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.” 

First Circuit Holds that JDS for Crypto Records Is Not Entitled to Pre-Enforcement Review (10/1/24)

In Harper v. Werfel, 118 F.4th 100 (1st Cir. 2024), CA1 here and GS here, the Court rejected Harper’s claim that the documents gathered by the IRS John Doe summons (“JDS”) to Coinbase should be eliminated from its files because of alleged deficiencies in the JDS process.

I blogged on a prior appeal where the First Circuit held that the Anti-Injunction Act (“AIA”), § 7421(a), did not apply to prevent the pre-enforcement suit under the Administrative Procedure Act (“APA”) because the activity in question was “information gathering” rather than tax collecting and assessing. First Circuit Holds that Target of JDS May Bring Challenge to JDS Prior to Tax Enforcement Against Target (Federal Tax Procedure Blog 11/9/22), here. The prior appeal was styled Harper v. Rettig, 46 F.4th 1 (1st Cir. 2022), CA1 here and GS here. (Rettig was the former IRS Commissioner; Werfel is the current IRS Commissioner.) The Solicitor General did not authorize petition for certiorari in Harper v. Rettig, so the case was remanded to the district court for further consideration consistent with Harper v. Rettig. Harper v. Rettig thus appeared to be a big win in the line of cases allowing pre-enforcement review beginning with CIC Services, LLC v. IRS, 593 U.S. 209 (2021).

On remand, the district court reached the same result—dismissal—on different grounds as follows:

• The Court rejected Harper’s Fourth and Fifth Amendment claims on the basis that, by becoming a Coinbase customer, Harper (i) had no reasonable expectation of privacy or protectable interest with respect to Coinbase’s records (not his records) (the third party doctrine) and (ii) the JDS did not deprive Harper of due process. (Slip Op. 11-35  In the latter holding, the Court cited prominently S.E.C. v. Jerry T. O'Brien, Inc., 467 U.S. 735 (1984) which held “the Due Process Clause of the Fifth Amendment . . . is [not] offended when a federal administrative agency, without notifying a person under investigation, uses its subpoena power to gather evidence adverse to him.” (Slip Op. 29-30.) Readers should recall that the JDS is required in the first instance because the IRS does not know the identity of the account holder, so any requirement of due process of advance notice would judicially eliminate the JDS.

Comments Please (9/26/24)

I have eliminated the past comment tool (Disqus) which proved to be so daunting to readers of the blog who tried to make comments. I have returned to the comment tool provided by Blogger/Blogspot which is the blog tool that I have used since the inception of the blog. The Blogger/Blogspot comment tool seems to be better than it formerly was when I moved to Disqus. In any event, it is much easier to post comments, so I urge those wanting to comment and engage in discussions of the issues presented in the blogs to do so. Comments can provide a useful learning experience for those commenting and those reading the comments and discussion.

I urge readers to review the page to the right titled Guides to Use and Posting of Comments (9/26/24), here. As noted on that page, I moderate the comments, meaning that I read the comments prior to approving them to appear publicly on the particular blog entry. I plan to approve comments liberally, weeding out only comments that are not appropriate under the Guides to Use.

Thank you,

Jack Townsend 

Court Cannot Determine on Motion to Dismiss Malpractice and Related Claims from Bullshit Tax Shelter that the Statute of Limitations from 1997 Was Not Tolled (9/24/24)

In Cáceres v. Sidley Austin LLP (N. D. GA No 1:23-cv-00844 Dkt # 35 Opinion & Order dated 9/17/24), TN here and CL here, the Court denied the motion to dismiss filed by Sidley Austin (“Sidley,” the giant law firm, here). The Cáceres engaged R.J. Ruble, then a partner at the predecessor firm of Brown & Wood, to opine about a 1997 Midco transaction, an abusive tax shelter transaction in which the Cáceres sought to avoid the double tax upon sale of their corporate business. For an explanation of the Midco transaction, see FTP Practitioner Edition pp. 797-798 and Student Edition p. 537; and for Federal Tax Procedure Blog discussions of Midco transactions, here. Basically, tax shelter promoters use a variety of abusive techniques to avoid the built-in corporate level gain and then the sellers and the promoters share the tax thus illegally evaded, leaving the IRS without the tax. Usually, the promoters use a bullshit tax shelter to try to shield the corporate level tax, and when that tax shelter is denied, there is no money to pay the tax, requiring the IRS to seek the tax from third party such as the Cáceres.

At the motion to dismiss stage, the well-pled pleadings are analyzed to see if they pled sufficiently that, if the allegations and claims are true, a case had been stated. (This is before any factual development by discovery and cannot consider facts outside the complaint that a party may know; it is just a test of the sufficiency of the complaint.) The issue on the motion to dismiss was whether on the facts pled the statute of limitations barred the suit. The underlying transactions (including the legal opinion) were in 1997; this particular suit was brought in state court in 2023 and removed to federal court in 2023. Various claims in the complaint had statutes of limitations that were much shorter than the 20+ years that intervened from the 1997 accrual of the actions claim in the complaint. The question was whether, on the facts pled and claims made, the relevant statutes of limitations were tolled because of Sidley’s actions in hiding its alleged misconduct. The Court held that, on the facts pled, it could not determine that the statute of limitations had not tolled, so the case survived the motion to dismiss.

Perhaps the key fact was the IRS commencement in 2018 of a transferee liability suit under § 6901 against the plaintiffs as shareholders wrongfully sharing the corporate-level tax illegally avoided. See United States v. Henco Holding Corp., 985 F. 3d 1290 (11^th Cir. 2021), here. (Of course, significant audit commotion would have likely preceded for years the filing of the transferee liability suit, but the issue was whether on the facts pled,  the plaintiffs had been fairly put on notice as to the causes of action at a time outside the limitations period.) As described by the Court, the Cáceres alleged (Slip Op. 14-15)

11th Circuit on Third Consideration Seals FBAR Willful Penalty Except for Relatively Small Amount Held Excessive Fine under 8th Amendment (9/4/24)

In United States v. Schwarzbaum, ___ F.4th ___ (11th Cir. 2024), 11Cir here and GS here, the Court:

(1)  (a) held the FBAR civil willful penalties are “fines” within the meaning of the Eighth Amendment; (b) held the minimum $100,000 penalties applying to Schwarzbaum’s accounts with small amounts (those $16,000 or less) are disproportional and excessive; (c) held the penalties on the accounts with significantly larger amounts are not disproportional and thus not excessive; and (d) remanded to the district court to determine the effect of the $300,000 reduction required by the (1)(b) holding.

