Tax Court Again Declines to Reconsider Its Holding that the Preparer's Fraud without the Taxpayer's Fraud Invokes Unlimited Statute of Limitations (1/25/24; 2/5/24)

Long-time readers of this blog and the parallel blog Federal Tax Crimes may recall that I have had several postings on the issue of whether § 6501(c) unlimited statute of limitations for fraudulent returns requires (i) the taxpayer's fraud or (ii) may be a third party's fraud that is incorporated in the taxpayer's return without the taxpayer's fraud. The classic case is a preparer's fraud, but could also include fraud on an information return (such as a K-1 for partnership flow-through reporting).

At the end of this blog, I list significant Federal Tax Procedure or Federal Tax Crimes postings on the issue. Basically, the state of play was that the Tax Court held in a precedential decision that the taxpayer's fraud is not required. Allen v. Commissioner, 128 T.C. 37 (2007). The Court of Appeals for the Federal Circuit held that the taxpayer's fraud is required. BASR P'ship v. United States, 795 F.3d 1338 (Fed. Cir. 2015). In Finnegan v. Commissioner, 926 F.3d 1261 (11th Cir. 2019), the Court affirmed the Tax Court's Allen holding that the taxpayer waived the statute of limitations argument in the Tax Court.

In Murrin v. Commissioner, T.C. Memo. 2024-10, TA here & GS here, decided yesterday, the Tax Court held that Allen was still the interpretation the Tax Court will apply despite the holding in BASR. The Murrin opinion is 13 pages long and analyzes why BASR was not sufficiently persuasive to justify reconsidering its precedential holding in Allen.

BASR is not binding precedent in Murrin under the Tax Court's Golsen rule because appellate authority is only binding when in the Circuit to which an appeal would be taken in the case (barring stipulation otherwise). Mrs. Murrin lived in New Jersey when she filed the Tax Court petition. Thus, her appeal would be to the Third Circuit which has no authority in point, thus requiring the Tax Court to apply its own authority under Golsen.

Scholar Doubles Down on Erroneous Claim that APA § 706 Precludes Deference (1/23/24; 4/4/24)

Introductory Note 4/4/24 10:00am: This blog post originally addressed a new draft article that Professor Bamzai posted on SSRN: Aditya Bamzai, On the Interpretive Foundations of the Administrative Procedure Act, 31 George Mason Law Review ___ (Forthcoming) (SSRN 4684895 1/17/24), here, Professor Bamzai's article has been published in final.  On the Interpretive Foundations of the Administrative Procedure Act, 31 Geo. Mason L. Rev. 439 (2024), html here and pdf here. I have not compared the draft with the final article, although the final seems to track the arguments made in the draft. I have, however, made certain changes to the blog entry below inspired by the Final. I note those changes in red font. I have no way of knowing whether Professor Bamzai was aware of my article or my blog posts about my article since he does not cite me in his article. I am not surprised Professor Bamzai does not cite my article or me since I circle in a lower administrative law orbit than he does. Finally, I have not attempted to go down some of the tangential rabbit trails Professor Bamzai goes down (such as Professor Dickinson's 1947 parallel articles misinterpreting and misapplyying Dobson, for, on the deference issue, those articles lapsed into the obscurity they deserved).

Now to the original posting on 1/23/24 (as amended on 1/24/24 with changes made today marked in red font):

I recently posted to SSRN an article arguing, in part, that the APA § 706 standard of review for legal questions is a deference standard via the requirement that agency interpretations be set aside only if “not in accordance with law.” § 706(2)(E). The Tax Contribution to Deference and APA § 706 (December 14, 2023 SSRN 4665227), here, hereafter referred to as Townsend Deference APA). In that article, I asserted that a prominent leading article missed or misunderstood key indicators of the meaning of the APA standard of review—“not in accordance with law.” Aditya Bamzai, The Origins of Judicial Deference to Executive Interpretation, 126 Yale L.J. 908 (2017), here.

Specifically, Professor Bamzai

• missed robust deference authority cited in the Final Report of the Attorney General’s Committee on Administrative Procedure (1941) which skewed his conclusion of limited deference authority in the Final Report and as of 1940.

• missed the deferential interpretation of “not in accordance with law” in Dobson v. Commissioner, 320 U.S. 489 (1943), reh. den., 321 U.S. 231 (1944).

I show in the article that the fair interpretation of the APA’s  “not in accordance with law” standard was the Dobson interpretation to require deference.

