Tax Court Memo Opinion Denying Refund under § 6512 Offers Excellent Examination Question for Tax Procedure Class (12/13/24)

In Applegarth v. Commissioner, T.C. Memo. 2024-107, GS here and T.C. Dkt Sheet here at entry # 68, the Court decided that although Applegarth overpaid his tax liabilities for the years, the Tax Court could not order the refund under its authority for ordering refunds, § 6512, because applicable time limits were not met and there is no equitable tolling for these time limits. These are familiar issues in tax procedure, with varying results depending upon the particular time limits involved. Readers of this blog and fans of tax procedure already know the issues involved, although the results may vary. More importantly, from my perspective as an old tax procedure professor, the case presents the classic type of case that would frame the examinations I liked to give tax procedure students. I will address the teaching “lessons” at the end of the blog entry, but first I will go through the facts and resolution of the issues as presented in the case.

The facts are simple, at least relatively so for tax procedure cases. I copy and paste the FINDINGS OF FACT section (Slip Op. 3-4, footnote omitted): 

          Applegarth resided in Florida when he filed the Petitions in these cases.

          On April 15, 2015, the IRS granted Applegarth an extension to file his 2014 income tax return until October 15, 2015.

          On April 15, 2016, the IRS granted Applegarth an extension to file his 2015 income tax return until October 15, 2016.

          Over several years, beginning in 2014, Applegarth made payments towards his 2014 and 2015 tax obligations. He made all the payments either on or before the extended filing deadlines for the respective tax years.

          On June 24, 2019, Applegarth filed his 2014 tax return.

          On November 21, 2019, the IRS mailed the Notice of Deficiency to Applegarth.

          In March 2022 Applegarth sent an unsigned 2015 Form 1040, U.S. Individual Income Tax Return, to IRS counsel.

[*4]

Timeline of Events — 2014 Tax Year

Date	Description
Apr. 15, 2014	Applegarth made a payment of $49,000 for the 2014 tax year.
Apr. 19, 2014	Applegarth made a payment of $4,500 for the 2014 tax year.
Jan. 17, 2015	Applegarth made a payment of $19,500 for the 2014 tax year.
Oct. 15, 2015	Extended deadline for Applegarth to file 2014 tax return.
June 24, 2019	Applegarth filed his 2014 tax return alleging an overpayment for the year.
Nov. 21, 2019	IRS issued Notice of Deficiency for tax years 2014 and 2015.
Feb. 18, 2020	Applegarth timely filed Petition with Tax Court.

Guest Blog: Professors McGovern and Brewer on APA Status of Listed Transactions (12/12/24)

I offer the second of two guest blogs from Bruce McGovern, Professor teaching tax law at the South Texas College of Law Houston (school resume here) and Professor Cassady V. (“Cass”) Brewer teaching tax law at the Georgia State University College of Law (school resume here). The first offering, titled Guest Blog: Professors McGovern and Brewer on Developments in Hewitt Holding Regulation Procedurally Invalid (12/8/24) is here. I will do a shorter lead in and will cut to the chase. This offering deals with the APA status of IRS Notices:

           2. Yet another Green decision under the APA regarding listed transaction notices has the IRS and Treasury seeing red, but proposed and final regulations provide a blackletter law counterpunch. We previously have written about successful taxpayer challenges to the IRS process of issuing administrative notices identifying “listed transactions” (a subset of “reportable transactions”) under Reg. § 1.6011-4(b)(2), thereby potentially triggering enhanced penalties for noncompliance. Generally, taxpayers participating in such listed transactions must file special disclosures with the IRS under § 6011(a). See Form 8886, Reportable Transaction Disclosure Statement. Material advisors (as defined) to such participating taxpayers are also subject to special disclosure and list maintenance requirements under § 6112(a). See Form 8918, Material Advisor Disclosure Statement. In addition, taxpayers and their material advisors may be subject to enhanced penalties and criminal sanctions for failing to properly disclose, and for participating in, such transactions. See §§ 6662A; 6707; 6707A; 6708. At least three courts have held that the IRS violated the Administrative Procedure Act (“APA”) by issuing certain listed transaction notices. Specifically, the Sixth Circuit, the U.S. District Court for the Eastern District of Tennessee, and the U.S. Tax Court have determined that the three distinct listed transaction notices at issue in those cases were “legislative rules” subject to the notice-and-comment procedures of the APA. Further, because the IRS did not publish an advanced notice of proposed rulemaking inviting public comment before issuing the notices, the courts invalidated them. See Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022) (invalidating Notice 2007-83, 2007-2 C.B. 960, which identified certain business trust arrangements utilizing cash value life insurance purportedly to provide welfare benefits as listed transactions); CIC Services, LLC v. Internal Revenue Service, 592 F. Supp. 3d 677 (E.D. Tenn. 2022), as modified by unpublished opinion, 2022 WL 2078036 (2022) (invalidating Notice 2016-66, 2016-47 I.R.B. 745, as modified by Notice 2017-8, 2017-3 I.R.B. 423, which identified certain micro-captive insurance arrangements as listed transactions); Green Valley Investors, LLC v. Commissioner, 159 T.C. 80 (2022) (invalidating Notice 2017-10, 2017-4 I.R.B. 544, which identified post-2009 syndicated conservation easements as listed transactions). After initially contesting the application of the APA to the listed transaction notices at issue in Mann Construction, CIC Services, and Green Valley Investors, the IRS and Treasury practically have conceded, responding in at least two instances with proposed APA-compliant listed transaction regulations in place of invalidated notices. See REG-109309-22, Micro-Captive Listed Transactions and Micro-Captive Transactions of Interest, 88 FR 21547 (4/11/23) and REG-106134-22, Syndicated Conservation Easements as Listed Transactions, 87 F.R. 75185 (12/8/22). The latter proposed regulations regarding syndicated conservation easements have been finalized and are discussed further below. For additional background, see Announcement 2023-11, 2023-17 I.R.B. 798. The recent developments summarized immediately below are another installment in the APA tug-of-war between taxpayers and the IRS concerning listed transaction notices under Reg. § 1.6011-4(b)(2) that may implicate enhanced penalties under §§ 6662A; 6707; 6707A; 6708.

                   a. IRS and Treasury see red after Green(s). Green Rock LLC v. Internal Revenue Service, 104 F.4th 220 (11th Cir. 6/4/24), aff’g 654 F. Supp. 3d 1249 (2023). The taxpayer in this case was a promoter/material advisor of syndicated conservation easements. As such, the taxpayer was subject to Notice 2017-10, 2017-4 I.R.B. 544, which identified post-2009 syndicated conservation easements as one type of listed transaction under Reg. § 1.6011-4(b)(2). [*13] Further, as a promoter/material advisor to a listed transaction, the taxpayer potentially was subject to enhanced penalties under § 6707A. The taxpayer complied with Notice 2017-10 and the reportable transaction regime throughout the relevant years, including filing Form 8886, Reportable Transaction Disclosure Statement, and Form 8918, Material Advisor Disclosure Statement. Nevertheless, the taxpayer filed suit in the U.S. District Court for the Northern District of Alabama in 2021, alleging that Notice 2017-10 was invalid under the APA. Like taxpayers in previous similar cases, the taxpayer argued that the IRS had failed to comply with the APA by issuing Notice 2017-10 without providing a formal notice of proposed rulemaking inviting public comment. The district court agreed, setting aside Notice 2017-10 as applied to the taxpayer. See Green Rock LLC v. Internal Revenue Service, 654 F. Supp. 3d 1249 (2023). The taxpayer undoubtedly was emboldened by the Tax Court’s 2022 decision against the IRS in another “Green” case, Green Valley Investors (cited above). By an 11-4-2 vote, the Tax Court invalidated Notice 2017-10 under the APA in that case.

