More on Whether Treasury/IRS Interpretations under § 7805(a) Are Entitled to Loper Bright Deference? (5/29/25; 5/30/25)

I write today to address the issue of whether  § 7805(a) is the type of provision that Loper Bright would treat as a delegation to the Treasury/IRS that qualifies for what I call “Loper Bright deference” (for lack of a better word). By Loper Bright deference, I mean some authoritative gravitas for agency interpretations beyond Skidmore respect (Skidmore requires the Court to be persuaded that the agency interpretation is the best and is not deference, despite some claims otherwise). Some readers of this blog may recall that I have addressed the § 7805(a) issue in two prior blogs:

• Do General Authority Congressional Delegations of Authority to Prescribe Regulations to Carry Out the Provisions of the Statute Qualify for Loper Bright Deference? (Federal Tax Procedure Blog 11/12/24), here.

• Can § 7805(a) & (b) Be Read as Delegating to Treasury/IRS Interpretive Authority with Deference (Federal Tax Procedure Blog 7/14/24), here.

I am prompted to return to the issue by a recent article By Professor Mitchell M. Gans [bio here], Has the Supreme Court Already Resolved How Loper Bright Applies to Section 7805 Regulations?, 187 Tax Notes Fed. 1069 (May 12, 2025), here. Professor Gans argues that, sub silentio, the Supreme Court in Bondi v. VanDerStok, ___ U.S. ___, 145 S. Ct. 857 (2025) effectively decided that § 7805(a) is not entitled to Loper Bright deference by applying the Skidmore factors to a statute under the Gun Control Act that is functionally the same as § 7805(a). For those wishing to read VanDerStok, the Supreme Court slip opinion is here and the GS opinion (paginated to 145 S.Ct.) is here. (Caveat: some refer to the respondent in the case as Vanderstok; the proper name is VanDerStok. See the petition here and the slip opinion where most but not all references are to VanDerStok.)

I do not agree with Professor Gans’ reading of VanDerStok. I don’t read VanDerStok as a Skidmore case where the court gives the agency interpretation some oomph beyond what the statutory text and context would allow. None of the opinions in VanDerStok mention Skidmore or deference. VanDerStok involved the propriety of a facial challenge to the agency interpretation. A facial challenge requires that there is no realistic set of circumstances in which the interpretation could be valid. (By contrast, an as applied challenge claims only that as applied to the plaintiff, the interpretation is not valid.) The Court spends most of its time analyzing the consistency of the interpretation with the statute and its context, a type of classic de novo interpretation. 

Most instructively, the VanDerStok opinion for the Court, in closing, dismisses a lenity argument. Lenity is an interpretive rule for interpretations in a criminal or penalty context that resolves ambiguity in favor of the person subject to the criminal law or penalty. (Something like the now rejected Chevron deference requiring ambiguity.) The Court says (145 S.Ct. at 876; bold face supplied by me):

Tax Court Rejects Too Good to be True Tax Shelter Defense Based on Tax Opinion Purchased to Support a Reasonable Cause Defense (5/17/25)

In Stevens v. Commissioner, T.C. Memo. 2025-45, TCM here * & GS here [to come] the court rejected the taxpayer’s arguments for the merits of the bullshit, “too good to be true,” tax shelter. Most of the findings of facts and opinion relate to the merits. As usual, the shelter was effected through a shroud of complex financial documents that, in the end, signified nothing that was cognizable for tax purposes. 

* Readers wishing to access the opinion through the docket entries may do so here at docket # 199.]

I find the penalties interesting because the taxpayers recognized that the shelter might be subject to penalties and, for that reason, “purchased” a tax opinion that, they hoped, would protect them against penalties if the IRS saw through the smoke and mirrors in the documents and disallowed the tax benefits of the shelter. Here are some quotes from the opinion (boldface supplied by JAT):

In July 2014 Shannon Stevens [the wife-taxpayer] became concerned with the risk of tax penalties if SLS engaged in the Dermody transaction and claimed interest deductions related to it. Shannon Stevens was the longtime owner and operator of her own accounting firm. She had substantial experience preparing tax returns for individuals and small businesses. She discussed with both Dermody and Witten her concern about tax penalties.

 On July 29, 2014, Dermody sent Shannon Stevens a sample tax opinion letter relating to a transaction of a different type from the Dermody transaction. Dermody recommended that she obtain a tax opinion letter about the Dermody transaction.

 On July 30, 2014, Gopman spoke to Witten and recommended to Witten that petitioners obtain a tax opinion letter from Jeffrey Rubinger, a tax attorney. On July 30, 2014, Witten emailed Shannon Stevens with a copy to Kirk Stevens and Gopman. Witten recommended that petitioners obtain a tax opinion letter for their “protection.” Witten stated that a tax opinion letter could be obtained from Rubinger “for a reasonable price.” In a separate communication with Shannon Stevens, Witten specifically suggested that a tax opinion letter could be obtained from Rubinger for $10,000.

The estimated cost of the opinion letter was too low; the opinion letter ultimately cost $40,000.