Professor Bamzai has published an article on SSRN that is scheduled for publication in the George Mason Law Review. Aditya Bamzai, On the Interpretive Foundations of the Administrative Procedure Act, 31 George Mason Law Review ___ (Forthcoming) (SSRN 4684895 1/17/24), here, hereafter referred to as Bamzai Interpretive Foundations APA. Professor Bamzai's Final is On the Interpretive Foundations of the Administrative Procedure Act, 31 Geo. Mason L. Rev. 439 (2024) 

In this new article (Draft and Final),

• Professor Bamzai again misses the robust statement of deference that he missed in his earlier article. (Townsend Deference APA pp, 5-9.)

• more importantly, although he now identifies Dobson as important to the discussion after ignoring Dobson in the earlier article, he misinterprets the meaning of Dobson.

Key Points in Oral Arguments on 1/17/24 in the Supreme Court Cases Considering the Future of Deference (1/18/24)

I have now had the time to read the transcripts of oral arguments in the cases challenging Chevron deference:

• Loper Bright Enterprises v. Raimondo (SEC) (Sup. Ct. Dkt. 22-451, here.) (“Loper Bright”), transcript here,
• Relentless, Inc. v. Department of Commerce (Sup. Ct. Dkt 22-1219, here ) (Relentlesss transcript here),

Relentless was argued before Loper Bright. I infer that was because Justice Jackson recused herself in Loper Bright.

I will discuss what I think are the key points of the oral arguments. There is a lot more in the transcripts, including both somewhat important points and some nit-picky points. I will consider later posting the transcripts with pdf highlights with discussion behind the highlights as comments for readers to review if they wish.

With apologies for readers that may not have some introduction into the jargon of administrative law, I will often just use that jargon without further citation. For example. I refer to (i) Chevron deference which refers to the deference approved in the case of that name and (ii) Brand X which is the deference approved in a Supreme Court opinion with that name. I do not give the cites for these common administrative law shorthand before having any understanding of the issues involved.

In my discussion, I do not attempt to predict whether the Court will pronounce the demise of deference (whether with the Chevron label or not) or the constriction of Chevron deference, or whatever. I note, that  the three Trump appointees (Justices Gorsuch, Kavanaugh, and Barrett) almost certainly will vote for the demise or substantial restriction of deference (at least in its traditional formulation), because of their prior anti-Chevron musings and that anti-Chevron was a litmus test for their respective appointments as Justices.  See Jeremy W. Peters, Trump’s New Judicial Litmus Test: ‘Shrinking the Administrative State’ (NYT 3/26/18) (noting administrative state angst with anti-Chevron as a litmus test for Trump’s judicial, particularly Supreme Court Justice, nominees). And, Justices Thomas and Alito have expressed disdain for Chevron. Justices Kagan, Sotomayor, and Jackson seem pro-Chevron, although they might agree to some constriction (such as doubling down on Chevron Footnote 9). I think Chief Justice Roberts can go either way, but being an institutionalist may be inclined to lean toward stare decisis without terminating (but with constricting) Chevron in futuro.

What Are the Perceived Evils in Chevron? (Herein of The Deference Concept)

Oral Argument on 1/17/24 in Supreme Court Cases on the Future of Deference (1/16/24)

Oral argument in the cases (Loper Bright and Relentless, combined for oral argument) challenging Chevron deference is Wednesday, January 17. The relevant links are:

• Oral Argument Live, here (these are the only cases docketed for oral argument, so the oral argument should begin at 10am  EST).
• Recording of Oral Argument, here (listed under 22-451 Loper Bright Enterprises, Inc. v. Raimondo, Sec. of Comm. and 22-1219 Relentless, Inc. v. Dept. of Commerce.
• Transcripts of Oral Arguments (these are subject to change):
• Loper Bright, here.
• Relentless, here.

I thought I would use this blog to alert readers to some hyperbolic claims likely to appear in the oral argument (as they have proliferated in the press). (George Will, no fan of the administrative state or of Chevron, has said that “Hyperbole [is] the default setting in today’s discourse.” George F. Will, How the Supreme Court could end the ‘Chevron deference’ foolishness (WAPO 1/12/24), here (the claims he makes in his article prove the ubiquity of hyperbole).

Before addressing the hyperbole likely to appear in oral argument, I think it is helpful to establish what deference is:

Deference is commonly stated as a court applying an agency interpretation that reasonably interprets ambiguous statutory text within the scope of the ambiguity. Deference is more subtle than that. Deference is neither required nor applicable if the agency interpretation is the best interpretation (best interpretations are per se reasonable, after all). Rather deference only occurs when the agency’s reasonable interpretation is not the best; only then can a court defer to that not-best agency interpretation. (This does not address the phenomenon of the state of interpretive equipoise which I discuss in paragraph 4 below,)

 Now, to the hyperbole:

1. The hyperbole: Deference was the creation of the Chevron case decided in 1984. George Will says, “first propounded by the court in 1984.” That statement is not only hyperbole, it is false. Deference to reasonable agency interpretations of ambiguous statutory text has been a feature of authoritative judicial decisions since at least the 1920s. All Chevron did was to (i) articulate an additional rationale for deference in the executive branch’s more direct accountability to the citizens than courts with lifetime appointments and no constituency and (ii) permit the famous 2-Step, which later courts found implicit in Chevron. (Since deference was the same as prior deference, the 2-Step formula was implicit in pre-Chevron deference.)