(2)   (a) rejected Schwarzbaum’s attack that, in a prior appeal, the court held the assessment was “arbitrary and capricious” and thus rendered the assessments invalid from inception; instead holding that the prior holding was that the assessment was “not in accordance with law,” a different standard under APA § 706(2)(A), requiring a remand to the IRS to fix the calculation mistake rather than wipe out the assessments; (b) rejected a related statute of limitations argument that the remand required a new out of time assessment, holding the issue had been decided against Schwarzbaum in an earlier appeal; (c) sustained a lower assessment rather than the correct assessment which would have been higher; and (d) held the district court properly remanded the case to the IRS and retained jurisdiction of the case to consider after the IRS recalculated the penalties.

The unanimous opinion is quite long (53 pages) and offers a lot of interesting discussion of the history of the FBAR penalties. Those relatively new to the subject, can learn from reading the opinion closely. Those who are veterans to the subject can probably skim through the opinion and understand the holdings.

JAT Comments:

9th Circuit 3-Judge Panel Has Three Different Interpretations Illustrating the Stupidity of Loper Bright's Rejection of Deference (9/3/24; 9/7/24)

In Brown v. Commissioner, ___ F.4th ___ (9th Cir. 2024), CA9 here & GS here, the Court rejected Brown’s claim that his offer in compromise had been statutorily deemed accepted under § 7122(f) because, he claimed, the IRS had not rejected the offer within 24-months of the date of the offer. Brown’s claim would have permitted him to settle $50 million+ tax liability for a bare fraction.

 Section 7122(f) provides:

(f) Deemed acceptance of offer not rejected within certain period
Any offer-in-compromise submitted under this section shall be deemed to be accepted by the Secretary if such offer is not rejected by the Secretary before the date which is 24 months after the date of the submission of such offer. For purposes of the preceding sentence, any period during which any tax liability which is the subject of such offer-in-compromise is in dispute in any judicial proceeding shall not be taken into account in determining the expiration of the 24-month period.

The Tax Court held that, under the facts, the offer had been rejected within the 24-month period. The Court of Appeals, in a 3-way split opinion (more below) held that Brown loses on the issue, with two judges reaching the result by different interpretations of the law and the dissenting judge reaching a contrary result (Brown wins) on a different interpretation. In other words, all the judges differed in their interpretations of the applicable law, but 2 interpretations favored the IRS and one favored Brown. Brown loses.

Has Auer Time Passed? (8/20/24)

A question raised by the demise of deference pronounced in Loper Bright Enterprises v. Raimondo, 603 U. S. ____, 144 S. Ct. 2244 (2024) is the continuing viability or application of Auer/Kisor deference. Recall that Auer/Kisor deference applied Chevron-type deference framework to agency subregulatory guidance interpreting ambiguity in agency regulations. Loper Bright did not speak to the continuing viability of Auer/Kisor deference. The Loper Bright opinion of the Court cited Kisor for other propositions, but did not speak to whether Auer/Kisor was viable after Loper Bright.

Although Loper Bright did not speak directly to the continuing viability of Auer/Kisor deference, I think that the inevitable logic of Loper Bright pronounces the demise of Auer/Kisor deference. Of course, because the Supreme Court did not expressly overrule Auer/Kisor deference, some pundits and courts may still pay homage to it until and unless the Supreme Court speaks to its continuing viability. See e.g., 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.

However, a confident lower court reading Loper Bright as I do might be willing to step out on that issue by holding that Loper Bright is inconsistent with Auer/Kisor deference. Or, alternatively, as happened in Coplan, a Court of Appeals might signal in an opinion that there is a major conceptual problem that the Supreme Court should address. See Is It Too Much to Ask that the Defraud Conspiracy Crime Require Fraud? (Federal Tax Crimes Blog 8/3/24; 8/6/24), discussing United States v. Coplan, 703 F.3d 46 (2d Cir. 2012), cert. den. 571 U.S. 819 (2013).

Now, I will state why I think Auer/Kisor deference is not consistent with the demise of Chevron deference pronounced in Loper Bright.

Tax Court Applies the Best Interpretation as Required by Loper Bright Rejection of Chevron Deference (8/27/24)

In Varian Medical Systems, Inc. v. Commissioner, 163 T.C. ___, No. 4 (2024), JAT GD here [see note below at *] and GS here, a reviewed opinion with no dissents, the Tax Court fired its first round of application of the demise of Chevron deference in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244, 2273 (2024). For discussion of Loper Bright, see The Supreme Court Pronounces the Demise of Deference (6/29/24; 7/26/24), here (with linked revisions through 8/27/24 for discussion in Federal Tax Procedure Book (2024 Practitioner Ed.).
 
The issue in Varian Medical involved esoteric (to me) Code sections related to taxation of U.S. taxpayers doing business through foreign corporations. I don’t propose to get into the nitty gritty of that (probably could not do it with clarity anyway), but in summary the situation was:

A statute imposed U.S. tax on certain accumulated foreign earnings with an effective date. The statute purportedly had an unintended benefit arising from the interface with another Code provision. As I understand it, the unintended benefit was to allow the U.S. taxpayer both a credit and a deduction for foreign taxes deemed paid. Congress closed the purportedly unintended benefit (the deduction side) but with an effective date that did not go back to the effective date of the original statute. Could the IRS by interpretation (including an interpretation adopted in regulations) move the purportedly correcting amendment effective date back to the date of the original statute?

As stated, the result may have been a no-brainer even without the demise of Chevron. Facially, from the statute, the later “correcting” legislation only was effective from its stated effective date rather than the earlier effective date. Fair interpretation of the statute just couldn’t get that far even with Chevron. As thus stated, the issue could have been resolved at Chevron Step One. To be sure, it is probably fair to say that Congress did not intend both a credit and a deduction related to the same expense (in a broad sense), but Congress did clearly state its intent as to the two statutes' effective dates.
 
The Court addressed the deference and interpretation issues as follows (Slip Op. 28-32, cleaned up somewhat; sorry for the long quote but as this is a first application of Loper Bright, this is important):

More on United States v. Boler (8/25/24)

Yesterday, I wrote a blog entry on United States v. Boler, 115 F.4th 316 (4th Cir. 2024). 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. (The blog entry was cross-posted on my Federal Tax Crimes Blog, here.) I think there is more that can and should be said about Boler. This post will be more of a “notice” post (like the fabled notice pleading lawyers at least of my generation learned about early in our law school careers).