Tax Court Discovery Subpoenas to Third Parties Returnable Before Trial Calendaring (5/13/25)

I have just revised the working draft discussion relating to third-party subpoenas. (Practitioner Ed. p. 572; Student Ed. p. 394. As revised, the text and footnotes (not in Student Ed.) are (with redline for changes and one strikeout; note footnote numbers are for this posting but will change in the 2025 Practitioner Ed.):

Trial Subpoenas (both for testimony or for documents or things) may be used for discovery. Section 7456(a)(1) permits Tax Court judges and some officers to issue subpoenas compelling “the attendance and testimony of witnesses, and the production of all necessary returns, books, papers, documents, correspondence, and other evidence, from any place in the United States at any designated place of hearing.” As interpreted in orders, subpoenas may have a return date in advance of the trial calendar in which the case is to be tried.n1 Indeed, discovery subpoenas for a return date at the calendar session for trial may irritate the judge if the discovery should have occurred before the trial calendar, which may cause the judge to quash the subpoena.n2 These discovery subpoenas are used to compel third-party testimony or production of documents; discovery from the taxpayer-petitioner is pursued through the informal and formal discovery procedures (such as request for production, interrogatories, etc.), preceded by a Branerton request. The depositions or documents may be used at trial with the proper predicate (which may be by stipulation); either party may still desire to issue a trial subpoena in order to ensure that the documents can be admitted.
   n1 Production in advance of the trial setting may be more efficient to manage the documents and trial. The Tax Court may issue an order for return on the subpoena in advance of the trail session, permitting subpoenaed testimony. Ubiquiti, Inc. v. Commissioner (T.C. Case No. 22581-22 Dkt. # 54 Order dtd. 5/12/25) (Judge Lauber, citing North Donald LA Property LLC v. Commissioner (Order T.C. Dkt. 24703-21 #52 10/14/22), said: “For more than four years this Court has been conducting regularly-scheduled document subpoena hearings on virtually every Wednesday during the calendar year. The purpose of this well-established procedure is to set a hearing date in advance of trial at which document subpoenas may be returnable under Rule 147(a). Neither section 7456(a) nor Rule 147(c) requires that a case be  calendared for trial as a precondition to the convening of a document subpoena hearing.”).
            Section 301 of The Taxpayer Assistance Act (“TAS”), a bipartisan bill in the Senate in 2025, would eliminate the “at any designated place of hearing,” that was read by some to require the return date at the trial setting (a reading that, as noted in the preceding paragraph is rejected). The Section-by-Section discussion of the proposal explains that, under present law, the Tax Court does not have “express authority to issue a third-party subpoena for the production of documents before or in the absence of a hearing date”; the discussion indicates that the wording of § 301 grants the express authority presumably by eliminating the language that had been misread by some.
   n2 See YA Global Investments, LP v. Commissioner (Docket Nos. 14546-15, 28751-15 Order dtd. 10/1/20) (holding that trial subpoenas for documents were used for improper discovery). See Samantha Galvin, A Tax Court Procedural Anomaly: the Trial Subpoena Duces Tecum, Designated Orders July 29 – August 2 (Procedurally Taxing Blog 9/24/19) (discussing unpublished order in Cross Refined Coal, LLC,  v. Commissioner (Dkt 19502-17 Order Dtd. 8/1/19)).

 A pdf of the changes is here (note that the footnote numbers are not final).

On Win-Loss Records on Appeal (with War Stories) (5/5/25; 5/6/25)

Note, some of my statistics reported below have been corrected on 5/6/25 11:00am.

I have sprinkled some of my blog entries with war stories from my time with DOJ Tax (1969-1977, with just over 4 years in Appellate and just over 3 years in a refund trial section, called Refund 2, which covered roughly Virginia through Texas. In the Refund 2 trial section, I handled cases in South Carolina, the Northern and Middle Districts of Georgia, Eastern District of North Carolina, and 2 life insurance company cases in Florida and Texas (I forget which districts, but I think Middle District of Florida and Northern District of Texas (because Vester Hughes was opposing counsel) although those cases were not resolved by the time I left DOJ Tax. Today, inspired by the article I quote below, I offer some more war stories through statistics.

The inspiration is a recent article, Stephen K. Cooper, DOJ Tax Chief Touts Winning Court Record On Appeals, 2025 Law360 16-164 (1/16/25) [free link unavailable]. The article covers a talk by Francesca Ugolini, the acting chief of the DOJ Tax Division—there has been no Presidentially appointed and Senate-approved Assistant Attorney General for some time. The article includes the following: 

          The U.S. Department of Justice's Tax Division won an overwhelming majority of appeals in tax cases last year by prioritizing strong legal arguments in disputes that had the potential to significantly affect federal tax administration, the head of the division said Thursday.

          Francesca Ugolini, chief of the DOJ's Tax Division, said in the last fiscal year, the government prevailed in 94% of appeals brought by taxpayers and had an unexpected success rate of 75% for its own appeals.

          "We usually do prevail in over 90% of the taxpayer appeals," Ugolini said at the D.C. Bar Tax Conference, held in Washington, D.C., and online. Regarding the government's appeals, "it's usually over 50%," she said.

          "It's not always as high as 75%, but we have some pretty, pretty good success in the appellate courts," she said.

          Ugolini attributed the higher-than-normal success rate to the division's thorough review process that was used to decide whether to appeal a case the government has lost at the trial level. This includes assessing the strength of the legal arguments, the potential impact on federal tax administration and whether the case presents the best vehicle to address the issue.

          "We don't like to lose on appeal, so we're looking at the strength of the case," she said. "That includes … the strength of our legal argument, what the standard of review is [and] what the precedent is in the circuit.

          "We're more likely to appeal cases that involve legal questions, because those are reviewed de novo on appeal, whereas adverse fact findings are reviewed for clear error, and they're really hard to reverse on appeal."

