DC Circuit Case on IRS Use of Glomar FOIA Response Neither Admitting Nor Denying (7/26/22)

I was reading David Lat’s article, My Latest Theory About The SCOTUS Leaker (Original Jurisdiction 7/26/22), here.  Lat's theory is that the Politico authors publishing the original article about the Supreme Court draft opinion leak in Dobbs, with a link to the draft opinion, do not know the leaker (after the opening in Lat's article), he calls the person "The Leaker."  Lat offers the steps behind this theory, some of which sound cloak and dagger or even conspiracy theories. Nevertheless, it is a good read; well at least an interesting read.  

Among the steps Lat reports he took to confirm his theories

I contacted Gerstein and Ward [the Politico authors] with my theory that they don’t know the name of their source. I invited them to reassure me, even off the record, that they do know The Leaker’s name, in which case I wouldn’t float my theory. They didn’t do that; instead, they put me in touch with Politico spokesperson Brad Dayspring, who emailed me: “Given the sensitivity of the matter and the importance of protecting sources and methods, we are going to decline to comment—as I am sure that you can appreciate.”

This struck me as something like a so-called Glomar response when information is sought through a legal process (say FOIA), and there is an exemption from disclosure under circumstances that the law permits the agency to make a nonresponse.  That is on my mind because I am updating my Federal Tax Procedure Book editions for 2022 (hopefully will be published in early August), I just incorporated a recent case, Montgomery v. IRS, 40 F. 4th 702 (D.C. Cir. July 19, 2022), DCCir here and GS here.  In Montgomery, the taxpayers believe that someone was a whistleblower concerning their investment in a bullshit tax shelter long ago called out, with taxes and penalties visited on the Montgomerys.  The Montgomerys then pursued a long-running quixotic quest via FOIA to find out who the whistleblowers were.  (It is unclear what they would do with the identities, but I suspect it would not be good for the whistleblowers.)  I wrote on an earlier district court opinion in the ongoing saga, Bullshit Shelter Taxpayers Continuing FOIA Litigation to Identify Informants Turning Them In to IRS (Federal Tax Procedure Blog 3/30/20), here.  In relevant part, the IRS gave a Glomar response to the FOIA request.  I thought I would offer the portion of the FTPB as revised to include the new Montgomery case (I omit footnotes except for the Montgomery case which I quote from):

Teaching Tax Through Movies -- Loverly (7/11/22)

Please note that I added toward the end a comment from Robert Steinberg with a tax parody on a My Fair Lady song.

I was in my former life an Adjunct Professor at University of Houston Law School where I taught courses in Tax Procedure and in Tax Crimes.  Often in the courses, I would mention My Cousin Vinny to illustrate (often by stretch) some point relevant to the classes.  

This offering caught my attention.  Alice G. Abreu (Temple), Teaching Tax Through Film Is Not As Crazy As It Sounds, 19 Pittsburgh Tax Rev. 183 (2022), here.  I was intrigued to see what Professor Abreu offered her students in the way of teaching tax law through the movies. I offer the relevant portions (pages 205-207 of the article (pages 24-26 of the pdf), footnotes omitted).

The films for this course were chosen for a breadth of genres and eras from the 1960s to last year. Some were animated; some were about superheroes; some were musicals. I aspired for every student to enjoy at least one film, and I hope they enjoyed many more. At the same time, an underlying need was to choose films that highlight specific tax topics. Although all films raise important tax issues, some are more clearly on point for the topics we covered.

4th Circuit Holds the Tax Partnership Receiving an Administrative Summons is Different Than its Representative for Purposes of § 7602(d) (7/9/22; 7/12/22)

In Equity Inv. Assocs., LLC v. United States, 40 F.4th 156 (4th Cir. July 8, 2022), CA 4 here and GS here, the Court held that, for purposes of the § 7602(d) limitation on IRS administrative summonses after a criminal referral to DOJ, the person investigated for whose records a third party (bank) was summonsed (in this case a syndicated conservation easement tax partnership) is not the same as a related person (the partnership representative under 26 C.F.R. §§ 301.6223-1) who was under criminal referral, at least in part arising from the same set of facts. See the discussion at Slip Op. 8-11 under the heading “A. “Person” in § 7602(d) does not include a legal person's agents.”  The Court rejects the suggestion that anything other than an actual referral of the person to whom the summons is issued will meet the terms of the statutory limitation. See Slip Op. 11-14, saying at Slip Op. 12:.