1. The structure of the Federal Sentencing Guidelines. The 2023 version of the U.S. Sentencing Guidelines is here. The Guidelines (with accompanying Commentary and Policy Statements) are promulgated by the U.S. Sentencing Commission which is “a bipartisan, independent agency located in the judicial branch of government, was created by Congress in 1984 to reduce sentencing disparities and promote transparency and proportionality in sentencing.” See website here. So, we know at the outset that it is a strange creature in our constitutional framework—the only agency located in the judicial branch. 

JAT Side Note: Readers of this blog will surely have some passing acquaintance with the difficulty going back to the 1940s of determining precisely what the Tax Court was, even though the statute said since its earliest days (then the Board of Tax Appeals) that the Tax Court was an independent agency in the Executive Branch. As I have noted, the nature of the Tax Court was an issue was much discussed with more heat than light in the 1940s, including in the consideration of the APA; the Supreme Court in Dobson v. Commissioner, 320 U.S. 489 (1943), reh. den., 321 U.S. 231 (1944), a unanimous opinion authored by Justice Jackson, the most tax procedure savvy Justice ever, held that the Tax Court was an agency rather than a court and applied Chevron-like deference to its statutory interpretations. I cover these issues in John A. Townsend, The Tax Contribution to Deference and APA § 706 (SSRN December 14, 2023), pp. 5-23)   https://ssrn.com/abstract=4665227.

2. Guidelines treated as Legislative Rules; Commentary Treated as Interpretive Rules. As an agency, albeit a Judicial Branch agency, the issue underlying Boler was the authority of the Guidelines and the Policy Statements and Commentary. In Stinson v. United States, 408 U.S., 36 (1993), GS here, the Court treated the Guidelines as analogous to legislative rules which make law pursuant to Congress’ delegation and treated Commentary as an interpretive rule interpreting the law (the law being the Guidelines). The Court said (p. 44-45, cleaned up to omit most case citations):

Although the analogy is not precise because Congress has a role in promulgating the guidelines, we think the Government is correct in suggesting that the commentary be treated as an agency's interpretation of its own legislative rule. The Sentencing Commission promulgates the guidelines by virtue of an express congressional delegation of authority for rulemaking, and through the informal rulemaking procedures in 5 U. S. C. § 553, see 28 U. S. C. § 994(x). Thus, the guidelines are the equivalent of legislative rules adopted by federal agencies. The functional purpose of commentary (of the kind at issue here) is to assist in the interpretation and application of those rules, which are within the Commission's particular area of concern and expertise and which the Commission itself has the first responsibility to formulate and announce. In these respects this type of commentary is akin to an agency's interpretation of its own legislative rules. As we have often stated, provided an agency's interpretation of its own regulations does not violate the Constitution or a federal statute, it must be given "controlling weight unless it is plainly erroneous or inconsistent with the regulation." Bowles v. Seminole Rock & Sand Co., 325 U. S. 410, 414 (1945). 

Bowles v. Seminole Rock is the predicate for Auer deference which I now call Auer/Kisor deference because of the authoritative treatment of Auer deference in Kisor v. Wilkie, 588 U.S. 558 (2019). As I discussed in yesterday’s blog on Boler, the issue was the application of Auer deference to Guidelines’ Commentary (Application Note) defining the Guidelines term “loss” to include “intended loss.”

3. Did Auer/Kisor Deference Survive the Demise of Chevron. One of the issues I presented in yesterday’s blog was whether Auer/Kisor deference survived the demise of Chevron deference. I just want to make a few bullet points about that issue.

Fourth Circuit Applies Auer/Kisor Deference to Include in Guidelines "Loss" the Commentary Inclusion of "Intended Loss" (8/24/24)

In United States v. Boler, 115 F.4th 316 (4th Cir. 2024), CA4 here and GS here [to come], the Court held that the term loss included the pecuniary loss that Boler intended from filing false refund claims with the IRS. Boler filed six returns claiming false refunds; the IRS paid refunds on only four of the returns. Boler wanted the loss to be calculated using only the amounts actually refunded and thus to exclude the refund amounts claimed but not refunded. The district court held that Sentencing Guidelines inclusion of loss included intended loss. Since the pecuniary loss is a principal driver of the Sentencing Guidelines calculations, the inclusion of the intended loss increased the advisory Guidelines sentence and factored into the resulting sentence. On appeal, Boler argued that the Guidelines required inclusion of the loss, which facially does not include intended loss and that, the Guidelines Commentary interpretation of “loss” to include intended loss was an invalid interpretation of the Guidelines term “loss.” The Court of Appeals held that loss included the intended loss. (This is perhaps a moot issue in the future, because the definition of loss in the Guidelines was changed effective November 1 to include intended loss.)

The issue, as framed by the majority, turned on the application of Auer/Kisor deference. So, what is Auer/Kisor deference? As interpreted in Kisor v. Wilkie, 588 U.S. 558 (2019), GS here, the Court updated and constricted Auer deference, but, as constricted, held that in some cases courts should defer to agency interpretations of ambiguous agency legislative regulations. The majority in Loper Bright did not mention Auer/Kisor deference, although it cited Kisor several times; the dissent said (S.Ct. at 2306-2307) that Kisor approved Auer deference “which requires judicial deference to agencies' interpretations of their own regulations.” (Hereafter, whenever I use the term regulations, I mean agency notice and comment regulations required for legislative regulations and permitted for interpretive regulations.) The Loper Bright opinions make no statement that Auer/Kisor deference is affected.

I should note that, in my thinking, the Court analogized Auer/Kisor deference to Chevron deference which applied to agency regulations’ interpretations of ambiguous statutory text. The analogy is logical: Chevron deference applied to agency regulations interpretation of law (there statutory law); Auer deference applied to agency interpretations of law (legislative regulations that function like statutes to impose the law); so both forms of deference apply to agency interpretations of law.

6th Circuit Remands Case for Consideration of Certain Constitutional Claims Against § 6050I(d)(3) Addition to Include Digital Assets in CTR Reportable Cash (8/21/24; 8/22/24)

In Carman v. Yellen, ___ F.4th ___, 2024 U.S. App. LEXIS 20033 (6th Cir.), CA6 here and GS here, the plaintiffs made a number of constitutional claims against the 2021 addition to the definition of cash reportable on currency transaction reports under § 6050I. The addition is in § 6050I(d)(3) to include digital assets in the definition of reportable “cash.” The plaintiffs were particularly concerned about cryptocurrency. The constitutional claims as set forth by the Court are (Slip Op. 9-11, cleaned up for readability principally by omitting citations to the record): 

          Plaintiffs launch five distinct constitutional attacks on the amended § 6050I, including a Fourth Amendment claim, a First Amendment Claim, a Fifth Amendment vagueness claim, an enumerated-powers claim, and a Fifth Amendment self-incrimination claim. For each of these, plaintiffs bring facial challenges, meaning they contend all (or almost all) applications of the law are unconstitutional. That creates some confusion, however, because their legal theories, as we note in our analysis, sound in as-applied challenges by contending that specific applications of § 6050I or hypothetical future events tied to the statute would create constitutional infirmities. Yet, for all claims, plaintiffs’ requested relief is the same: a declaration that § 6050I is facially unconstitutional and that enforcement of the law be enjoined.