NTA 2023 Annual Report and 2024 Purple Book (1/15/24)

The National Taxpayer Advocate has issued her 2023 annual report (here allowing download of the Full Report, the Executive Summary, and the NTA Purple Book Compilation of Legislative Recommendations, and Research Reports). The Full Report and its components have much that tax procedure enthusiasts will want to consider. I bullet point here some of the items that caught my eye on a quick overview. I may come back with more detail later.

• MOST LITIGATED ISSUES – NATIONAL TAXPAYER ADVOCATE RECOMMENDATIONS TO MITIGATE DISPUTE, pp. 169-171, beginning here.
• The 2024 Purple Book: Compilation of Legislative Recommendations, here.

Some of these are repeats of carryover issues from earlier years. For example, her recommendations on § 6751(b), which I discuss in Musings on Proposed § 6751(b) Regulations and the Potential Demise of Chevron Deference (Federal Tax Procedure Blog 1/8/24; 1/15/24), here.

My only comments are:

Musings on Proposed § 6751(b) Regulations and the Potential Demise of Chevron Deference (1/8/24; 1/15/24)

Section 6751(b)(1) provides:

(1) In general

No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.

Penalties cannot be assessed unless they have written supervisor approval by some magical moment; stated otherwise, an assessment or a step predicate to assessment of penalties without prior written approval is invalid. The only magical moment in the statute is the “initial determination of the assessment.” That statutory language on its face is nonsense because there is no “initial determination of the assessment,” at least other than the assessment itself. The courts have made hash of the language of the statute, which, through its fuzziness coupled with a snippet in the legislative history, lends itself to fuzzy thinking about the tax system we have and to disparate outcomes. In short, the interpretation and application of § 6751(b) is a mess. 

I  discuss the mess in my Federal Tax Procedure (current 2023.2 Practitioner Edition SSRN here) at pp. 385-393. Because of the mess, which has been brewing for several years, I have noted in recent versions of my Federal Tax Procedure Practitioner Edition (e.g., 2023.2 Edition p. 387 n. 1645):

    n1645 This appears to me to be a classic case where a well-considered statutory amendment or, failing that, comprehensive interpretive regulations could clean up the mess. The courts have already found the statute ambiguous, the condition required for “reasonable” interpretive regulations. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). By adopting well-considered interpretive regulations, the IRS could essentially moot out the plethora of prior and future court machinations to deal with the problem. See National Cable & Telecommunications Assn. v. Brand X Internet Services, 545 U.S. 967, 981 (2005) (permitting the agency to adopt interpretive regulations contrary to prior judicial interpretations so long as the prior judicial interpretations are not compelled by the text of the statute, which would not be true here because the statute is ambiguous). I don’t think reversal of the court interpretations of § 6751(b) would be foreclosed under Brand X by prior judicial precedent that foreclose the agency new interpretation as occurred in United States v. Home Concrete & Supply, LLC, 566 U.S. 478 (2012). An interpretive regulation, with notice and comment, by Treasury, the expert on IRS processes and the big picture, would likely produce a more holistic set of interpretations than courts can do anecdotally as unique cases arise. The problem with the regulations approach is that final regulations could take a very long time, perhaps a couple of years. But since the regulations would be interpretive, Treasury could adopt a Temporary Regulation and, provided that the final Regulation is adopted within three years, the Temporary Regulation could be effective immediately (§ 7805(e)) and the final Regulation could be effective from the date of the Temporary Regulation (§ 7805(b)). And, perhaps even, the Temporary and Final Regulations might be persuasive authority under Skidmore v. Swift & Co., 323 U.S. 134 (1944) for application retroactively to the date of the statute for any case still in pipeline or getting there involving conduct prior to the effective date of the Temporary Regulation. Such retroactive application beyond the limits imposed by § 7805 is a long subject, I think that the interpretation might apply retroactively with the only limit being that the  interpretation be within the scope of § 6751(b)’s ambiguity from the enactment of the statute.

Separately, the Taxpayer Advocate proposed a legislative solution. See Legislative Recommendations 32 and 36 in Taxpayer Advocates Legislative Recommendations for 2023 and 2022, respectively as follows: