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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Other points, some picky:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Procedural issues are:

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

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

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

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

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

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

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

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