           Plaintiffs’ first claim is that the amended § 6050I violates the Fourth Amendment. Specifically, plaintiffs claim that the amended law compels senders and receivers of cryptocurrency in reported transactions to “share their personal identifying information in conjunction with the details of their covered transactions, and thereby reveal sensitive details about their personal affairs.” Because of the private nature of cryptocurrency transactions, plaintiffs contend that they have a reasonable expectation of privacy and that the amended law will invade that expectation of privacy, all without the need for a warrant. Plaintiffs additionally claim that the government will conduct searches by violating their property rights.

Ninth Circuit Denies Taxpayers a Refund for Failure to Satisfy § 6511 Timing Rules (8/15/24)

In Libitzky v. United States, 110 F.4th 1166 (9th Cir. 2024), CA9 here & GS here, the panel rejected the Libitzkys’ refund suit for failure to meet the refund suit limitations periods in § 6511, here. Many readers of this blog will likely already have some familiarity with the time limitations for refund suits and know that application of the time limitations can be complex. I cover the subject in the Federal Tax Procedure (2024 Practitioner Ed.), pp. 226-230 and Federal Tax Procedure (2024 Student Ed.), pp. 157-161, available free here. The only difference between the Practitioner Edition and the Student Edition is the former has footnotes and the latter does not. I have made significant revisions to these pages in my 2025 Working Draft (to be published in July or August 2025), particularly adding Example 8a inspired by Libitzky. The revisions as of the posting of this blog are in redline format here (Practitioner Edition). (Please note that a number of changes are nonsubstantive, such as changing April 15 of Year 02 to 4/15/02.

I have had considerable difficulty understanding the Libitzky opinion. The discussion I present here will likely reflect the difficulty. So, I have decided to first cover the applicable “law” as I understand it. I will then state key representative “facts” of Libitzky through Example 8a. That is the approach I take in the Book—to first present the law and then present various fact scenarios (Examples to discuss the complexities in the law). In presenting the law, I will copy and paste from the 2025 Practitioner Edition working draft retaining the redlines showing changes from the 2024 editions. I include only the portion related to Libitzky. I only include footnotes where they are needed for the discussion of Libitzky. (The numbering of the footnotes are not the same as in the Book.)

          There are two statutes of limitation on taxpayers claiming tax refunds.

          First, there is a statute of limitations for filing the claim for refund. A claim for refund must be filed within three years from the date the return was filed or two years from the date the tax was paid, whichever is later, and, if no return is filed, within two years from the date of payment. § 6511(a). This is sometimes called the refund claim limitation period. This statute of limitations has traditionally been read literally, requiring filing within the stated periods with no equitable relief; so read literally, the statute of limitations is said to be jurisdictional for the predicate condition in § 7422(a) to file a suit for refund. Also, if read literally, the statute means that a taxpayer can file a return claiming a refund 40 years late and qualify under this first rule. I hope readers will instinctively say something must be missing here, for statutes of limitations do not normally allow such lengthy lapses before the claim must be pursued. The answer to that concern is in the second rule, a limitation on the amount of tax that can be refunded. n1  

    n1 Omohundro v. United States, 300 F.3d 1065, 1068-1069 (9th Cir. 2002)); Weisbart v. Treasury, (2d Cir. 2000); and Rev. Rul. 76-511, 1976-2 C.B. 428. The 40 years late example is inspired by Oropallo v. United States, 994 F.2d 25, 30 (1st Cir. 1993) (noting that the limitation might be “illusory” for late filed returns because a taxpayer could “file a tax return 40 years late and still have 3 additional years in which to file a claim for refund;” the Second Circuit in Weisbart said that “Nevertheless” this construction makes sense, noting that the purpose of § 6511(a) “is not to bar stale refund claims, but to ensure that a taxpayer give the IRS notice of such claims before suing in federal court.”) But see Libitzky v. United States, 110 F.4th 1166, 1172 (9th Cir. 2024) (stating that “both the limitation period [in § 6511(a) and the look-back period in § 6511(b) (discussed immediately below the text above)] are shorter and less generous for taxpayers who do not timely file their tax returns.” (Bold-face supplied by JAT)). In other words, the Libitzky Court would not accept the conclusion that a refund claim return filed, say, 4 or 40 years after the return due date (meaning that the return is not timely filed) can avoid the two-year limitations period in § 6511(a). My concern with that notion is the limitations periods in § 6511(a) are whichever is later which, as I read the syntax of § 6511(a) would permit the return claiming a refund filed after the two year period to qualify under the first rule (3-years from the time the return was filed), thus mooting the applicability of the 2-year period in § 6511(a). For reasons that I note below, however, Libitzky may have been correct under § 6511(b) because of its distinction between a refund claim and a filed return. See below Example 8a on p. 233.

DC Circuit Affirms Tax Court on Lack Of Jurisdiction for Awards from Voluntary Disclosures in OVDI (8/12/24)

I previously blogged about a whistleblower claim dismissal in Shands v. Commissioner, 160 T.C. 388 (2023), here. Tax Court Sustains IRS WBO Denial of Whistleblower Claim for Award Based on All OVDI Collected Proceeds (3/13/23), here. The whistleblower (Shands) sought the mandatory and discretionary awards under § 7623(b) for collections in the IRS Offshore Voluntary Disclosure Initiative (“OVDI”) which allegedly exceeded $2.3 billion, with a resulting minimum 15% award that would exceed $345 million. The claim was based on Shands’ cooperation with the IRS in identifying and prosecuting Swiss Bank account enablers (bankers, etc.), actions which allegedly led the IRS to adopt the OVDI which in turn resulted in the IRS collecting substantial FBAR  penalties and income tax, penalties and interest. The Tax Court rejected his claim for lack of jurisdiction because the collections in the OVDI were not administrative or judicial actions based on Shands’ information.