          The administrative implications of the case are also important to the DOJ in its decision-making process, Ugolini said.

          "We're also looking at what is the broader effect on the federal tax system," she said. "Is this issue important to the IRS administratively? What's the impact on federal tax administration? And then we're also looking at, is this the best case to present the issue?"

Sixth Circuit Opines on Types of Deference after Loper Bright (4/28/25)

In United States v. Bricker, ___ F.4th ___ (6th Cir. 2/22/25), CA6 here and GS here the majority held that 18 U.S.C. § 3582(c)(1)(A) allowing a court to reduce a final prison sentence for “extraordinary and compelling reasons” was sufficiently plain in meaning that Congress did not delegate to the Sentencing Commission the authority to interpret the phrase to include consideration of a nonretroactive sentencing law change it as it had in U.S.S.G. § 1B1.13(b)(6). The majority reached that conclusion based on its holding of plain meaning or nonambiguity.

Query would the majority holding have been different if the Court found an express delegation of interpretive authority which still requires ambiguity but cannot be based on ambiguity alone? I get into that issue below.

The dissenting judge (Jane Stranch) argues that “extraordinary and compelling reasons” is ambiguous, without a plain meaning (at least with regard to the factor under consideration), and that Congress delegated the authority to the Commission to interpret “extraordinary and compelling reasons” within the bounds of its ambiguity. The dissent did not argue that ambiguity alone warranted the conclusion of congressional delegation of interpretive authority (that is prohibited by Loper Bright’s rejection of Chevron deference), but that the structure and context of the provision made it clear that Congress intended the Commission to interpret the ambiguous phrase. Under this argument, the delegation would pass muster under Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024).

The interesting part of Judge Stranch’s dissent is her conclusion that Congress delegated interpretive authority to the Commission. She argues that delegated interpretive authority (again based on factors other than ambiguity alone) is governed by the same deference as under Chevron—reasonable within the scope of ambiguity. (All iterations of deference have required statutory ambiguity; Chevron alone treated ambiguity as the basis for a fictional congressional delegation.) Of course, delegated interpretive authority requires some ambiguity, otherwise there is no interpretive authority to delegate or apply. But once there is ambiguity and a delegation of interpretive authority not based on ambiguity, the agency reasonable interpretation should control. And, the elements for Loper Bright qualified deference are present--congressional delegation and reasonable interpretation within the scope of the statutory ambiguity.

A key issue in the difference between the majority and the dissent was a Sixth Circuit precedent, United States v. McCall, 56 F.4th 1048 (6th Cir. 2022) (en banc). McCall’s en banc decision had treated the phrase “extraordinary and compelling reasons” before the Commission’s later guidance in question in Bricker to have a plain meaning not to include a nonretroactive factor such as a reduction in authorized sentences. Of course, under the Chevron regime, agency interpretations could overrule prior court precedents in some cases. Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967 (2005). With the demise of Chevron via Loper Bright, Brand X was no longer controlling for agency interpretations given deference based on ambiguity alone. In Bricker, the majority held that McCall was controlling on the issue of whether the phrase “extraordinary and compelling reasons” was ambiguous; McCall held the phrase was not on the retroactive factor issue. The majority thought McCall’s holding of nonambiguity was binding precedent on the issue of consideration of a nonretroactive sentencing factor. 

Conflicting Statutes of Limitations for Regular Tax Assessments and Restitution-Based Assessments (4/27/25)

 In United States v. Brown (W.D. WA Case No. 24-cv-05021 Dkt. No. 38 Order dated 4/21/25), GS here and CL here, the Court upheld the validity of a restitution-based assessment (“RBA”) against Brown that was for the same tax that had been previously assessed against Brown. (For prior Blogs on RBAs on the Federal Tax Crimes Blog, see here, and on the Federal Tax Procedure Blog, here.) For clarity, I will differentiate the two assessments by calling the first-in-time assessment, the regular assessment and the second-in-time assessment the RBA. The reason that was even an issue was because Brown never fully paid the regular assessment and the 10-year statute of limitations to collect any balance on the regular assessment (by reducing to judgment) had expired. Brown claimed that, since the statute of limitations on the regular assessment had expired, thus preventing the IRS from claiming on that regular assessment, the IRS could not end-run the regular assessment statute of limitations based on the RBA assessment. At least that is how I understand Brown’s claim that the court rejected, thus permitting the government to reduce the RBA to judgment and use the RBA extended statute of limitations to collect (including further extending the statute of limitations).

I think the court properly gives a good textual reading of the applicable statutory provisions. I am concerned that the decision may not be consistent with the purpose or intent of the statute. (For a textualist, purpose or intent may not matter.) Although I have not filtered back through the legislative history, my understanding of the purpose of the RBA was to avoid requiring the IRS to jump through assessment hoops for tax ordered as restitution. In other words, it was to permit the IRS to make an immediate assessment where it had not assessed before. (Stated otherwise, it was not to give the IRS two independent assessments to collect. The Code provisions do not say that, but that is my understanding of the need for an RBA. If the tax later subject to restitution had already been assessed, there would be no need for an RBA. And the IRS could deal with an expiring statute of limitations on the regular assessment by simply reducing the regular assessment to judgment, thereby refreshing the statute of limitations.

It is true that § 6501 says that § 6501(c)(1) says: “In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.” But, at a minimum, that would only apply where there was no regular assessment and presumably no RBA. Where there is a regular assessment, one might argue through inference that the regular assessment statute and its limitation period should apply.

