesting of "all" legislative power in Congress; and (3) statutory removal restrictions on SEC ALJs violate the Take Care Clause of Article II. Because the agency proceedings below were unconstitutional, we GRANT the petition for review, VACATE the decision of the SEC, and REMAND for further proceedings consistent with this opinion.

The best commentary I have seen on Jarkesy is Joe Patrice, Fifth Circuit Blows Up SEC Because The Word 'Ponzi' Is Nowhere In The Constitution (Above the Law 5/19/22), here. This commentary starts as follows:

Every 1L lecture has that kid who raises their hand and poses some wacky hypo and asks if this brain nugget that they've come up with for the first time actually upends 250 years of collected jurisprudence on the subject that they didn't actually read about for today's class.

That kid is now on the Fifth Circuit.

Fresh off telling private companies employees are enjoined from enforcing any rule if an employee even asserts that it's religious, and attempting to insert itself at the head of the Department of Defense, the Fifth Circuit Mental Gymnastics Squad offered up another perfect 10 with Jarkesy v. SEC.

I found that a particularly apt introduction to the Jarkesy majority opinion.   I will let Judge Elrod's majority summary quoted above set up this discussion. Focus on (1) of the summary. Tax administration has no analog to SEC in-house adjudication since tax-related adjudication is in the Tax Court (a legislative court), the district courts (Article III courts), and the Court of Federal Claims (Article I courts). However, Judge Elrod's stated concern was the lack of a jury trial for types of issues that historically could be tried to a jury and thus potentially within the ambit of the Seventh Amendment. Judge Elrod mentioned particularly penalty issues (fraud) that historically was within the ambit of jury trials when the Seventh Amendment was adopted. If jury trial is the real concern, whether the adjudicative proceeding is tried in an executive function (such as the SEC) or in a legislative court (such as the Tax Court) should not make a difference, for it is the lack of jury trial that is the issue. My question is whether that is or could be an issue with respect to the Tax Court's various jurisdictions.

Of course, in most tax contexts, a taxpayer can get a jury trial on tax issues triable to a jury by proceeding by refund (meeting jurisdictional requirements) or awaiting a collection suit. So, perhaps the Government could argue that, by using a Tax Court remedy (either deficiency or CDP or some other), the taxpayer has waived his "right" to jury trial, so that the issue does not arise for Tax Court proceedings.

9th Circuit Holds That Copy of Unfiled Return Delivered to Examining Agent is Filing of Return for Statute of Limitations Purposes (5/12/22; 3/11/23)

Caveat, by Order filed 11/10/22, the Ninth Circuit vacated this decision discussed below and ordered rehearing en banc. 9th Cir. here; TN here. On 3/10/23, the Ninth Circuit en banc held that the "copy" of the allegedly timely filed return was not a filing to start the statute of limitations.  See Seaview Trading, LLC v. Commissioner, 62 F.4th 1131 (9th Cir. 3/10/23), CA9 here, and GS here. and my blog on it, 9th Circuit En Banc Holds That Filing Tax Returns for State of Limitations Purposes Means Proper Filing as Prescribed in Regulations (Federal Tax Procedure Blog 3/11/23), here.

In Seaview Trading, LLC v. Commissioner, 34 F.4th 666 (9th Cir. 5/11/22), CA 9 here and GS here, the Court (majority panel) held that filing for starting a relevant statute of limitations (there TEFRA § 6229(a), for partnership return) is (from the summary)

when (1) an IRS official authorized to obtain and receive delinquent tax returns informs a partnership that a tax return is missing and requests that tax return, (2) the partnership responds by giving the IRS official the tax return in the manner requested, and (3) the IRS official receives the tax return, then the partnership has "filed" a tax return for purposes of § 6229(a).

The relevant facts and law, highly summarized, are: (1) pursuant to the regulations and procedures, the partnership return was required to be filed timely at the relevant IRS service center; (2) the IRS service center did not receive a timely filed 2001 partnership return; (3) the partnership did not timely file (or could not prove that it timely filed) an original 2001 partnership return (see JAT Note #2 below); (4) the IRS in due course audited the partnership for 2001; (5) in the course of the audit, the IRS agent requested and received a copy of the 2001 partnership return and had that copy in his possession by January 2006; and (6) in October 2010 (more than three years after the agent had the return in his possession for use in the audit), the IRS issued the partnership FPAA, noting that no return was filed but that a copy of the return was provided "during the examination;" the FPAA reduced the reported loss of $35 million to zero. [As an aside, likely a bullshit tax shelter, but that is only inference from the large loss disallowed.]

The partnership filed a petition in the Tax  Court. The Tax Court held that "(1) Seaview did not "file" the tax return by faxing a copy to the IRS revenue agent or by mailing a copy to the IRS counsel, and (2) in any case, the copies of the 2001 Form 1065 sent to the IRS in 2005 and 2007 were not "returns." Seaview and the IRS then settled all their disputes but preserved Seaview's right to appeal the Tax Court's denial of summary judgment."

The issue was whether a return (said to be a copy of the original return) delivered to an agent in the audit was a delinquent filing or whether the delinquent return must be filed with the service center. The Court held that the regulations requiring filing with the service center applied only to timely filed returns, that there are no regulations applying to filing delinquent returns and that "no IRS regulation prohibits the filing of untimely returns with a requesting IRS official." Based on that, the Court held "we hold that a delinquent partnership return is "filed" under § 6229(a) when an IRS official authorized to obtain and process a delinquent return asks a partnership for such a return, the partnership delivers the return to the IRS official in the manner requested, and the IRS official receives the return."

Continuing Legal Education - On the Dubitante Opinion (5/4/22; 2/1/24)

I updated my legal education today in reviewing a “dubitante” opinion on the issue of prosecutorial immunity. Wearry v. Foster, ___ F.4^th ___, ___, Slip Op. 20 (5^th Cir. 5/3/22), Ho, dubitante, here. The subject of the majority opinion is outside the area of tax procedure, but the dubitante opinion can be issued in any legal context. So, I write about this gap filled in my legal education. (I am somewhat comforted on my ignorance in that a law review article notes that “Judges rarely write dubitante opinions or use the term, and informal polling suggests not many legal scholars are aware of the practice. “  Jason J. Czamezki, The Dubitante Opinion, 39 Akron L. Rev. 1 (2006), here (this is a good resource for more than most would want to know about dubitante opinions).

One place I often turn to first (but not last) on things that are either new to me or fuzzy to me is Wikipedia. The Wikipedia on the dubitante opinion is here. I liked the following by Judge Friendly, a giant among appellate judges, in  Feldman v. Allegheny Airlines, Inc., 524 F.2d 384, 393 (2d Cir. 1975): "Although intuition tells me that the Supreme Court of Connecticut would not sustain the award made here, I cannot prove it. I therefore go along with the majority, although with the gravest doubts."