The D.C. Circuit affirmed on appeal.  Shands v. Commissioner, ___ F.4th ___ (D.C. Cir. 2024), DCCir here and GS here. The Court agreed that the collections from taxpayers joining the OVDI were not proceeds from administrative actions (or related actions) from Shands' information. The Court reasoned (Slip Op. 11-12):

     OVDI cases do not generally give rise to Tax Court jurisdiction because they typically are not “against” any taxpayer. Rather, a taxpayer who participates in the OVDI chooses to disclose overseas accounts; calculates the taxes, interest, and penalties associated with the voluntary disclosure; and then pays the amount that is owed. That process is initiated and directed by the taxpayer. It therefore cannot be fairly characterized as the IRS proceeding with an action against the taxpayer. See Li, 22 F.4th at 1017. Indeed, the defining features of the OVDI program are the taxpayer’s voluntary disclosures and payments: The OVDI thus bears no [*12] resemblance to the IRS-driven actions that are listed as examples of “administrative actions” in the applicable regulation, see 26 C.F.R. § 301.7623-2(a)(2) (citing as examples “an examination, a collection proceeding, a status determination proceeding, or a criminal investigation”).

Certain other points:

1. The Court noted that voluntary disclosures which are followed by administrative audits (which was a possibility in OVDI and undoubtedly occurred in some cases such as, for example, when taxpayers opted out or were removed from OVDI) might confer jurisdiction (Slip Op. 12-15, bold face supplied by JAT):

Taxpayer Liable for Willful FBAR Penalties Despite Alleged ADHD, Stress, Depression, and Stage 3 Prostrate Cancer (8/10/24)

 In United States v. Rund (E.D. Va. No. 1:23-cv-00549 Memo Opinion & Order 8/6/24), CL here and GS here, the Court granted the Government summary judgment on Rund’s liability for FBAR willful penalties and ordered judgment for “$2,915,663 as of April 30, 2021, consisting of an assessment against him under 31 U.S.C. § 5321(a)(5), plus pre- and post-judgment interest and penalties accruing on that assessment in accordance with 31 U.S.C. § 3717.”

Significant features of the opinion:

1. Rund “participated in OVDP from 2010 through 2016” and apparently either withdrew or was terminated. (Slip Op. 6.) While in OVDP he apparently did not fully disclose offshore accounts and even failed to file FBARs as due. (Id.) He alleged as a defense “improper termination and/or denial of entry from the OVDP program.” (Slip Op. 7 n6.) There is no further discussion of that adventure, and  Rund apparently failed to address the defense in his motion for summary judgment. (Id.)

2. More significantly, Rund claimed certain personal characteristics that he felt negated willfulness. The Court addressed that claim as follows (Slip Op. 13-14):

Federal Tax Crimes Blog Posting on Interface of Sentencing Guidelines and Loper Bright Interpretive Regime (8/7/24)

I have just posted Sentencing Guidelines under the Loper Bright Non-Deference Regime (Federal Tax Crimes Blog 8/7/24), here. Some readers of the Federal Tax Procedure Blog may be interested since the posting involves the interface of the Sentencing Guidelines and the new Loper Bright interpretive regime (i.e., sans deference).

More Nuance On Loper Bright's Adoption of the Notion that Courts Say What the Law Is (8/6/24)

In the originally posted version of the Federal Tax Procedure Editions (Practitioner and Student), I explained Loper Bright’s rejection of Chevron deference to agency interpretations as follows:

The key notion behind this holding is that, in the words of Justice Marshall’s famous soundbite, “[i]t is emphatically the province and duty  of the judicial department to say what the law is.” Marbury v. Madison,  5 U.S. (1 Cranch) 137, 177 (1803). The balance of the reasoning for Loper Bright is just spinning that notion.

Upon reflection, the explanation was too cryptic for those not deep into the Loper Bright weeds and what came before it. I therefore have revised that paragraph to read as follows (offering here the footnotes in the Practitioner version and noting the changes in red):

          The key notion behind this holding is that, in the words of Justice Marshall’s famous soundbite, “[i]t is emphatically the province and duty of the judicial department to say what the law is.” Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177 (1803). The balance of the reasoning for Loper Bright is just spinning the notion n423a through APA § 706’s supposed command that courts “decide all relevant questions of law.” n423b
      n423a Professor Dorf says that, historically, the “say what the law is” notion in Marbury v. Madison accommodated judicial restraint –deference if you will. See Michael C. Dorf, How Emphatically is it the Province and Duty of the Judiciary to Say What the Law Is? (Dorf on Law 8/2/24), discussing “Thayerism” and judicial restraint to permit judicial intervention only in cases of clear violation of the text, an interpretive exercise compatible with deference, and concluding: 
  Yet neither Thayer nor those who followed in his footsteps thought his clear-incompatibility standard for invalidation of legislation violated Marbury. On the contrary, they understood it as what Marbury entailed. Thayerism thus validates the idea that the judicial province and duty to say what the law is can co-exist with a practice of deferring to non-judicial actors.
      n423b Striving to accommodate the above-quoted APA text to Marbury v. Madison’s “say what the law is” notion, the Supreme Court conveniently ignored the requirement in § 706(2)(A) that agency conclusions of law be set aside if “not in accordance with law.” As I develop in my article, The Tax Contribution to Deference and APA § 706, cited on p. 87 n. 422, the Court interpreted the “not in accordance with law” limitation on court review of Tax Court conclusions of law to require deference. Dobson v. Commissioner, 320 U.S. 489 (1943), reh. den. 321 U.S. 231 (1944). Indeed, the principal actors in the enactment of the APA just 3 years after Dobson would have known that the words “not in accordance with law” had been so interpreted to require deference. In this regard, Justice Robert Jackson’s opinion in Dobson interpreting those words echoes the Thayerism view that restraint (deference) not apply only for clear violations (Justice Jackson’s phrasing was “clear-cut violations”). In short, the Loper Bright Court strained to make the holding appear to be an APA holding on very weak grounds when, in fact, it was far more fundamentally about the majority’s view that courts alone say what the law is.

A pdf with the changes in the 2025 working draft is here (note that the footnotes in the pdf are numbered in order with the working draft).

DC Circuit Interprets the § 751 Inventory Exception to Achieve a Result Congress Cannot Have Intended (7/29/24)

In Rawat v. Commissioner, 108 F.4th 891 (D.C. Cir. 2024), DCCir here and GS here, the Court held that the portion of a foreign person’s gain from sale of a partnership interest attributable to partnership inventory taxed under § 751 as other than capital gain is not U.S. sourced and therefore not subject to U.S. tax. The opinion really has nothing to do with tax procedure, except on the picky point that I note at the end of this blog.