Court Dismisses Bivens Claim Against IRS Agents for Asserting Accuracy-Related Penalties (4/21/25)

In Ray v. Priver, et al., 2025 U.S. Dist. LEXIS 71600, 2025 WL 1113406 (D. D.C. 4/15/25), CL here and GS here, The Court dismissed Ray’s Bivens actions against IRS agents that, he claimed, violated his constitutional rights in the IRS’s assertion of the accuracy-related penalty under § 6662(b)(1) and (2) and then in improperly influencing the Tax Court’s sustaining of the penalties in Ames v. Commissioner, T.C. Memo. 2019-36, GS here, aff’d in part and reversed in part with respect to a portion of the penalties, Ray v. Commissioner. 13 F.4th 467 (5th Cir. 2021), after remand motion to Reopen the Record denied in Tax Court (10/28/22), aff’d on appeal Ray v. Commissioner, 2023 U.S. App. LEXIS 21799, 2023 WL 5346067 (5th Cir. 8/18/23), GS here*, and petition for rehearing denied Ray v. Commissioner, 2023 U.S. App. LEXIS 27464 (5th Cir. 10/16/23). At the end of all that commotion from the main Tax Court case in 2019, Ray was liable for some of the accuracy-related penalty but not for a portion for which the Court of Appeals reversed the Tax Court on its denial of the “reasonable cause” defense.

I asked Gemini, Google’s AI Tool, to summarize the case. The following is the result which I have massaged somewhat (reminder these AI Tools, while good, need to be carefully reviewed and revised as appropriate).

Background:

• In 2014, the IRS audited Ray and issued a notice of deficiency, including a penalty under 26 U.S.C. § 6662(a) & (b)(1) (negligence or disregard) (b)(2) (substantial understatement).
• Ray claims this penalty was unwarranted, alleging that two other IRS agents found insufficient evidence for it. He asserts that Lawson and Priver knew this but still pursued the penalty and falsified evidence in his administrative file.
• Ray initially challenged the penalty in Tax Court, where he alleges Priver and Lawson repeatedly lied and falsified evidence. The Tax Court upheld the penalty, but the Fifth Circuit reversed finding Ray not liable for some of the penalty based on reasonable cause. On remand, the Tax Court entered decision sustaining the deficiency and the portion of the penalty approved by the Fifth Circuit.
• Ray later obtained files through a FOIA request, which he claims revealed that Priver and Lawson maliciously prosecuted the penalty claim and concealed exculpatory evidence.

Claims:

• Ray sued Priver and Lawson in their individual and official capacities, alleging what he called a Bivens action:
• Count I: Malicious prosecution in violation of the Fourth Amendment.
• Count II: Denial of a fair trial under the Fifth Amendment's Due Process Clause.

Defendants' Motion to Dismiss:

• Defendants moved to dismiss, arguing:
• Improper service (later moot due to government acceptance of service).
• Sovereign immunity bars official-capacity claims (conceded by Ray).
• Failure to state a claim against individual defendants under Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics.

Court's Ruling:

• The Court GRANTED the Defendants' motion to dismiss.
• The Court agreed that Ray's claims against Priver and Lawson in their official capacities are barred by sovereign immunity.
• Regarding the individual-capacity claims, the Court applied the two-step Bivens analysis:
• New Context: The Court found that Ray's claims arise in a "new context" because they involve IRS employees, a different statutory mandate (Internal Revenue Code), and do not align with the specific constitutional violations in the three previously recognized Bivens cases (Fourth Amendment unreasonable search and seizure, Fifth Amendment sex discrimination, and Eighth Amendment cruel and unusual punishment).
• Special Factors: The Court found "special factors" counseling against a new Bivens remedy, primarily the existence of a comprehensive alternative remedial scheme within the Internal Revenue Code. This scheme includes administrative review, the ability to sue for a refund, challenging assessments in Tax Court, and the Treasury Inspector General for Tax Administration (TIGTA) for investigating employee misconduct. The Court emphasized that even if these remedies don't provide complete relief (like monetary damages), their existence is sufficient to preclude a new Bivens action. 

• JAT Addition: The Court relied significantly on the Supreme Court’s admonition that expansions from past Bivens applications is “now a ‘disfavored’ judicial activity.” Hernandez v. Mesa, 589 U.S. 93, 102 (2020); and Ziglar v. Abbasi, 582 U.S. 120, 135 (2017) (citing Ashcroft v. Iqbal, 556 U. S. 662, 675 (2009)). 

Conclusion:

The Court concluded that Ray's case presents a new Bivens context, and the presence of an existing remedial scheme within the Internal Revenue Code constitutes a "special factor" that makes it inappropriate for the judiciary to imply a new damages remedy against individual IRS employees. Therefore, the Court dismissed Ray's amended complaint.

JAT Comments:

Political Thrashing Around Acting Commissioners and Commissioner of Internal Revenue (4/18/25; 4/19/25)

I thought I was through posting for the day and even for a few days. But this new item popped up. Jonathan Swan, Andrew Duehren, Alan Rappeport and Maggie Haberman, Head of I.R.S. Being Ousted Amid Treasury’s Power Struggle With Elon Musk (NYT 4/18/25), here. I think readers should be able to read the article, but if not a free article of some of the same content is Katherine Doyle, Trump is replacing the acting IRS commissioner, part of a dispute between treasury and Elon Musk (NBC News 4/18/25), here.

