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).