As I see the issue (perhaps not from the same literalist reading of the statutes as the Court but as a high level overview of what I think Congress was trying to do), the purpose of recharacterizing what would be capital gain into ordinary income for the underlying appreciated inventory in the partnership is to give the partner treatment as if the partnership had sold the inventory, realized the gain, and allocated it to the foreign partner for U.S. tax. Judge Gustafson in the Tax Court reached that result well within the constraints of the language in the Code. See Rawat v. Commissioner, T.C. Memo. 2023-14 , here. Only by fixating on certain text does the D.C. Circuit panel avoid that result. The whole purpose of all judicial interpretive methodologies is to be the faithful agents interpreting the will or intent of Congress. Foregoing U.S. tax on the gain attributable to inventory certainly was not the intent of Congress.

I post on this case because it seems to me to be of the same genre of resolution as Gitlitz v. Commissioner, 531 U.S. 206 (2001), here, Justice Thomas' infamous literalist / textualist opinion oblivious to the overall design of the Code. I discuss in general terms the interpretive methodologies in the Federal Tax Procedure Book 2024 versions (Student Ed. at pp. 6-11) and (Practitioner Ed. at pp. 8-17). Specifically, in another part of the book (Practitioner Ed.  at p. 109 n. 505), I discuss Gitlitz as follows in a footnote regarding the chaos some Supreme Court opinions:

   n505Charles I. Kingson, How Tax Thinks, 37 Suffolk U. L. Rev. 1031 (2004) (critiquing two leading Supreme Court cases: Frank Lyon Co. v. United States, 435 U.S. 561 (1978) and Commissioner v. Brown, 380 U.S. 563 (1965)); see also Charles I. Kingson, Confusion Over Tax Ownership, 93 Tax Notes 409 (Oct. 8, 2001) (critiquing the same). I also cite Gitlitz v. Commissioner, 531 U.S. 206 (2001) as a prime example of Supreme Court’s mischief in this area. See René Matteotti, Struggling With Words in Tax Jurisprudence -- A Plea for an Equal Treatment Mode of Analysis in Construing Tax Statutes, 2005 TNT 130-30. My quip, not much of an overstatement, is that tax cases are too important to let the Supreme Court decide them.

Bills to Approve Deference - Stop Corporate Capture Act (7/26/24)

The Supreme Court rejected Chevron deference based on implied delegated authority from statutory ambiguity or silence as a matter of statutory interpretation of APA 5 U.S.C. § 706. Loper Bright Enterprises v. Raimondo, 603 U. S. ____, 144 S.Ct. 2244 (2024). I covered that development in a prior blog. The Supreme Court Pronounces the Demise of Deference (Federal Tax Procedure Blog 6/29/24; 7/26/24), here. Loper Bright recognizes that, since the demise of deference is a matter of statutory interpretation of APA 5 U.S.C. § 706, Congress may legislatively delegate interpretive authority to agencies (although some read Chief Justice Roberts’ Loper Bright rhetoric as suggesting constitutional overtones). The delegation may be explicit or implicit, but it can’t be by ambiguity or silence alone. I discuss the possibility an implied delegation of interpretive authority in Can § 7805(a) & (b) Be Read as Delegating to Treasury/IRS Interpretive Authority with Deference (7/14/24), here.

Senator Warren has introduced the Stop Corporate Culture Act in the Senate. See Press Release titled Warren Leads Senate Response to End of Chevron Doctrine (7/23/24), here. The Press Release has links at the top to: Bill Text (PDF), Section-by-Section (PDF), and Bill Two-Pager (PDF). 

The Senate “Stop Corporate Culture Act” is the Senate version of a similar House Bill introduced in the House in 2023, Stop Corporate Capture Act, H.R. 1507, 118th Cong., see links to the bill and related material here.

I haven’t compared the two bills, but suspect that there may have been some tweaking in Senator Warren’s version to address specific issues raised by the recent Supreme Court decisions since the introduction of the House bill. However, below, I compare provisions in the two bills on deference and found no differences.

Both bills go substantially beyond the deference issue to address certain administrative law problems raised by decided cases and otherwise in the public discussion. These are suggested by the following from Senator Warren’s description of the bill in the press release:

The Senate version of the Stop Corporate Capture Act would (copy and paste from Senator Warren's Press Release):

Federal Tax Procedure Book 2024 Editions on SSRN (7/26/24)

The 2024 versions of the Federal Tax Procedure Book are now posted on SSRN. SSRN still has to approve them, but those interested can view or download them in the interim. See here.

Those using the 2024 versions should consult the Update page for significant developments here.

Tax Court Rejects Bullshit Grossly Overvalued Conservation Easement Claim (7/19/24)

In Corning Place Ohio, LLC v. Commissioner, T.C. Memo. 2024-72, JAT Google Docs here and GS here, the Court (Judge Lauber) denied a charitable deduction for an alleged conservation easement and imposed accuracy-related penalties. The Court’s opening paragraph tells the story of a bullshit tax shelter, as so often these days, in the guise of a conservation easement (footnote omitted):

          This case presents what might be called the urban version of the conservation easement tidal wave that has deluged this Court. A partnership acquired a historic office building in downtown Cleveland, Ohio, and proceeded to renovate it into luxury [*3] apartments. The renovation was undertaken pursuant to a “rehabilitation plan” approved by the National Park Service (NPS) and the State of Ohio, both of which awarded historic preservation tax credits. The partnership used the tax credits to finance the renovation.

          Gilding the lily, the partnership then granted a conservation easement over the very same property, claiming a $22.6 million charitable contribution deduction on the theory that it had relinquished valuable development rights. The “lost development rights” allegedly consisted of the notional opportunity to add a 34-story vertical addition on top of the historic building. Apart from being structurally implausible and economically unsound, adding 34 floors of steel and concrete atop the building would have required the partnership to forfeit the Federal and Ohio tax credits upon which it relied to finance the renovation. As a condition of receiving those credits, it had pledged that the rehabilitation plan would entail no rooftop improvements “visible from the street.”

          Needless to say, a 34-story addition on top of the building would have been visible from the street. Finding that the 34-story tower was a chimerical concept ginned up solely to support a wildly inflated appraisal, we will sustain the Commissioner’s disallowance of the charitable contribution deduction and his imposition of a 40% penalty under section 6662(h) for a “gross valuation misstatement.”