CFC Rejects Government Interpretation of Canada Double Tax Treaty (12/12/24)

Tax treaty cases in U.S. courts are not that common. I am interested in tax treaty cases because, years ago, I wrote an article on tax treaty interpretation: Tax Treaty Interpretation, 55 Tax Law. 219 (2001), here, and have retained my interest since.

Bruyea v. United States (CFC 12/5/24), CFC here and GS here, is a tax treaty case with significant discussion of tax treaty interpretation. (Slip Op. pp. 4-7 under the outline heading “Principles of Treaty Interpretation.”) Bottom-line, the Court held that Bruyea is entitled to a refund arising from a credit to avoid double taxation under the U.S and Canada tax treaty (“Canada Tax Treaty”). The Canada Tax Treaty is titled the Convention between Canada and the United States of America with Respect to Taxes on Income and on Capital; the treaty and relevant documents may be viewed or downloaded here. This type of treaty is often called a double tax treaty because a primary goal is to avoid the treaty partners’ double taxing the same quantum of income. The U.S. has similar double tax treaties with many other countries.

I report on Bruyea because the court throws out some glittering generalities about tax treaty interpretation.

First, of course are the relevant facts, which the court summarizes succinctly (Slip Op. p. 2, cleaned up and footnotes omitted):

          On November 7, 2016, Mr. Bruyea filed an amended tax return (Form 1040X) with the Internal Revenue Service claiming a refund of $263,523 by virtue of a foreign tax credit that offsets the NIIT [Net Investment Income Tax] In particular, Mr. Bruyea asserts he is entitled to a foreign tax credit based on the provisions of Article XXIV of the Convention between Canada and the United States of America with Respect to Taxes on Income and on Capital. The IRS rejected the refund claim, concluding that the Canada Tax Treaty did not provide an independent basis for a foreign tax credit to offset the NIIT and that such a foreign tax credit is not allowed under U.S. statutory foreign tax credit rules.

          When Mr. Bruyea failed to convince the IRS, he invoked the Simultaneous Appeal Procedure pursuant to which he sought the opinions of the U.S. and Canadian competent authorities to resolve a situation in which double taxation is present (i.e.Canadian income tax and U.S. NIIT on the same items of income and gain with no foreign tax credit offset available). The Canadian tax authority agrees with Mr. Bruyea. ECF No. 18-6 (“The position of the Canadian competent authority in this regard is that Canada, as the country of source, has the right to tax the gain, while the US, [*3] as the country which has residual taxation rights, must provide relief in accordance with Article XXIV of the Convention.”). Following the IRS’s denial of his tax refund claim, Mr. Bruyea filed his complaint in this court, asserting that he is entitled to a refund of the NIIT that he paid in the amount of $263,523 for the 2015 tax year.

          On February 14, 2024, Mr. Bruyea moved for partial summary judgment, arguing that he is entitled to a foreign tax credit for his 2015 tax year under the terms of the Canada Tax Treaty. The government filed a cross-motion for summary judgment and response in opposition to plaintiff’s motion. Each party filed a reply brief.

Can a Taxpayer Obtain Relief in the Tax Court if the President’s Limited Power to Dismiss Tax Court Judges is Unconstitutional? (12/11/24)

I picked up some articles on a recently filed appellate brief in Myers v. Commissioner, T.C. # 2181-15W), from the Tax Court Order of Dismissal dated 5//24/24, here, (The Tax Court docket sheet is here.) The appeal is docketed as Myers v. Commissioner (D.C. Cir. No. 2181-15W) and Myers’ corrected opening brief is here. One of the articles is Anna Scott Farrell, Whistleblower Asks DC Circ. To Strike Tax Court Judge Shield, 2024 Law360 340-53 (12/5/24).

In Myers, the relevant events are:

1.   Myers, a whistleblower, filed his Tax Court petition late.

2.   The Tax Court dismissed the case due to the untimely filing.

3.   The D.C. Circuit reversed, ruling that the timing period was not jurisdictional and thus could be subject to equitable tolling.

4.   On remand, the Tax Court dismissed again, stating Myers did not demonstrate entitlement to equitable tolling.

Predicate Constitutional Claim: As his predicate argument on appeal, Myers urges that § 7443(f)’s requirement of “for cause” dismissal of Tax Court Judges violates the President’s Article II executive powers to dismiss without cause. The Tax Court rejected the argument, and now Myers raises it in the D.C. Circuit.

I focus on the Constitutional Claim. The substance of the argument turns upon the unsettled location of the Tax Court in the Constitutional structure. Is the Tax Court located in the legislative branch (§ 7441 says that it is “established, under article I of the Constitution of the United States”) or is it in the executive branch? (And my question below is does it matter in this case?) 

Guest Blog: Professors McGovern and Brewer on Developments in Hewitt Holding Regulation Procedurally Invalid (12/8/24)

This morning I offer a guest blog from Professors Bruce McGovern, teaching tax law at the South Texas College of Law Houston (school resume here) and Cassady V. (“Cass”) Brewer teaching tax law at the Georgia State University College of Law (school resume here). Professor McGovern authors many articles, including an annual article co-authored with Professor Brewer titled Recent Developments in Federal Income Taxation: The Year 2023, 77 Tax Law. 805 (2024). Professor McGovern makes monthly presentations of material included in that annual offering to the Wednesday Tax Forum (“WTF”) in Houston. In the most recent offering on December 13, 2024, Professors McGovern and Brewer had significant items on tax procedure that I thought readers of this blog might find interesting and enlightening. With their permission, I am offering a copy and paste of the two items in two separate blogs (because they are two separate subjects). I offer some comments after that copy and paste.

The first involves the saga of cases starting with Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021) here, which held IRS proceeds regulation for conservation easements adopted in 1986 invalid under the APA for failure to respond to significant comment in adopting the final regulation. There have been significant developments since Hewitt that Professors McGovern and Brewer cover quite nicely.

IX. EXEMPT ORGANIZATIONS AND CHARITABLE GIVING Exempt Organizations Charitable Giving

          With more than 750 conservation easement cases on the docket, the Tax Court’s flip-flop on the validity of the extinguishment proceeds regulation is not going to help matters. Valley Park Ranch, LLC v. Commissioner, 162 T.C. No. 6 (3/28/24). In a reviewed opinion (7-2-4) by Judge Jones, the Tax Court refused to follow its prior decision in a conservation easement case decided just four years earlier Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. 180 (2020), aff’d, 28 F.4th 700 (6th Cir. 2022). Instead, rejecting Oakbrook, a majority of the Tax Court in this case appealable to the Tenth Circuit determined that Reg. § 1.170A-14(g)(6)(ii), one of the chief weapons the IRS has used to combat conservation easements, is procedurally invalid under the Administrative Procedure Act (“APA”). It is fair to say that the Tax Court’s decision in Valley Park Ranch will have a significant impact on current and future conservation easement litigation between the taxpayers and the IRS.

          Background. Other than challenging valuations, the IRS’s most successful strategy in combating syndicated conservation easements generally has centered around the “protected in perpetuity” requirement of § 170(h)(2)(C) and (h)(5)(A). The IRS has argued in the Tax Court that the “protected in perpetuity” requirement is not met where the taxpayer’s easement deed fails to meet the strict requirements of the “extinguishment regulation.” See Reg. § 1.170A-14(g)(6)(ii). The extinguishment regulation ensures that conservation easement property is protected in perpetuity because, upon destruction or condemnation of the property and collection of any proceeds therefrom, the charitable donee must proportionately benefit. According to the IRS’s reading of the extinguishment regulation, the charitable donee’s proportionate benefit must be determined by a fraction determined at the time of the gift as follows: the value of the conservation easement as compared to the total value of the property subject to the conservation easement (hereinafter the “proportionate benefit fraction”). See Coal Property Holdings, LLC v. Commissioner, 153 T.C. 126 (10/28/19). Thus, upon extinguishment of a conservation easement due to an unforeseen event such as condemnation, the charitable donee must be entitled to receive an amount equal to the product of the proportionate benefit fraction multiplied by the proceeds realized from the disposition of the property.

          Facts. The taxpayer partnership in this case claimed a $14.8 million charitable contribution deduction for its 2016 tax year after granting to a charity a conservation easement over 45.76 acres of Oklahoma land it acquired in 1998 for $91,610. The easement deed recited in part that the contributed property was to be held “forever predominantly in its natural, scenic, and open space condition” and that “the duration of the Easement shall be in perpetuity.” 162 T.C. at ___. The easement deed further provided in relevant part that if the land was taken by eminent domain, the taxpayer and the charity would, “after the satisfaction of prior claims,” share in the condemnation proceeds “as determined by a Qualified Appraisal meeting standards established by the United States Department of Treasury.” 162 T.C. at _____. Upon audit, the IRS took the position, as it has in many prior cases, that the taxpayer’s deduction should be disallowed for failing to meet the proportionate benefit fraction requirement of the extinguishment proceeds regulation, Reg. [*9] § 1.170A-14(g)(6)(ii). The IRS’s litigating position is that the proportionate benefit fraction must be fixed and unalterable as of the date of the donation according to the following ratio: the value of the conservation easement as compared to the total value of the property subject to the conservation easement. Thus, according to the IRS, leaving the proportionate benefit upon condemnation to be determined later by a qualified appraisal meeting certain standards is insufficient. (Note: Section 4.01 of Notice 2023-30, 2023-17 I.R.B. 766 (4/10/23), sets forth what the IRS considers acceptable language regarding the proportionate benefit fraction as it relates to extinguishment clauses in conservation easement deeds.) After petitioning the Tax Court, the taxpayer argued alternatively that either (i) the easement deed met the requirements of Reg. § 1.170A-14(g)(6)(ii) by “explicit incorporation,” or (ii) the regulation is procedurally invalid under the APA, in which case the easement deed need not strictly comply with the regulation as long as it meets the more general requirements of the applicable subsections of the statute, § 170(h) (qualified conservation contribution). The case was heard by the Tax Court on cross-motions for summary judgment.

          The Tax Court’s Majority Opinion. In a reviewed opinion (7-2-4) by Judge Jones (joined by Judges Foley, Urda, Toro, Greaves, Marshall, and Weiler), the court began its analysis by reviewing the conflicting decisions of the Sixth and Eleventh Circuits concerning the procedural validity of Reg. § 1.170A-14(g)(6)(ii) under the APA. See Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021) (concluding that the regulation is invalid under the APA); Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700 (6th Cir. 2022) (concluding that the regulation satisfies the APA). The majority emphasized that a divided (2-1) Sixth Circuit panel decided Oakbrook, whereas a unanimous (3-0) Eleventh Circuit panel decided Hewitt. Thus, in a footnote, Judge Jones pointed out that of the six appellate court judges who have considered the issue, four decided that Reg. § 1.170A-14(g)(6)(ii) is invalid under the APA while only two upheld the regulation. Noting that the case is appealable to the Tenth Circuit, which has not taken a position on the validity of Reg. § 1.170A-14(g)(6)(ii), Judge Jones concluded for the majority that “after careful consideration of the Eleventh Circuit’s reasoning in Hewitt, we find it appropriate to change our position.” 162 T.C. at ____. The majority gave a nod to the principle of stare decisis—following established precedent—but reasoned that its holding in Oakbrook, even though affirmed by the Sixth Circuit, is not “entrenched precedent,” thereby allowing the Tax Court to strike down Reg. § 1.170A-14(g)(6)(ii) as procedurally invalid under the APA in line with Hewitt. 162 T.C. at ____.

Texas District Court Enjoins the Corporate Transparency Act Nationwide (12/5/24)

In Texas Top Cop Shop, Inc. v. Garland, ___ F.Supp.4th ___, 2024 U.S. Dist. LEXIS 218294 (ED TX 12/3/24), GS here [to come] and CL here, the Court ordered a preliminary nationwide (or universal) injunction enjoining enforcement of the Corporate Transparency Act, codified at 31 U.S. C. § 5336. (The relief is sometimes called vacatur under the APA which has the same effect of a nationwide injunction, see Slip Op. p. 77.)

Four courts have spoken on the issue, with two granting preliminary injunctions (with different scopes as noted) and two denying preliminary injunction.

Granting preliminary injunction:

• Nat'l Small Business United v. Yellen, ___ F. Supp.4th ___, 2024 WL 899372 , 2024 U.S. Dist. LEXIS 36205  (N. D. Ala. 2024), GS here and CL here; and
• Texas Top Cop Shop, Inc. v. Garland, ___ F.Supp.4th ___, 2024 U.S. Dist. LEXIS 218294  (W.D. TX 12/3/24), GS here [to come] and CL here.

Denying preliminary injunction

• Community Assocs. Inst. v. Janet Yellen, 2024 U.S. Dist. LEXIS 193958 (E.D. Va. 10/25/24), GS here and CL here; and
• Firestone v. Yellen, 2024 WL 4250192, 2024 U.S. Dist. LEXIS 170085 (D. Or. Sep. 20, 2024), GS here and CL here

 All of the cases are on appeal, with the Alabama case being fully briefed.

The difference between the two sets of cases is the courts’ respective assessments of the likelihood of prevailing on the merits. Those cases granting the preliminary injunctive relief held that the CTA was unconstitutional, thus satisfying the preliminary injunction requirement that the plaintiffs be likely to prevail. Those cases denying the preliminary injunctive relief held that the CTA was likely constitutional, thus plaintiffs had not satisfied the requirement that they would likely prevail,

In any event, the Texas Top Cop Shop injunction until changed means that the CTA cannot be enforced. Of course, I am sure that there has been significant filings by now. The injunction should prevent FinCEN from using the data or making it available to persons who, under the CTA, could have access.

Finally, I said before in blogging on the Alabama case: “This opinion is dumb, stupid.” The Texas case is wrapped in a greater fog of words, but alas in my view, is also dumb, stupid. For context in assessing my assessment, I am not a constitutional law scholar. But, I don’t think the Constitution should be interpreted so rigidly that reasonable accommodations to the world we live in now (rather than over 200 years ago) cannot be made in governing doctrines. Constitutional text cannot be ignored but it can be interpreted reasonably. I think the Courts in the Virginia and Oregon cases made those accommodations.

Other JAT Comments:

IRS Voluntary Disclosure Practice (VDP) Requires Taxpayer Admit Criminal Willfulness (11/29/24; 12/1/24)

The IRS Voluntary Disclosure Practice (VDP) is implemented by Filing Form 14457, Voluntary Disclosure Practice Preclearance Request and Application, here. The Form includes instructions on pages 8-19. The instructions are clear that VDP is for disclosure of willful conduct.