President Trump nominated a political actor, William Hollis Long II (“Billy”), Wikipedia here, but he has yet to have confirmation hearings. As the articles note, there has been some thrashing around in the “Acting” leadership in the IRS because of political meddling by Trump and his sycophants. I don’t propose to go into that.

The statute requires that the Commissioner have “demonstrated ability in management.”  § 7803(a)(1)(A), here. I would think that, by reasonable inference, Acting Commissioners should also meet that requirement. Hence, in the past Acting Commissioners were often drawn from high level Executive IRS officers who have demonstrated ability in management. Melanie Krause, Wikipedia here, former Acting who left a couple of days ago, had such demonstrated ability. She was replaced by Gary Shapley, one of the “whistleblowers” on the IRS investigation (conducted with the USAO Delaware) of Hunter Biden. It was never clear to me that Mr. Shapley had any such “demonstrated ability in management.” Nor, is it evident that Mr. Long, a former auctioneer and U.S. Representative, has such “demonstrated ability in management.”

Trump may have appointed Mr. Long to create further dysfunction in the IRS, so lack of management skills may be the whole point. Still, I would think that someone who is both smart and with management skills could do a better job of wrecking the IRS.

Trump’s First Term Commissioner was Charles P. (“Chuck”) Rettig, Wikipedia here. I know Chuck and like him a lot. I was not aware of his demonstrated ability in management, but I did know him to be a very smart, competent, and experienced tax attorney with great people skills. From what I can determine, he did a great job as Commissioner. By contrast, I have no reason to believe that Billy Long brings those characteristics, much less management skills, to the job for which he has been appointed. Maybe with his auctioneer skills, he can sell off the outsourcing of the IRS to the highest bidder (perhaps Musk).

Update on 4/19/25 @ 3:45pm: The President has named Michael Faulkender, Deputy Secretary of Treasurer, as the Acting Commissioner of Internal Revenue to act until the Presidential nominee (currently Billly Long, the auctioneer) is approved by the Senate. Faulkener's Wikipedia page is here. It is not apparent from the Wikipedia description that Faulkender has “demonstrated ability in management,” although he certainly appears to be a smart and capable person and likely can meet the demands of the office. 

In terms of credentials and apparent mental firepower, Faulkender stands head and shoulders over the immediately preceding Acting Commission, Gary Shapley, Wikipedia here, who lasted just a few days in office and whose only claim to prominence was that, as an IRS Criminal Investigation Special Agent, he blew the whistle on claimed mismanagement of the Delaware U.S. Attorney’s investigation of Hunter Biden. Having blown the whistle on matters that implicate Joe Biden, Shapley became the darling of the conservatives and particularly Donald J. Trump, who hates Joe Biden with a passion. It was not clear to me how Shapley remotely qualified for the position of Acting Commissioner of Internal Revenue. Of course, as I noted above, it is not clear to me how the nominee for Commissioner, Billy Long, the auctioneer, remotely qualifies.

The Section 7217 Crime of Executive Office, including President, Requesting or Directing IRS to Examine or Audit (4/18/25)

I have been thinking about President Trump’s public scrap with Harvard University, In doing so, I have reviewed § 7217, titled " Prohibition on executive branch influence over taxpayer audits and other investigations," here, which makes it a felony crime (5 years) for any “applicable person”—including the President—"to request, directly or indirectly, any officer or employee of the Internal Revenue Service to conduct or terminate an audit or other investigation of any particular taxpayer with respect to the tax liability of such taxpayer.” I won’t go through the “applicable person” list because the President is clearly one of them. And the crime is to "directly or indirectly" make the request.

I discuss § 7217 in my Federal Tax Procedure Book, 2023 Practitioner Edition p. 420 and Student Edition p. 291. In reviewing that discussion to see whether I should change anything in the Working Draft for the 2024 Editions, I have made minimal changes to the text but have added a footnote with respect to the exclusion of the Attorney General from the prohibition. As revised in the Working Draft for the 2024 Editions, the second sentence (with footnote for the Practitioner Edition) says:

The executive branch personnel within the scope of this prohibition are: (i) the President and Vice President and their respective executive offices; and (ii) persons at level 1 of 5 U.S.C. § 5312 (generally department heads other than the Attorney General).n1828a*
   n1818a I have not researched legislative history of this section to determine whether it explains why the Attorney General was excluded from the prohibition on Executive level actors. One reason might be that DOJ Tax, acting on behalf of the AG, must interact with the IRS often to carry out its duties and probably could and should be able to request the IRS to examine or audit. Another reason could be that the prohibition, enacted in 1998, was at a time when the norm had been established to avoid such White House or Executive Office direction of the AG and DOJ generally.
          The exclusion of the AG from the prohibition takes on great significance in the Trump Second Administration (2024-2028) where (i) Trump acts contrary to the norm, publicly claiming that the DOJ acts under his control and (ii) Trump installed a compliant AG, Pamela Bondi, willing to do his bidding or his wishes as she perceives them. Could Trump skirt the prohibition by asking or directing the AG to request an IRS examination? For example, it is widely reported that, in his attempt to make Harvard University bend the knee to him, Trump has publicly proclaimed that the IRS should revoke Harvard’s tax exempt status. E.g., Aimee Picchi, Can Trump or the IRS strip Harvard of its tax-exempt status? Here's what to know (CBS News 4/17/25). By publicly attacking Harvard’s tax exempt status, is that enough to indirectly direct the AG to make the request to the IRS or even for the IRS, “sua sponte,” to act to examine Harvard? The statute does prohibit requests “directly or indirectly.” A comparison might be made to Henry II who in a moment of pique at Thomas Becket, Archbishop of Canterbury, is  alleged to have said "Will no one rid me of this turbulent priest?” (or some variant) which some of his sycophants took as a direction or request and murdered Becket in 1170. See Wikipedia “Thomas Becket,” here (last edited 4/9/25 and viewed 4/17/25) (noting that “Regardless of what Henry said, it was interpreted as a royal command.”). Can the President avoid § 7217 in that manner? Or, to extend the thought, could the IRS begin examinations of persons with whom the President expresses displeasure? Or at least the principal actors drawing the President’s angst? Readers might also consider Trump’s Executive Order among many on the first day of office supposedly to end the weaponization of Government. See Executive Order titled “Ending the Weaponization of the Federal Government” # 14147 (1/20/25), here. I think the record to date shows at least the possibility that Trump has weaponized the Federal Government despite his own Executive Order. Of course, violating his own Executive Order merely shows that the President is a hypocrite, and, so far as I am aware, hypocrisy is not a crime, nor is violating an Executive Order.