I include at the end of this blog entry several quotes from the opinion that I thought particularly good to show the perfidy of the actors involved in the drama. First, I will address two tax procedure issues:

Can § 7805(a) & (b) Be Read as Delegating to Treasury/IRS Interpretive Authority with Deference (7/14/24)

I recently updated a post on Corner Post. See Does Corner Post Permit § 2401(a)’s 6-year Statute of Limitation to Apply from Date of Regulation for Procedural Challenges? (Federal Tax Procedure Blog 7/10/24; 7/11/24), here. In the update (in red), I argued that the Corner Post holding was meaningless because Loper Bright compels that the best interpretation controls whether or not incorporated in a regulation (previously required for deference) and whether or not such a regulation was procedurally or substantively valid. So, whenever a court adjudicates, the best interpretation should now be applied from the effective date of the enacted statute.

One consequence of that for tax is that § 7805(b), here, is rendered meaningless unless, as I note here, there is a continuing role for deference. A reminder on what § 7805(b) does. From my Federal Tax Procedure Book 71 (2023.2 Practitioner Edition) (footnotes omitted and emphasis supplied), here:

          (1) if issued within 18 months of the date of the statute, then to “the date of the enactment” of the statute;

          (2) if issued later than 18 months, then the earliest of the following dates: (a) the date the final regulation was published; (b) the date on which any Proposed or Temporary Regulation was published; and (c) the date on which any notice substantially describes the contents of the expected Proposed, Temporary or Final Regulation;

          (3) if necessary “to prevent abuse,” with no limitation as to the date of retroactivity;

          (4) “to correct a procedural defect in the issuance of any prior regulation,” with no indication as to the date of retroactivity;

          (5) if “relating to internal Treasury Department policies, practices, or procedures,” with no limitation as to the date of retroactivity.

These are limitations on the regulations but not the interpretation. If the [Treasury] interpretation is the best interpretation of the statutory text, then perforce the interpretation will apply from the effective date of the statute (whether or not the interpretation is in a regulation). In other words, if the IRS [Treasury] were to include the interpretation in a regulation which violated the time limitations, that would not invalidate the interpretation or prevent the interpretation from applying from the effective date of the statute; it would just invalidate the regulation.

Loper Bright’s Rejection of Deference Moots the Liberty Global Dispute About the Validity of the Temporary Regulation (7/12/24)

I have discussed various suits arising out of Liberty Global’s allegedly sham transactions to avoid tax based on an alleged loophole in the CFC regime as amended by the 2017 TCJA which taxed U.S. shareholders currently on all foreign earnings, except for certain limited categories of income. (For all blog entries mentioning Liberty Global, see here.) Liberty Global’s planning for the transactions was called “Project Soy.” The IRS sought to impose tax on Liberty Global for the Projects Soy transactions under the IRS’s application of the 2017 TCJA change. (The technical details of the statute and the Project Soy planning are complex and not needed for the point I make here.) The Project Soy initiative generated three separate lawsuits (making their contribution to full employment for lawyers, particularly with amici briefs on the inevitable appeal):

• Liberty Global brought a refund suit in the Colorado district court after reporting the liability and paying tax based on its claim that tax was not due,
• The United States brought a collection suit against Liberty Global to reduce the claimed tax to judgment before issuing a notice of deficiency, and
• Responding to a notice of deficiency, Liberty Global brought a Tax Court deficiency suit.

I won’t get into the procedural aspects of these various suits, except to note here that the refund suit requires Liberty Global to prove that it is entitled to a refund. (The other actions are still pending in the district court and Tax Court, respectively.) In the refund suit, the district court rejected Liberty Global’s refund claim, holding that the economic substance doctrine applied to defeat the claim. Liberty Global  appealed the refund suit. (10th Cir. No. 23-1410, see CourtListener Docket Entries, here.) On appeal, the parties fight over the application of the economic substance doctrine, either as a doctrine or its iteration in  §7701(o). None of the parties in their briefs cite Chevron or deference. (Determined by a search on those words in all of the briefs available in CourtListener as of today; my review of the district court order also indicates no reference to those words.) Accordingly, in the Loper Bright paradigm, the Government can prevail if its interpretation of the economic substance doctrine and § 7701(o) is the best interpretation.

Although Chevron deference does not appear to be directly at issue, I infer that the parties and amici for some reason think it may sub silentio because the parties commote at length about the validity Temporary Regulation  § 1.245A-5T. If the case is governed by the best interpretation of the statutory text as Loper Bright commands, what difference does it make whether the Temporary Regulation is valid? As I have explained in several blogs, the only interpretive benefit of a valid Regulation (whether Temporary or Final) was the potential for application of Chevron deference, a potential now denied by Loper Bright.

Does Corner Post Permit § 2401(a)’s 6-year Statute of Limitation to Apply from Date of Regulation for Procedural Challenges? (7/10/24; 8/17/24)

Added 7/11/24 4:00 pm: Caveat: My blog post below was an attempt to hammer Corner Post into the interpretive system as I understood it. Within that parameter, I think I got it right. But, since posting the blog below (after this update in red), I went back to basics to try to understand what this all means in the real world. So, here is another way to think about the interpretive regime we now have as a result of the confluence of Loper Bright (deference gone) and Corner Post. Here are the key bullet points:

• Loper Bright teaches that the best interpretation of the statute controls. The best interpretation gains or loses nothing (i) by being adopted in an agency regulation or (ii) whether the regulation is procedurally valid. 
•  The best interpretation issue is substantive and can be raised at any time (i.e., upon application or enforcement to the particular person).
• Ergo, Corner Post is the proverbial tempest in a teapot.

To extend the analysis:

• The best interpretation (whether or not in a regulation) is the interpretation applicable from the effective date of the interpreted statute. That means that the § 7805(b) constraints on retroactivity are meaningless if the IRS includes the best interpretation in a regulation.
• The adoption of the best interpretation in a regulation adds nothing of interpretive value to the regulation. However, perhaps at the theoretical margins, a procedurally regular notice and comment regulation interpretation might add some Skidmore oomph (whatever that is) to the persuasive value of the agency interpretation in the regulation.

If that makes sense and—dare I say—is persuasive to readers, there is no need to read the older portion of this blog below (but I think if one were to wallow around in the concepts presented below (as have I), one might get to the same point).

___________________________________

In Corner Post, Inc. v. Board of Governors, FRS, 603 U. S. ____ (2024), SC here and GS here, the Court (Justice Barrett) held that cause of action “accrues” for purposes of the fallback 6-year statute of limitations in 28 U. S. C. § 2401(a), here, when the particular plaintiff first suffered injury from an agency action. The agency action was a regulation promulgated well before the 6-year period prescribed by § 2401(a). Corner Post, a new entity, suffered injury once it was created, thus its judicial challenge to the Regulation was timely under § 2401(a).