Some claim that willful conduct may cover conduct beyond the criminal definition of willful conduct required for tax crimes and FBAR crimes. As to the tax crimes, see Cheek v. United States, 498 U.S. 192 (1991); as to FBAR crimes, see Ratzlaf v. United States, 510 U.S. 135 (1994). For example, FBAR civil penalties require willful conduct, but willful for the civil penalties may include recklessness, which imposes liabilities on conduct not criminalized for willful conduct.

An example of a claim of at least the possibility of the VDP willful requirement going beyond the Cheek/Ratzlaf standard of specific intent to violate a known legal duty is the following from Baker & McKenzie’s web site title “United States: IRS tightens voluntary disclosure rules” (11/25/24), here (viewed 11/29/24).

The new "willfulness" check box requires that taxpayers certify that they were "willful in the actions that led to…tax noncompliance," and a failure to formally admit intent will result in automatic denial of access to the VDP with no opportunity for appeal or reinstatement. "The "willfulness" checkbox represents a significant change from past procedure and may make taxpayers less likely to participate in the program. Previously, the VDP process did not require a formal admission of intent—taxpayers detailed their conduct through the narrative explanation or had unique facts that led them to want to use the VDP as a hedge in a non-willful situation. Now, however, such options are off the table. While the taxpayer may want to choose to make the voluntary disclosure, there is a lack of clarity because the term "willful" is not defined on the form. The IRS website merely establishes that "willfulness" is not mistake but an intentional effort to hide assets or tax liability. However, there are different definitions of the term "willful" in different tax contexts, and it is not clear from the instructions on the form whether a civil or criminal definition of "willfulness" applies. Additionally, there are grey areas around when an action is willful versus a mistake or a failure to correct, and different practitioners may have different opinions about whether or not an action was willful. It is not clear from the new form how the IRS will evaluate the taxpayer's admission of willfulness. There is another potential caveat to the new requirement to admit that past tax noncompliance was willful: acceptance to the VDP, even after admitting willfulness, is not guaranteed, and there are ways a taxpayer can lose the benefit of the program (discussed later in this article). If the taxpayer loses VDP benefits or is not accepted into the program despite the admission of willfulness, they are potentially at risk for the admission to be used against them in a civil or criminal proceeding.

With due respect, however, I think the IRS instructions and web site are clear that criminal Cheek/Ratzlaf willfulness is required. I have today made an update to my Federal Tax Procedure Book for the portion of the book dealing with the IRS VDP. See the page to the right titled “Federal Tax Procedure Book 2024 Editions Updates (7/26/24; 11/29/24)”, here. In that update here, I include a discussion of this issue as follows (footnotes omitted) with respect to step one of the Form (Part 1) required for the initial application (footnotes omitted):

Does Loper Bright Revive Pre-Chevron Standards of Review? (11/28/24)

The key Loper Bright holding is summarized near the end of the opinion addresses Chevron (Loper Bright Ent. v. Raimondo, ___ U.S. ___, 144 S. Ct. 2244, 2273 (2024)):

Chevron is overruled. Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA requires. Careful attention to the judgment of the Executive Branch may help inform that inquiry. And when a particular statute delegates authority to an agency consistent with constitutional limits, courts must respect the delegation, while ensuring that the agency acts within it. But courts need not and under the APA may not defer to an agency interpretation of the law simply because a statute is ambiguous.

As I understand the holding it is that agency interpretive authority for the states they administer cannot arise from the “fiction” Chevron created that statutory ambiguity is an implicit delegation of interpretive authority that justifies deference to the agency interpretation. Phrased this way, the Court may have left open whether any other form of pre-Chevron deference survives Loper Bright. After all, the Court is careful to base its rejection on deference from ambiguity alone, which is the key innovation of Chevron. Before Chevron, the Court had developed bases other than ambiguity to justify deference. For example, in National Muffler Dealers Ass’n v. United States, 440 U.S. 472 (1979), a tax case, the Court applied traditional features from cases going to the early period of the administrative state to justify deferring to agency interpretations. (Tax and administrative law fans will recall that, in Mayo Found. for Med. Educ. & Rsch. v. United States, 562 U.S. 44, 52 (2011), authored by Chief Justice Roberts (who apparently experienced a Eureka moment in Loper Bright), the Court held that, for consistency among agencies, appellate review of the deference accorded tax interpretations should be tested under Chevron based on statutory ambiguity rather than the traditional features applied in National Muffler.)

In a recent article (highly recommended), Professor Thomas W. Merrell asks under “Matters of Speculation” the following question: “Does Loper Bright Revive Pre-Chevron Standards of Review?” (At pp. 269-270.)  Thomas W. Merrell, The Demise of Deference — And the Rise of Delegation to Interpret?, 138 Harv. L. Rev. 227, 269-279 (2024), here. I don’t want to review the pre-Chevron law of deference, but the key is that is that pre-Chevron deference was not justified on implicit delegation of interpretive authority arising from statutory ambiguity alone. In that pre-Chevron law, such as National Muffler, features such as contemporaneity of the interpretation, long-standingness, and other features might add gravitas to the agency interpretation permitting deference. To be sure, pre-Chevron deference applied only where the statute was ambiguous and the interpretation was reasonable (key features of Chevron deference), but ambiguity alone did not justify deference.

Thus, because the Court in Loper Bright was careful to limit rejection of deference to deference arising from ambiguity, one could craft an argument that the Court’s pre-Chevron jurisprudence survives Loper Bright. Professor Merrell warns (p. 270): “So courts should probably exercise caution in resurrecting pre-Chevron standards of review like National Muffler, but some intrepid litigator will no doubt claim that this has happened.”

I think Loper Bright may be confusing as to its precise holding. Loper Bright might be read as two holdings:

1. The APA requires courts to interpret de novo the statutes the agency has interpreted and defer only where Congress explicitly or implicitly delegated interpretive authority to the agency.

2. Chevron, requiring ambiguity as implicit delegation of interpretive authority, is overruled.

Court Denies Attorneys' Fees under § 7430 to Parties Winning § 6700 Penalty Case Because Government Position Substantially Justified (11/25/24)

In Ankner v. United States (M.D. FLA 2:21-cv-00330 Opinion & Order Dated 11/19/24), TN here and CL here, the IRS asserted § 6700 penalties for promoting abusive tax shelters against the plaintiffs from their promotion of a microcaptive insurance tax strategy. The plaintiffs paid the amount sufficient to permit refund suits and sued for refunds.  In a trial to a jury, the jury held by special interrogatories here that the Government had not proved the plaintiffs’ liabilities for such penalties by a preponderance of the evidence.

Side observation: It is not clear whether the jury’s answer meant that (i) it affirmatively found the facts not to establish liability or (ii) it was in equipoise as to those facts, thus requiring verdict against the Government. In any event, the Government loses.

As the at least nominally prevailing parties, the plaintiffs sought to recover attorneys’ fees and costs under § 7430. But, as the court held, § 7430 does not permit recovery of attorneys’ fees and costs simply because someone beats the Government in a tax suit. Rather, one of the requirements is that the party seeking recovery is that, in addition to prevailing, the Government’s position must not have been “substantially justified.” § 7430(c)(4)(B)(i). Here the Court found that the Government’s position that the plaintiffs were liable for the § 6700 penalties was substantially justified.

As I read the opinion discussion of substantially justified (Slip Op. 9-21), I have a sense that the judge believed that, had he been the decider on the liability issue, he may have imposed liability for the § 6700 penalties. In other words he may have disagreed with the jury verdict, but the jury verdict must stand. (For an example of where a judge may disagree with the jury, see Justice Thomas and Tax -- The Plot Sickens (10/29/23; 10/7/24), here, discussing Grinstead v. United States , 447 F. 2d 937 (7th Cir. 1971), here.)

Other points, some picky:

1. Plaintiffs should have made a qualified offer. See Court Awards Attorneys Fees Under § 7430 Based on $1 Qualified Offer (11/6/24), here; and Major Attorneys Fee Award for BASR Partnership Prevailing on the Allen Issue in Federal Circuit (2/11/17), here. A qualified offer will avoid the requirement that the Government’s position not have been substantially justified.

Court Reverses District Court on Summary Judgment Holdings That (i) Taxpayer Owed Tax and Was Not Due a Refund and (ii) that, Even if Taxpayer Owed Tax, Taxpayer Did Not Owe Interest Because of Reasonable Cause (11/24/24)

In Rockwater, Inc. v. United States, ___ F.4th ___, 2024 U.S. App. LEXIS 29135 (11th Cir. 2024), CA11 here and GS here, the Court (i) reversed the district court’s summary judgment holding that the taxpayer’s peanut trailers were not “off-highway transportation vehicles” exempt from the federal excise tax on the first sale, (ii) reversed the district court’s holding on summary judgment that the taxpayer had reasonable cause not paying and thus was not subject to interest on the tax liability, and (iii) let stand the district court’s holding on summary judgment that, even if the taxpayer owed the tax, it had reasonable cause that exempted it from the penalty delinquency penalty. The Government did not appeal the latter penalty holding.

The Government appealed the liability holding ((i) above) but did not separately appeal the interest holding, on the basis that, interest on underpaid tax is mandatory and not subject to any reasonable cause exception; in other words, should the Government prevail on the tax due holding, it necessarily required it to have interest on the tax thus due.

The taxpayer’s liability for the tax offers no particularly interesting tax procedure issues. The case was a straight-forward refund suit. However, I did note one point in the majority opinion that seems to be a feint rather than necessary or even appropriate to explaining its holding.  The Court says at the beginning of its section explaining its holding: 

          In tax refund lawsuits, the IRS Commissioner's assessment has "the support of a presumption of correctness." Welch v. Helvering, 290 U.S. 111, 115 (1933). "[E]xemptions from taxation are to be construed narrowly." Mayo Found. for Med. Educ. & Rsch. v. United States, 562 U.S. 44, 59-60 (2011) (citation and quotation marks omitted).

The Court reaches its holding of liability for the tax based on straight-forward interpretation of the statute and regulation, with no seeming need for or benefit from any presumption of correctness or narrow construction for exemptions.

This is a similar phenomenon often appearing in Tax Court cases where, sometimes at significant length, the Tax Court thrashes around burden of proof principles sometimes without nuance but then holds that, in any event, that thrashing around was not really necessary because it finds all the dispositive facts by a preponderance of the evidence. (Thus, although not technically necessary, the thrashing around on burden of proof does signal to the Court of Appeals that the Tax Court judge thought about burden of proof, but at the risk that a Court of Appeals may not be particularly impressed if the thrashing around is not consistent with the Court of Appeals’ or some panel member’s thinking on burden of proof.)

Tax Court Sticks to Its Farhy Holding that the § 6038(b) Penalty Is Not Assessable (11/19/24)

I have previously written on the saga where the Tax Court held that the IRS had no assessment authority for the § 6038(b) penalty and was reversed by the D.C. Court of Appeals. See --

• Tax Court Holds that IRS Has No Authority to Assess § 6038(b) Penalties for Form 5471 Delinquencies (4/3/23; 4/23/23), here (discussing Farhy v. Commissioner, 160 T.C. 399 (2023)) and
• DC Circuit Holds IRS Has Assessment Authority for § 6038(b) Penalty, Reversing Tax Court (5/3/24; 5/4/24), here (discussing  Farhy v. Commissioner, 100 F.4th 223 (D.C. Cir. 2024)).

In Mukhi v. Commissioner, 163 T.C. ___, No. 8 (11/18/24) (reviewed opinion), TN here* and GS here, the Tax Court reaffirmed its Farhy holding because the case is appealable to the Eighth Circuit,  permitting the Tax Court to reach its own decision without being bound by the precedent of the D.C. Circuit in its Farhy decision. Only Judge Nega dissented without opinion, presumably on the basis of the D.C. Circuit Farhy decision.

This is a notice only blog. I think the Tax Court decision in Mukhi and Farhy wrong on the merits for reasons I have written on before in the cited blogs. When I say the Tax Court is wrong on the merits, I am not speaking to whether or not is should have sustained a wrong decision on stare decisis. On the issue of stare decisis, the Tax Court said (Slip Op. 5):

          The Tax Court adheres to the doctrine of stare decisis and thus affords precedential weight to our prior reviewed and division opinions. See Analog Devices, Inc. & Subs. v. Commissioner, 147 T.C. 429, 443 (2016). Because of our nationwide jurisdiction, the Court takes seriously its obligation to facilitate uniformity in the tax law. See Bankers Union Life Ins. Co. v. Commissioner, 62 T.C. 661, 675 (1974). When one of our decisions is reversed by an appellate court, the Court will “thoroughly reconsider the problem in the light of the reasoning of the reversing appellate court and, if convinced thereby, . . . follow the higher court.” Lawrence v. Commissioner, 27 T.C. 713, 716–17 (1957), rev’d per curiam on other grounds, 258 F.2d 562 (9th Cir. 1958). But if the Court  remains convinced that our original decision was right, the proper course is to “follow [our] own honest beliefs until the Supreme Court decides the point” and thus continue to apply our own precedent. Id. Our decision in Golsen v. Commissioner, 54 T.C. 742 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971), created “a narrow exception” to this approach. Lardas v. Commissioner, 99 T.C. 490, 494 (1992). In a given case, when a “squarely [o]n point” decision of the appellate court to which an appeal would lie contradicts our own precedent, we will follow the appellate court’s decision. See Golsen, 54 T.C. at 757. To do otherwise would be “futile and wasteful” given the inevitable reversal from the appellate court. See Lardas, 99 T.C.at 494–95.

* Note, those wanting to read the Tax Court Slip Opinion can retrieve it from the Tax Court docket entries here at #93. This is because the Tax Court does not provide permalinks to its opinions as do many Courts of Appeals and the Supreme Court. The Tax Court provides only temporary links which time out.

Do General Authority Congressional Delegations of Authority to Prescribe Regulations to Carry Out the Provisions of the Statute Qualify for Loper Bright Deference? (11/12/24)

In Schaffner v. Monsanto Corp., 113 F.4th 364 (3rd Cir. 2024), CA3 here and GS here, the Court dealt with EPA pre-emption over state law labeling requirements. I won’t dive into the weeds on the substantive issue, but I focus on the Loper Bright issue of delegation of authority to the EPA to interpret—"fill up the details.” (See Slip Op. 27 n. 9, 113 F.4^th, at 381 n. 9):

Our analysis proceeds in three steps. First, in Part IV(A), we examine "EPA regulations that give content to FIFRA's misbranding standards."n9
   n9 The Supreme Court has recently overruled its decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), holding that "[c]ourts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority." Loper Bright Enters. v. Raimondo, ___ U.S. ___, 144 S. Ct. 2244, 2273, 219 L.Ed.2d 832 (2024). Prior to Loper Bright, courts might have owed deference to the EPA's interpretation of the statutory term "misbranding," but no more. Nonetheless, while Loper Bright requires courts, not agencies, to determine the meaning of statutory terms such as "misbranding," we do not read the decision to undermine the EPA's authority to promulgate the regulations that implement FIFRA. As the Court explained in Loper Bright, while courts alone must ascertain a statute's meaning, "the statute's meaning may well be that the agency is authorized to exercise a degree of discretion." Id. at 2263. And one way for statutes to express that meaning is when they "empower an agency to prescribe rules to `fill up the details' of a statutory scheme." Id. (quoting Wayman v. Southard, 23 U.S. (10 Wheat.) 1, 43, 6 L.Ed. 253 (1825) ). FIFRA is such a statute: it expressly authorizes the EPA Administrator "to prescribe regulations to carry out the provisions" of the statute. 7 U.S.C. § 136w(a)(1). We therefore conclude that Loper Bright does not undermine the validity of the EPA regulations that govern pesticide labeling and that we consider in analyzing preemption under FIFRA in this opinion.

I focus on the enabling statute for Loper Bright agency authority to “fill up the details.” The statute quoted in part in the footnote excerpt above is 7 U.S.C. § 136w(a)(1), here, is in full:

(a)In general
(1)Regulations. The Administrator is authorized, in accordance with the procedure described in paragraph (2), to prescribe regulations to carry out the provisions of this subchapter. Such regulations shall take into account the difference in concept and usage between various classes of pesticides, including public health pesticides, and differences in environmental risk and the appropriate data for evaluating such risk between agricultural, nonagricultural, and public health pesticides.

 In (a)(2), the EPA-specific procedure for the regulations is in addition to the procedures in the APA for notice and comment regulations; (a)(2) is not relevant to the balance of the discussion. (For the balance of this discussion, all  references to regulations will be to notice and comment regulations.)

It strikes me that the authorization in (a)(1) is parallel to the authorization in § 7805(a), here, which I also quote and bold-face the relevant language:

(a)Authorization. Except where such authority is expressly given by this title to any person other than an officer or employee of the Treasury Department, the Secretary shall prescribe all needful rules and regulations for the enforcement of this title, including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.

Perhaps the key difference is that § 7805(a) authorizes “rules and regulations” and 7 U.S.C. § 136w(a)(1) authorizes only “regulations.” In both cases, at least in terms of historical deference, regulations are required. So, the question raised—and by no means yet definitively answered—is whether § 7805(a) authorizes Treasury to “fill up the details” in the sense intended by Loper Bright. (For present purposes, I will call such authority to "fill up the details" as conferring deference entitlement to regulations issued under such authority and will call those regulations Loper Bright deference.)

Court Awards Attorneys Fees Under § 7430 Based on $1 Qualified Offer (11/6/24)

I have previously written about the saga of Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 3/3/22) and Mann Construction, Inc. v. United States, 651 F.Supp.3d 871 (E.D. Mich. 1/18/23). Sixth Circuit Invalidates Notice Identifying Listed Transaction Requiring Reporting and Potential Penalties (Federal Tax Procedure Blog 3/3/22), here, and On Remand from 6th Circuit, District Court Orders Vacatur of Listed Transaction Notice (Federal Tax Procedure Blog 1/19/23), here.

We now have perhaps the last chapter with the district court dismissing the case as moot and awarding attorneys’ fees against the Government under § 7430. Mann Construction, Inc. v. United States, ___ F.Supp.3d ___ (E.D. Mich. 1/1/24), CL here and GS here [to come]. Cutting to the chase, the court awarded Mann Construction attorneys’ fees because Mann Construction made a $1 qualified offer under § 7430(c)(4)(E)(i). In order for attorneys’ fees to be awarded under § 7430, the party seeking to recover attorneys’ fees must be the “prevailing party,” The prevailing party is defined in § 7430(c)(4) to be the party who "substantially prevailed" as to the amount and who meets certain financial requirements (in relevant party net worth of less than $7 million). Prevailing party is defined to exclude positions as to which the government was "substantially justified."  The Government was likely substantially justified in the positions it took in the litigation. But an exception to the “substantially justified” exception applies if the party has made a “qualified offer,” meaning an offer that "is equal to or less than the liability of the taxpayer which would have been so determined if the United States had accepted a qualified offer of the party under subsection (g)."  § 7430(c)(4)(E).  In this case, where the result was an up or down result, a minimal offer can meet the qualified offer standard. Mann Construction made an offer of $1, identifying the offer as a qualified offer. So the Court awarded “$220,482.50 in attorneys’ fees and $1,355.90 in costs.

The court specifically rejected a requirement that “a qualified offer to be reasonably calculated to justify serious consideration by the IRS to avoid tax-litigants gaming the qualified offer rule with nominal offers like Plaintiffs’ $1 offer.” (Slip Op. 11.) The Court said (Slip Op. 11):

The statute’s definition requires nothing else for qualified offers—not a minimum amount nor a good-faith reasonableness requirement—full stop, end of inquiry. See BASR P’ship v. United States, 130 Fed. Cl. 286, 305 (2017), aff’d, 915 F.3d 771 (Fed. Cir. 2019) (awarding attorneys’ fees under § 7430 when plaintiff made $1 qualified offer and had $0 of tax liability because “$1 is more than $0” and the statute’s definition of qualified offer “does not require any minimum amount” or good-faith reasonableness requirement); see also Tanzin v. Tanvir, 592 U.S. 43, 47 (2020) (“When a statute includes an explicit definition, [courts] must follow that definition.”).

For my discussion of the cited BASR case, see Major Attorneys Fee Award for BASR Partnership Prevailing on the Allen Issue in Federal Circuit (Federal Tax Procedure Blog 2/11/17), here.

As with the case discussed in the prior blog, the lesson is that, in a case where the ultimate result is up or down (with the court having no place to go in between), the $1 minimal qualified offer is the way to go. Of course, if the court can reach a result in between, the minimal $1 offer will fail where a more nuanced higher offer might have worked (in a manner somewhat like baseball arbitration).

Third Circuit Denies Post-Loper Bright Petition for Rehearing in Case Applying Auer/Kisor Deference (11/6/24)

In United States v. Chandler, 104 F.4th 445 (3rd Cir. 6/11/24), CA3 here and GS here, the Court sustained a sentence based in part on the application of Auer/Kisor deference to the Guidelines Commentary. (See Slip Op. 7, 17-19.) I refer to his panel decision as Chandler I. Chandler I preceded Loper Bright Enters. v. Raimondo, ___ U.S. ___, 144 S. Ct. 2244 (2024), which rejected Chevron deference (as well as, any similar deference that preceded Chevron). But Loper Bright did not address a deference subclass for agency subregulatory interpretations of legislative regulations (such as Guidelines Commentary on Guidelines). See Fourth Circuit Applies Auer/Kisor Deference to Include in Guidelines "Loss" the Commentary Inclusion of "Intended Loss" (Federal Tax Procedure Blog 8/24/24), here; and More on United States v. Boler (Federal Tax Procedure Blog 8/25/24), here.