* Note that the footnote number is consistent with the 2023 text but that footnote number will be different in 2024 final Professional Edition and the content of the footnote may even be revised before publication of the Edition.

Another Bullshit Tax Shelter Goes Down; On Frank Lyon (4/17/25)

Judge Lauber nails another bullshit tax shelter in GWA, LLC v. Commissioner, T.C. Memo. 2025-34, TC here at Dkt # 357, GS here [to come] and TN here. Suffice it to say that Judge Lauber was not confused by the smoke and mirrors the taxpayer threw up on the proverbial wall. The key issue is whether the financial contract was an option contract or an ownership contract. For the tax benefits, the taxpayer wanted to treat it as an option contract, the form in which it appeared; the taxpayer argued it was an option contract that permitted deferral and ultimate favorable tax treatment; the IRS asserted it was an ownership contract not allowing such treatment. Other issues were (i) whether the treatment as an ownership contract was, under the facts, a change of accounting requiring a § 481 adjustment (it did) and (ii) whether the taxpayer was subject to penalties (it is).

I write to discuss the role of Frank Lyon Co. v. United States, 435 U.S. 561, 573 (1978) in the opinion. Frank Lyon was a disaster of an opinion, and my principal poster child as to why tax cases are too important to have the Supreme Court decide them. (That is hyperbole, of course, but not much.) In Frank Lyon, the Court, while nominally honoring the venerable tax concept of substance over form, entered a fact-intensive multi-element inquiry to bless the form of a sale-leaseback transaction with tax ownership benefits (depreciation) going to the nominal lessor (Frank Lyon). I think that most careful observers of Frank Lyon believe that Frank Lyon was incorrectly decided. E.g., Charles I. Kingson, How Tax Thinks, 27 Suffolk U. L. Rev. 1031, 1034-35 (2004). “few [tax] shelters are shoddier than those approved by the Court in Lyon and Brown [Commissioner v. Clay B. Brown, 380 U.S. 563 (1965)]”; and Bernard Wolfman, The Supreme Court in the Lyon's Den: A Failure of Judicial Process, 66 Cornell L. Rev. 1075, 1098 (1981). Still, perhaps saving the day, courts generally find enough in Frank Lyon to reject bullshit tax shelters, as Judge Lauber did in GWA, LLC v. Commissioner.

I won’t get into a back story on Frank Lyon in which I was peripherally involved at DOJ Tax. Perhaps I will write on it sometime, in order to explain why, in my judgment, the Court imprudently granted the petition for certiorari in the first place and then wrote the opinion the way it did (in my view imprudently, rather than DIG the case). Nevertheless, that should not detract from the opinion on its four corners. Since Frank Lyon, most of the bullshit tax shelter legal opinions cite and claim to rely on Frank Lyon. Most judicial opinions cite Frank Lyon in shooting down bullshit tax shelters.

Tax Court Rejects Bullshit Syndicated Conservation Easement Shelter for the Usual Reasons (3/31/25)

In Ranch Springs, LLC v. Commissioner, 164 T.C. ___, No. 6 (3/31/25), links below *, the Tax Court rejected another bullshit tax shelter, here of the syndicated conservation easement ilk. The fact pattern for this ilk of bullshit tax shelter may be simply stated: a grossly overvalued property contributed to charity for charitable easement purposes. The holding highly summarized is:

• the real value is determined in an amount grossly less (joining grossly and less may not be good English, but readers will get the concept); and
• the 40% gross valuation misstatement penalty applies because, well, the valuation was grossly misstated.

A more detailed summary is found in the Syllabus and, for those wanting more, in the 66-page opinion (actually 64 excluding the caption and the Syllabus), but that is the guts of the holdings.

These are unexceptional holdings, in my opinion, so I am not sure why the Court designated this a “T.C.” opinion rather than a “T.C. Memo.” opinion. The parts I found interesting (set forth below) are hardly the stuff of which T.C. opinions are usually made. Perhaps the reason is in the third “Held” conclusion in the Syllabus relating to the proffered “before value” found to be erroneous as a matter of law as follows:

Held, further, assuming arguendo that limestone mining was a permissible use, the version of the income method P’s experts used to determine the “before value” of the property is erroneous as a matter of law because it equates the value of raw land with the net present value of a hypothetical limestone business conducted on the land. A knowledgeable willing buyer would not pay, for one of the assets needed to conduct a business, the entire projected value of the business.

