Petition for Cert in Whirlpool, SG Waiver of Response, and Several Amici Arguing for Cert (8/5/22; 8/16/22)

The Sixth Circuit recently called out Whirlpool’s bullshit tax shelter. Whirlpool Fin. Corp. v. Commissioner, 19 F.4th 944 (6th Cir. Dec. 6, 2021), CA6 here and GS here, affirming 154 T.C. 142 (2020), here; see Whirlpool’s BS Tax Shelter Fails in the 6th Circuit; on Statutory Interpretation and Legislative History (12/7/21; 2/22/22), here. Not surprisingly, given the stakes, Whirlpool filed a petition for certiorari. See the Supreme Court docket entries here for handy links to the documents I discuss here.

Here is the trajectory of filings from the docket entries:

• On June 30, 2022, Whirlpool filed its petition. The question presented is (without the context fluff in the petition:

Whether the divided Sixth Circuit properly held—in conflict with precedent of this Court and settled administrative-law principles—that a statute that is conditioned on regulations delineating its reach may be enforced without regard to those regulations?

• On August 3, 2022, the United States through the Solicitor General (SG) filed its one-sentence Waiver:  “The Government hereby waives its right to file a response to the petition in this case, unless requested to do so by the Court.”  [Wow! Take that Whirlpool; when I was with DOJ Tax Appellate, I don’t remember any case where we did that rather than filing a brief in opposition; I interpret the waiver as saying that the petition is not of sufficient merit to warrant a brief in opposition; there has to be a backstory there.]
  
  
• On August 3 and 4, three amicus briefs were filed on behalf of (i) the National Association of Manufacturers, (ii) a group of major national accounting firms (PWC, Deloitte Tax LLP, and KPMG LLP; and (iii) a group consisting of the Silicon Valley Tax Directors Group, National Foreign Trade Council, Information Technology Industry Council, and Technet. 

Only one of the amicus briefs (# iii above) states the question to set up the arguments in the amicus brief, by just quoting the question presented in the petition. I thought that a bit odd that two of the amicus briefs left out the question presented for which they were arguing cert should be granted. But, what do I know? 

What is all the kerfuffle about, particularly when the SG has given the petition the back of her hand? 

My quick cut is that the argument for cert is that, when the statute requires regulations (which the IRS has promulgated), industry can do anything they want so long as they do not run afoul of the express language of the regulation (at least as Whirlpool and amici read the regulation), even if it is clear from normal statutory interpretation that the statute covers the conduct in question. Here is the relevant excerpt from the Sixth Circuit’s majority opinion (pp. 952-953):

We acknowledge that § 954(d)(2) states that, if the provision’s two conditions are met, then “under regulations prescribed by the Secretary” the provision’s two consequences “shall” follow. And Whirlpool makes various arguments as to those regulations, seeking a result different from the one mandated by the statute itself. But the agency’s regulations can only implement the statute’s commands, not vary from 953*953 them. (The Tax Court read the “under regulations” text the same way. See Op. at ___ (“The Secretary was authorized to issue regulations implementing these results.”)). And the relevant command here—that Lux’s sales income “shall constitute foreign base company sales income of” Lux—could hardly be clearer.

Our dissenting colleague—in a thoughtful opinion, in this difficult case—reads the “under regulations” text to condition the two commands (the “shall[s]”) that follow. But that reading would delegate to the Secretary unfettered discretion to determine whether any consequences follow when the two conditions of § 954(d)(2) are met. That would amount to a power to do much more than “fill up the details.” Wayman v. Southard, 23 U.S. (10 Wheat.) 1, 43, 6 L.Ed. 253 (1825) (Marshall, C.J.). The dissent also argues that our reading of § 954(d)(2) would allow income from sources other than sales—for example, interest income—to be treated as FBSCI. But perhaps here the acronym gets in the way. Section 954(d)(2) twice refers not merely to “income,” but to “foreign base company sales income”—which makes clear enough the provision is confined to income from sales. We therefore agree with the Tax Court that, under the text of the statute alone, “[Lux’s] sales income is FBCSI that must be included in petitioners’ income under subpart F.” Op. at 949.

Given the clarity of the reasoning, all the Supreme Court can do by taking certiorari is to seize yet another opportunity to mess up the law. Just my cut. 

I am tagging this blog entry with phantom regulations because I think there is a relationship between phantom regulations and the issue presented. I may say more on that later. 

Added 8/16/22 at 9:30 am:  I said that I might say more on the "phantom regulations" subject.  But I find that someone has already discussed that.  Andy Grewal, The Sixth Circuit Conjures Phantom Regulations (Notice and Comment 2/21/22), here (caveat, though, take Grewal's claims about tax exceptionalism with skepticism).  And, also, I find that I had written something on it (citing Grewal's article) in Whirlpool's BS Tax Shelter Fails in the 6th Circuit; on Statutory Interpretation and Legislative History (12/7/21; 2/22/22), here.