            Equity [the summonsed tax partnership] must show evidence that a referral existed before the IRS summons, because the IRS can generally use its summons power to further a criminal investigation. § 7602(b). The summons power only ends “at the point where an investigation was referred to the Justice Department for prosecution.” United States v. Morgan, 761 F.2d 1009, 1012 (4th Cir. 1985). And a Justice Department referral is not simply some generalized suspicion of criminal activity, but a specific procedural mechanism used to share information. Id. (describing a Justice Department referral as a “mechanical test”).

These are pretty straightforward holdings that I am surprised were seriously disputed.  Hence, I think they require no further discussion for the prototypical reader of this blog (as I imagine that reader). But I note that the court makes some statements in the opinion that on their face seem noteworthy or curious. I will just list them without further comment:

 1. Slip Op. 2 n1:

   n1 The IRS has broad powers to investigate criminal tax fraud, but it lacks the power to prosecute tax fraud. So if an IRS criminal investigation discovers evidence of criminal activity, the IRS must refer the case to the Justice Department for prosecution. Once referred, the IRS typically plays a continued role in investigating and prosecuting the case.

2. Explaining how the tax partnership inflates the value of the donated easement (Slip Op. 3 n3):

   n3 This inflation is possible because the easement's value is often not calculated based on the land's recent purchase price but based on the value of its highest and best use. See PBBM-Rose Hill, Ltd. v. Comm'r, 900 F.3d 193, 209 (5th Cir. 2018). So the limit on the valuation is little more than the imagination of the appraiser (who may be in on the scheme), tempered only by the fear of an audit. See generally Mary Clark, Greedy Giving, Bad for Business: Examining Problems with Arbitrary Standards in Appraising Conservation Easements, 51 U. Mem. L. Rev. 479 (2021).

Supreme Court NonTax Opinion Applying the Major Questions Doctrine with Sound Bites (7/9/22)

There has been a lot of buzz in the legal community about the Supreme Court's most recent attack on the administrative state in West Virginia v. EPA, 597 U. S. ____, 142 S. Ct. 2587 (6/30/22), SC here, and GS here. The case is not a tax procedure case but deals with fundamental statutory interpretation concepts related to agency rulemaking, which implicates Treasury and IRS rulemaking. The Supreme Court majority deployed what has become known as the "major questions doctrine," naming it for the first time although using the concept was used in cases such as FDA v. Brown & Williamson Tobacco Corp., 529 U. S. 120 (2000) and King v. Burwell, 576 U. S. 473 (2015) (a tax sort of case). 

 The majority opinion was authored by Chief Justice Roberts, joined by 5 other Justices (the conservative Justices, with a concurring opinion by Justice Gorsuch). Chief Justice Roberts frames the issue:

             The Clean Air Act authorizes the Environmental Protection Agency to regulate power plants by setting a "standard of performance" for their emission of certain pollutants into the air. 84 Stat. 1683, 42 U. S. C. §7411(a)(1). That standard may be different for new and existing plants, but in each case it must reflect the "best system of emission reduction" that the Agency has determined to be "adequately demonstrated" for the particular category. §§7411(a)(1), (b)(1), (d). For existing plants, the States then implement that requirement by issuing rules restricting emissions from sources within their borders.

            Since passage of the Act 50 years ago, EPA has exercised this authority by setting performance standards based on measures that would reduce pollution by causing plants to operate more cleanly. In 2015, however, EPA issued a new rule concluding that the "best system of emission reduction" for existing coal-fired power plants included a requirement that such facilities reduce their own production of electricity, or subsidize increased generation by natural gas, wind, or solar sources.

            The question before us is whether this broader conception of EPA's authority is within the power granted to it by the Clean Air Act.

Readers might want to consider Chevron v. NRDC, 467 U.S. 487 (1984) where the Supreme Court applied deference to agency interpretation of the statutory term "stationary source." As readers of this blog surely know, deference to reasonable agency interpretations of ambiguous statutory terms in some cases has been a feature of statutory interpretation since well before the APA in 1946. Chevron just offered a framework for determining when deference to reasonable agency interpretations would apply. 

In WV v EPA, Justice Roberts' majority opinion did not get to the Chevron deference framework because it concluded that the agency interpretation was beyond any delegation Congress could have intended. Basically, the agency interpretation was a leap too far for the majority, who apparently wanted to avoid the Chevron framework. (Because the major questions doctrine is predicate to deploying Chevron, some call this Chevron Step Zero.)