. Oh well…..

So, what did I find interesting?

Updates on Filing under the Corporate Transparency Act (“CTA”) (2/27/25; 3/4/25)

Added 3/4/25 10:00 am: Please note below that, on March 2, 2025, Treasury announced here that 

(i) Treasury will not enforce penalties or fines associated with the beneficial ownership reporting requirements of the Corporate Transparency Act, even after the anticipated interim final rules are promulgated;

(ii) Treasury in the near future will  issue "a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only."

That background for all this is that, because of the lack of transparency of U.S. entities, the U.S. consistently rates high on lists of tax haven countries, all the while the U.S. complains about foreign countries' lack of transparency. The CTA was designed to address lack of transparency. Most practitioners I know felt that it was required to address money laundering and related genres of crime. Yet, in an announcement that reads more like a political paper (see the link above), Treasury is giving up enforcing that which the statute clearly requires. On the political nature of the announcement, Trump went on his social media outlet very soon after bragging about it.

On February 18, 2025, FinCEN, noting that it was no longer enjoined from enforcing the filing requirements of the CTA, advised that the filing must be done, except in narrow cases, by March 21, 2025. See FinCEN Extends Beneficial Ownership Information (FinCEN 2/18/25), here. The document is short (2 pages), so all interested in filing should read it.

On February 10, 2025, the House passed unanimously the Protect Small Businesses from Excessive Paperwork Act, H.R. 736, unanimously. That Act modifies the filing deadline to January 1, 2026 instead of by January 1, 2025, as required under current regulations. See H.R.736 - Protect Small Businesses from Excessive Paperwork Act of 2025 at Congress.Gov, here; and Maureen Leddy, House Passes Bipartisan Bill to Delay Corporate Transparency Act Deadline (ThomsonReuters 2/14/25), here.

I expect that the Senate will pass the legislation and that President Trump will sign it. Further, I expect that, since the CTA is disliked by certain portions of the Trump followers in both houses, there will be some legislative commotion prior to that delayed deadline to address some of the features in the CTA. I have no prediction on whether that commotion will result in legislation defanging the CTA. Stay tuned.

Added 2/28/25 12:00pm 

On 2/27/25 FinCEN issued this public notice: FinCEN Not Issuing Fines or Penalties in Connection with Beneficial Ownership Information Reporting Deadlines (FinCEN 2/27/25), here. The notice is short, so I just copy and paste the contents (bold face supplied by JAT):

Today, FinCEN announced that it will not issue any fines or penalties or take any other enforcement actions against any companies based on any failure to file or update beneficial ownership information (BOI) reports pursuant to the Corporate Transparency Act by the current deadlines. No fines or penalties will be issued, and no enforcement actions will be taken, until a forthcoming interim final rule becomes effective and the new relevant due dates in the interim final rule have passed. This announcement continues Treasury’s commitment to reducing regulatory burden on businesses, as well as prioritizing under the Corporate Transparency Act reporting of BOI for those entities that pose the most significant law enforcement and national security risks.

No later than March 21, 2025, FinCEN intends to issue an interim final rule that extends BOI reporting deadlines, recognizing the need to provide new guidance and clarity as quickly as possible, while ensuring that BOI that is highly useful to important national security, intelligence, and law enforcement activities is reported.

FinCEN also intends to solicit public comment on potential revisions to existing BOI reporting requirements. FinCEN will consider those comments as part of a notice of proposed rulemaking anticipated to be issued later this year to minimize burden on small businesses while ensuring that BOI is highly useful to important national security, intelligence, and law enforcement activities, as well to determine what, if any, modifications to the deadlines referenced here should be considered.

The interim final rule is like a Treasury Temporary Regulation that sets an enforcement or application date prior to the Final Regulation after notice and comment. 

Tax Court Sustains Regulation's Filling Gap in Statute on Factors Other than Ambiguity (2/26/25/ 3/4/25)

In Hamel v. Commmissioner, T.C. Memo. 2025-19 (Hamel II), TN here, GD here * and GS here **, decided 2/25/25, upon reconsideration of its prior opinion in Hamel v. Commissioner, 2024 T.C. Memo. 62 (Hamel I), GS here, the Court rejected Hamel’s argument that the regulation failed the Loper Bright requirement of the best interpretation of the statute. The regulation in question interpreted the requirement in TEFRA §6229(e) to furnish notice of an otherwise unidentified partner in a specific way in order to avoid the extended statute of limitations. Basically, Hamel argued that the IRS otherwise knew of the unidentified partner even though the notice required by the regulation was not furnished as the regulation required.

Loper Bright Enterprises v. Raimondo, 603 U. S. ____, 144 S.Ct. 2244 (2024) overruled Chevron deference based on statutory ambiguity. In overruling Chevron deference, the Court noted that Congress might confer discretionary authority to the agency to fill gaps but such authority will not be assumed from statutory ambiguity alone. The Supreme Court also cautioned that prior authority relying upon Chevron deference was not necessarily overruled.