On petition for rehearing in Chandler, the Court entered a document titled “Sur Petition for Rehearing,” denying the panel rehearing and en banc rehearing but with dissents by Judges Bibas and Matey. United States v. Chandler, 114 F.4th 240 (3rd Cir. 9/22/24), CA3 here and GS here. I refer to this denial of rehearing as Chandler II. Judge Bibas argued that, even if Auer/Kisor deference were otherwise applicable to Guidelines Commentary, deference only applied when the interpretive toolkit was otherwise empty, but that lenity was in the toolkit and applied to preempt ambiguity for Auer/Kisor deference. Judge Bibas said that applying Auer/Kisor deference without first applying lenity, “put us on the wrong side of a circuit split. At least three circuits hold that lenity trumps deference.” (Slip Op. 2-3; note the page numbers are for the pdf because the pages are not numbered.) Judge Matey dissented because he felt that the ordinary meaning of the statutory term was discernible without deference (sort of a Chevron Footnote 9 approach). Neither dissenting Judge reasoned that the Auer/Kisor deference applied in Chandler I (the pre-Loper Bright panel opinion) did not survive Loper Bright.

So, as of now, at least so far as I am aware, we still do not have a definitive ruling on whether Auer/Kisor deference survives Loper Bright, but the courts seem to be deciding cases as if it does survive Loper Bright. Most immediately, that means that the Sentencing Guidelines Commentary interpreting the Guidelines may qualify for deference at least when lenity doesn’t apply. (That sets aside the issue of whether lenity might apply to avoid getting to Auer/Kisor deference for Guidelines Commentary; and conceptually the ambiguity invoking lenity is the same as the ambiguity required for Auer/Kisor deference, lenity might always apply.)

Exxon Mobil Wins A Substantial Refund Case on Interest on Production Payments (11/5/24)

I write on Exxon Mobil Corp. v. United States (N.D. TX No. 3:22-CV-0515-N Findings of Fact and Conclusions of Law 10/31/24), CL here & GS here [to come]. For those interested, the CL docket entries are here.  Exxon Mobil (sometimes referred to as ExxonMobil in the opinion) prevails in this tax refund suit. The Court held that certain payments by an Exxon Mobil affiliate on its arrangement with an entity of the State of Qatar were interest payments by treating a production payment as a debt under § 636(a). For details of the parties’ arguments, see the Pretrial Order on CL, here. (Note that per CL docket entries, the briefs were generally sealed for some reason (I did not bother to check on the reason).)

I won’t get into the merits of the interest issue decided. On those merits, I am reminded of Justice Frankfurter’s complaint about Supreme Court review of the Tax Court’s oil and gas cases that those cases make distinctions “which hardly can be held in the mind longer than it takes to state them.” Burton-Sutton Oil Co. v. Commissioner, 328 US 25, 38 (1946) (dissenting).)

Procedural issues are:

1. Expert Witnesses. The Court says in the second paragraph (Slip op. 1-2):

          As a general matter the Court found ExxonMobil’s witnesses – both lay and expert – to be credible and helpful. The Court found Defendant United States of America’s (“United States”) expert to be credible but not helpful. That is to say, the Court believes Dr. Wright truthfully testified as to her opinions and that she is well-qualified to offer those opinions. The problem is the subject matter of her opinions – she was asked to offer opinions regarding oil and gas accounting from a business perspective, rather than opining [*2] on the correct tax treatment or the economic reality of the transaction. For that reason, the Court discounts her testimony.

Post Loper Bright Approval of Agency Best Interpretations (12/3/24)

I have previously blogged on my anecdotal analysis of large data sets of cases supposedly applying Chevron deference but really not so because the agency interpretation supposedly deferred to was the best interpretation. In other words, although those cases seemed to apply deference, they really did not. e.g., Chevron Deference: Much Ado About Not Much (Federal Tax Procedure Blog 8/15/21), here; Is Chevron on Life Support; Does It Matter? (Federal Tax Procedure Blog 4/2/22; 4/3/22), here; and Chevron Step Two Reasonableness and Agency Best Interpretations in Courts of Appeals (Federal Tax Procedure Blog 2/9/23), here. I further noted that, observing that phenomenon, a prominent appellate judge said: “It would probably be too cynical to suggest that the courts are just accepting agency interpretations with which they agree and rejecting those they disfavor, but in some cases that almost seems to be what is happening.” Jon O. Newman, On Reasonableness: The Many Meanings of Law’s Most Ubiquitous Concept, 21 J. App. Prac. & Process 1, 83 (2021), here. One of my key points in discussing the phenomena was that the demise of deference, which we now have with Loper Bright, might not produce materially different outcomes.

The post-Loper Bright opinion in Diaz-Arellano v. U.S. Attorney General, ___ F.4th ___ (11th Cir. 2024), CA11 here and GS here, illustrates. In that case, the interpretive issue involved cancellation of removal of an alien for “exceptional and extremely unusual hardship” including a child defined as “an unmarried person under twenty-one years of age.” The question was whether the child’s age status must be met at time of application or at time of the hearing (which often can take many months after application, resulting in the child aging out during the process).

The Diaz-Arrelano majority noted that, in briefing the Government argued that Chevron required differing to the agency interpretation (at hearing) and at oral argument the Government added the argument that the agency interpretation was the best interpretation requiring no deference. Briefing and oral argument preceded Loper Bright. The Diaz-Arrelano opinion was rendered after Loper Bright.  The panel majority noted the Loper Bright demise of deference requiring it to review de novo without deference, but held that the Government interpretation was the best interpretation of the statute. In other words, best interpretations neither need nor require deference to prevail, which is what Loper Bright means. The result is that many pre-Loper Bright cases appeared to apply deference were really masking approval of best interpretations, meaning that the demise of deference will not materially affect outcomes.

 The  panel majority noted (p. 8 n.5 (carrying over to p. 9)):

    n5 The only other circuits to have addressed this issue in published opinions agree that an alien’s child must be under the age of twenty-one as of the final adjudication of the alien’s application for cancellation of removal, though both relied on Chevron. See Mendez-Garcia v. Lynch, 840 F.3d 655, 663–64 (9th Cir. 2016); Rangel-Fuentes v. Garland, 99 F.4th 1191, 1194–97 (10th Cir.), vacated and panel reh’g granted, No. 23-9511, 2024 WL 3405079 (10th Cir. July 10, 2024) (reconsidering in light of Loper Bright).

SSRN Paper: Loper Bright Is the Law But Poor Statutory Interpretation (10/28/24)

I have posted to SSRN the following paper: Loper Bright Is the Law But Poor Statutory Interpretation, available at SSRN here. The Abstract is:

While teaching law, I sometimes claimed that tax cases are too important to have the Supreme Court decide them. I had a list of tax cases to back up that claim. I have now expanded my list beyond tax cases to one administrative law case.

In Loper Bright Ent. v. Raimondo, 603 U.S. ___, 144 S. Ct. 2244 (2024), the Court pronounced that APA § 706, properly interpreted, requires that court review agency statutory interpretations de novo without deference. The claim rests on the opening words of § 706 coupled with a claim that, at the time of enactment of the APA, the courts did not defer to agency interpretations. Both claims are false, resting on poor scholarship of the history and law relevant to Congress’ meaning of § 706 at its enactment in 1946. One key is the Court’s perceived need to address the state of deference upon enactment of the APA. If the words of § 706 command de novo review, then what difference does it make what the state of deference was upon enactment of the APA?