The gravamen of the Court’s holding is its focus on § 2401(a)’s text starting the statute of limitations when “the right of action first accrues.” That requires that the Court determine “the right of action” in the context.

The majority held that Corner Post’s claim was that the agency acted without statutory authority, an ultra vires claim. A party is injured and can challenge an invalid interpretation when the agency action applies to that party. This permitted the challenge by Corner Post, an entity created within the 6-year period before filing the challenge.

But, there is another type of APA challenge, a procedural challenge, that can be asserted to invalidate a regulation. The procedural challenges arise upon promulgation regardless of whether the regulation is otherwise substantively valid. Procedural challenges include the claim that notice and comment regulations have been promulgated without the agency having engaged in the APA procedural requirements of considering and responding to material comments. In such a procedural foot-fault case, the regulation can be within the authority conferred (e.g., offer the best interpretation of the statute) but might be invalid qua regulation solely for an alleged procedural defect. In such a case, of course, the interpretation (as opposed to the regulation) can still be valid and still be applied in a judicial proceeding despite the procedural invalidity of the regulation.

An aside: Prior to Chevron’s demise, the only effect of a procedurally invalid regulation was that the interpretation did not qualify for Chevron deference, so the court could still apply the best interpretation. See Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700 (6th Cir. 2022), CA6 here and GS here (rejecting Hewitt’s procedural invalidity holding but in any event holding that the agency interpretation was the best interpretation thus valid even without Chevron deference); see also Sixth Circuit Creates Circuit Conflict with Eleventh Circuit on Conservation Easement Regulations (Federal Tax Procedure Blog 3/15/22), here.

Supreme Court Accepts Cert in Deference Case and Remands to D.C. Circuit for Consideration of Loper Bright Chevron Overruling (7/3/24)

 By order dated July 2, 2024, here, the Court ordered (p. 3):

 23-413 LISSACK, MICHAEL V. CIR
 The petition for a writ of certiorari is granted. The judgment is vacated, and the case is remanded to the United States Court of Appeals for the District of Columbia Circuit for further consideration in light of Loper Bright Enterprises v. Raimondo, 603 U. S. ___ (2024),

Loper Bright is the opinion where the Court overruled Chevron deference. See The Supreme Court Pronounces the Demise of Deference (Federal Tax Procedure Blog 6/29/24; 7/2/24), here. The prior Court of Appeals opinion in Lissack is Lissack v. Commissioner, 68 F.4th 1312, 1324, 1327 (D.C. Cir. 2023), here. The Lissack petition for writ of certiorari, here, had one of its 2 questions presented the following:

2. Whether the Court should overrule Chevron or at least clarify that where Congress acts to remove discretion from an agency, regulations promulgated thereunder should not be deferred to.

That question was essentially the same as addressed in Loper Bright, hence the acceptance of cert and remand. (Note in this regard that the D.C. Circuit opinion in Lissack is cited in Justice Kagan’s dissenting opinion in Loper Bright (Kagan dissenting Slip Op. 26), but without the mention that petition for certiorari was pending:

The majority says differently, because this Court has ignored Chevron lately; all that is left of the decision is a “decaying husk with bold pretensions.” Ante, at 33. Tell that to the D. C. Circuit, the court that reviews a large share of agency interpretations, where Chevron remains alive and well. See, e.g., Lissack v. Commissioner, 68 F. 4th 1312, 1321–1322 (2023); Solar Energy Industries Assn. v. FERC, 59 F. 4th 1287, 1291–1294 (2023).

The Supreme Court Pronounces the Demise of Deference (6/29/24; 7/26/24)

Added 8/7/24 and revised 10/28/24: I have published the 2024 editions of the Federal Tax Procedure Book, here. I have substantially revised the section dealing with the Demise of Deference as of 10/28/24; the revised version is viewable and downloadable here. In the FTPB 2024 discussion I have added to and refined some of the points in this blog entry.

In Loper Bright Enterprises v. Raimondo, 603 U. S. ____, 144 S. Ct. 2244 (2024), SC Slip Op. here & GS here, the Court (per Chief Justice Roberts) held (Slip Op. 35):

          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.

I provide in this blog several points about this holding. I divide my discussion into (i) the implications of the demise of deference and (ii) some key points going to the correctness of some claims made in the opinions. I try in this blog entry to address major points. Given the short amount of time I have had to devote to the blog, I may have missed or even misstated some things which I may need to supplement or correct later. I apologize in advance to readers, but this is just too important a development not to do my best to provide in this one place my discussion of key points. 

IMPLICATIONS OF DEMISE OF DEFERENCE.

1. First, we need clear definitions of key terms used in the discussion.

a. Deference. Deference is--well, was--a court accepting an agency statutory interpretation that is not, in the court’s opinion, the best interpretation of the statute.

b. Chevron deference. The discussion of deference has been framed by the 1984 Chevron decision. However, deference with essentially the same features as Chevron was in the law well before Chevron, going back to before the new deal and the enactment of the APA in 1946. See John A. Townsend, The Tax Contribution to Deference and APA § 706 (SSRN December 14, 2023), pp. 5-23)   https://ssrn.com/abstract=4665227 That is not how the Loper Bright Opinion of the Court imagines the pre-Chevron landscape so I will only address this further in the section below dealing with some of the things the majority erred. And, when I use the term Chevron deference, I include that pre-Chevron Chevron-like deference.

2. The Opinion of the Court justifies deference’s demise based on both the APA and the role of courts in the constitutional scheme, as exemplified by Justice Marshall's claim (judicial soundbite) “[i]t is emphatically the province and duty of the judicial department to say what the law is.” Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177 (1803).

3. The definition of deference I offered does not help if the court is in legal interpretive equipoise and thus cannot decide the best interpretation of the statute. The Court’s opinion does not appear to even recognize the possibility of legal interpretive equipoise. For example, the Court states (Slip Op. 22, emphasis), that “Courts instead understand that such statutes, no matter how impenetrable, do—in fact, must—have a single, best meaning.”  (See Slip Op.22 (emphasis supplied); see also 23 and 31 (“The statute still has a best meaning, necessarily discernible by a court deploying its full interpretive toolkit.”) Whether legal interpretive equipoise is a possibility is a key point of Justice Kagan’s dissenting opinion. (See e.g., Dissenting opinion Slip Op. 7 (stating that sometimes there is no “fixed single best meaning” (cleaned up) of the statute text).

a. Query: Is the majority’s key assumption of the absence of the possibility of legal interpretive equipoise correct?