In this article, I show that § 706, properly interpreted requires deference, because as enacted in 1946:

(i) the words of the APA, including the requirement in § 706(2)(A) that agency action be “held unlawful and set aside” only if “not in accordance with law,” a standard the Supreme Court held required deference in Dobson v. Commissioner, 320 U.S. 489 (1943) , and

(ii) the unquestioned understanding that § 706, upon enactment, applied the then-current state of review, which included deference.

Loper Bright failed to correctly assess the meaning of § 706. Loper Bright is the law, but, at a minimum, poor scholarship.

JAT Interview on Tax Law Institute on Federal Tax Procedure Book 10/5/24 (1020/24)

On October 5, 2024, I did a telephone interview, here, for the Federal Tax Law Institute, here. focused on my Federal Tax Procedure Book (Student and Practitioner Editions), see here.  The interview begins about 10:00 minutes into the recording.

Caveat, prior to the beginning of the interview, the speaker introduces my credentials, but states erroneously that I was with KPMG. I was never with KPMG but did represent one of the KPMG partners in the large criminal case in the Southern District of New York arising out of KPMG’s promotion of several varieties of tax shelters. Unfortunately, I was not online when he made that statement so could not correct real-time.

Also, we begin the interview sometime around 10 minutes. It turned out to be a telephone recording. I had some confusion about the particular video conference tool they used, so we defaulted to telephone interview.

One of the key points I make in the interview is that I welcome comments from readers of either edition of the book as to matters that might need corrected or improved. One of the students in the Federal Tax Law Institute started email correspondence about corrections or improvements. So, for those reading this blog, I encourage that type of input to make the next editions better.

Treasury Promulgates Syndicated Easement Listed Transaction Regulations (10/13/24)

The IRS long identified certain syndicated conservation easements as potentially abusive tax shelters. One prong of that attack Notice 2017-10 designating such transactions as “listed transactions” which carried certain reporting requirements with heavy potential penalties. Courts declared that designating a transaction as a “listed transaction” must be by notice and comment regulation rather than Notice or Revenue Ruling. E.g., Mann Constr., Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022), here; and Green Rock LLC v. IRS, 104 F. 4th 220 (11th Cir. 2024), here. The statutory path the courts followed to justify the holding is a feasible one but another feasible interpretation would have sustained the IRS use of Notices. See Sixth Circuit Invalidates Notice Identifying Listed Transaction Requiring Reporting and Potential Penalties (Federal Tax Procedure Blog 3/3/22); here, and Eleventh Circuit Invalidates IRS Designation of Listed Transaction by Notice; Designation Must be by Notice and Comment Regulation (Federal Tax Procedure Blog 6/16/24), here.

The IRS promulgated final regulations treating certain syndicated conservation easement transactions as listed transactions. Reg. § 1.6011-9, titled “Syndicated conservation easement listed transactions,” effective 10/8/24, TN here. The regulation grandfathers prior disclosures under Notice 2017-10. Reg § 1.6011-9(g). The regulations incorporate provisions fleshing out the addition § 170(h)(7)(A) in 2022 which limits the charitable deduction if the amount of the deduction exceeds 2.5  times the sum of each partner's relevant basis in such partnership or S Corporation.

I offer here only a general notice of the regulation. Those interested can parse the regulations for the details.

What was the State of Deference at the Enactment of the APA? (10/7/24)

I am presently writing an article I hope to publish to SSRN later this week. In that article, I include a discussion of Skidmore v. Swift & Co., 323 U.S. 134 (1944) which may have taken on new life as a result of the demise of deference from Loper Bright Ent. v. Raimondo, 603 U.S. ___, 144 S. Ct. 2244 (2024).

One key claim I make in the article is that Loper Bright is wrong in claiming that the cases in the 1940s “cabined” “deferential review to fact-bound determinations.” (144 S.Ct., at 2249.) The reason that the claim is important to the result is that Loper Bright needs to present the state of the law at the time the APA was enacted as not sanctioning deference to agency interpretations of ambiguous statutory text. During the consideration of the APA in 1945 and 1946, the consistent statements of the meaning of APA § 706 [§ 10(e) of the original APA before codification] was that § 706 restated existing law and made no change to the existing scope of judicial review of agency action. For a survey of those consistent statements, see John A. Townsend, The Tax Contribution to Deference and APA § 706 (SSRN 12/14/23 as updated on 10/6/24), here. In fact, the law is clear that deference was the state of the law at the time, as shown by Skidmore itself when read carefully.

Loper Bright gives new emphasis to Skidmore in the statutory interpretation universe, and at least as presented in Loper Bright, Skidmore has no relationship to the Loper Bright claim of no deference at the time the APA was enacted. But, as I present in my new yet-unfinished article, Skidmore confirms that Loper Bright just made up that claim of no deference.

Excellent Article on IRS CI Special Agent and Cryptocurrency (10/2/24)

I post today on an excellent article—Geraldine Brooks, The Cyber Sleuth (WAPO 10/1/24), here. This is one article in a WAPO series on “Who is Government?” where seven writers are said to “go in search of the essential public servant.” The articles in the series with author of each article are:

•  The Canary: Michael Lewis on the Department of Labor
• The Sentinel: Casey Cep on the Department of Veterans Affairs
• The Searchers: Dave Eggers on NASA’s Jet Propulsion Lab
• The Number: John Lanchester on the Bureau of Labor Statistics
• The Cyber Sleuth: Geraldine Brooks on the Internal Revenue Service
• The Equalizer: Sarah Vowell on the National Archives
• The Rookie: W. Kamau Bell on the Department of Justice

Each article in the series (so far) is outstanding. It is appropriate that Michael Lewis starts with the first installment because of his book, The Fifth Risk, which has been described as “a love letter to federal workers -- and a dig at Trump’s ‘willful ignorance’.” See WAPO book review here. Lewis tells a great story of the bureaucracy—the deep state, if you will—and how much the bureaucrats do for the country, keeping the country on an even keel in turbulent times (particularly the first (and hopefully the only) Trump administration where chaos reigned as Trump haphazardly filled the ranks of political appointees to the agencies).

The Cyber Sleuth installment deals with Jarod Koopman, an IRS “Cyber Sleuth.” Koopman is an example of IRS employees and government employees generally who bring dedication and unique skill to the mission of the IRS, an agency that Congress chronically underfunds seemingly to hamper the IRS’s ability to do the tasks Congress assigned it to do. The article says:

Until last year, the staff who work inside had watched their budget get cut for a decade. Their staffing numbers had reached lows not seen since the 1970s, even as the U.S. population swelled and the quantity of tax returns soared. There was no money to update failing technology, or even the software that ran it. The result was a pileup of paper returns that colonized corridors and cafeterias, and an American public vexed by poor service.

That, of course, was the goal: anti-tax activist Grover Norquist’s famous shrink-it-till-you-can-sink-it strategy. So the civil servants who had been valiantly struggling to serve more people with fewer resources found themselves unappreciated — even despised.

And perhaps most despised are the 3 percent of IRS personnel involved in criminal investigation, who have become piñatas for the agency’s critics. Fox News’s Brian Kilmeade characterized agents such as Koopman as dangerous threats who could “hunt down and kill middle-class taxpayers,” while Rep. Lauren Boebert (R-Colo.) accused them of “committing armed robbery on Americans.” Republicans even attached a rider to a spending bill limiting the number of bullets the IRS can buy. “A weapon is rarely discharged by one of our agents,” says a frustrated Werfel. “But you can’t send an agent into a criminal enterprise unarmed, so they have to train, and there’s a minimum inventory required for that.”