The principal authority relied upon in Hamel I was Gaughf Props., L.P. v. Commissioner, 139 T.C. 219 (2012), aff'd, 738 F.3d 415 (D.C. Cir. 2013). Gaughf  relied upon Chevron deference to sustain the regulation. Hence, Hamel I was based upon a Chevron deference holding. Hamel filed the motion for reconsideration urging that Loper Bright required reconsideration of the Gaughf precedent applied in Hamel I. As I understand Hamel II (I did not find it easy to understand), the Court held that the statutory provisions were sufficient to authorize the Treasury to fill in those details by regulation. In other words, although the statutory provision was ambiguous (i.e., did not permit resolution of the issue by textual interpretation alone), the Treasury was given the discretion to fill in the details. Hence, the resolution was not based on ambiguity alone, and the manner chosen by Treasury in the regulation was not arbitrary and capricious.

The Court relied in part upon Nat’l Muffler Dealers Ass’n v. United States, 440 U.S. 472 (1979) for the following which it apparently felt was unaffected by Loper Bright (Slip Op. 7-8):

Bullshit Tax Shelter "Investors" Reach the End Game on Tax Dodging from 1999 BLIPS "Transaction" (2/20/25)

Yesterday, the Tax Court (Judge Goeke) entered its opinion in Blum v. Commissioner, T.C. Memo. 2025-18, TN here, GD here*, and GS here**. The opinion is 48 pages long. After reading Slip Op. pp. 1 & 2, I had the sense that Judge Goeke would have made it much shorter except for inappropriate arguments made by the Blums (really their counsel), which he apparently felt necessary to address. So that readers might get that same sense, I quote pages 1 & 2 in their entirety (footnote omitted):

This affected items case deals primarily with the responsibility of taxpayers and the Internal Revenue Service (IRS) to update information about the partners of a partnership under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97- 248, §§ 401–407, 96 Stat. 324, 648–71. The Treasury regulations 1 explicitly and clearly state the requirements for partnerships and their partners to update names and addresses of the partners as well as the IRS’s obligations when mailing a notice of Final Partnership Administrative Adjustment (FPAA).

           Petitioners did not adhere to the regulations; the IRS did. Petitioners did not properly identify Scott Blum as an indirect partner in the TEFRA partnership or update the address for sending the FPAA with respect to his partnership interest. Instead, they try to place the blame for their alleged nonreceipt of the FPAA on the revenue agent (RA) who audited their personal and partnership returns. Petitioners do this because they want to avoid a district court’s decision in the TEFRA partnership case that held that Mr. Blum engaged in a tax shelter and improperly deducted a $78.5 million artificial loss (tax shelter loss). They knew about the partnership case while it was ongoing in district court and are obviously unhappy with the outcome. We find not only that the IRS mailed the required FPAA with respect to Mr. Blum’s partnership interest to the correct address but also that petitioners received it.

          Throughout this case, petitioners have concocted numerous unfounded theories about the IRS’s alleged failure to follow proper procedure. They have also made multiple misrepresentations to the Court and omitted important information. Testimony by IRS employees clearly and credibly establishes that the IRS indeed followed proper procedures and that the IRS mailed the FPAA as required by the Code and the regulations.

          Apart from their argument about their alleged nonreceipt of the FPAA, petitioners also make multiple baseless arguments to avoid paying the tax that they owe pursuant to the district court’s decision.  They argue that the district court did not really disallow the tax shelter loss and that they resolved the disallowance of the $78.5 million tax shelter loss in a prior Tax Court case for a mere $373,641 in tax. They also challenge the timeliness of the FPAA and the affected items Notices of Deficiency that precipitated the filing of the Petition. Each of these arguments fails. Accordingly, we find, in accordance with the district court’s decision in the TEFRA case, that petitioners are not entitled to deduct the $78.5 million tax shelter loss.

Final Paper on SSRN Titled: Loper Bright Is the Law But Poor Statutory Interpretation (2/28/25)

Today, I finalized a paper which has been posted to SSRN. The posting is here:

John A. Townsend, Loper Bright Is the Law But Poor Statutory Interpretation (February 18, 2025). Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5143707

As I understand SSRN, although it is posted and can be publicly accessed, SSRN still has to go through an approval process. I am not sure why that is, but I think that the paper can be accessed through the link above.

I had previously posted to SSRN a draft of the paper (the draft is here).

Readers may also be interested in the updates that I make during the year to the discussion of deference (Chevron, Loper Bright, et al.) in the 2025 Working Draft of the Federal Tax Procedure Book.  I will publish the 2025 Editions on SSRN in early August 2025. In the meantime, because of all the developments in the general subject of deference since the publication of the August 2024 editions, I will periodically post aggregate changes on the page to the right titled Federal Tax Procedure Book 2024 Editions Updates (7/26/24; 1/5/25), here.

The Relation of the Current DOJ Commotion to Loper Bright (2/15/25)

Readers have undoubtedly heard of the commotion about the DOJ order to the prosecutors in the U.S. Attorney’s Office in SDNY to dismiss the criminal case against NY Mayor Adams. There are many good accounts out there, but I link one to segue into a theme I have addressed before. Both sides of the commotion invoked then-Attorney General Robert H. Jackson, later Supreme Court Justice, to support their positions. Adam Liptak, A Rupture on the Right Over Prosecutors, Politics and the Rule of Law (New York Times 2/14/25), here.

Each side invoked Jackson’s classic speech on the role of the federal prosecutor. Robert H. Jackson, The Federal Prosecutor (Speech Delivered by Attorney General Jackson at the Second Annual Conference of United States Attorneys) (4/1/1940), from DOJ website here and from the Robert H. Jackson Center here. Jackson’s speech is generally considered the classic statement of the responsibilities and duties of federal prosecutors and particularly the local U.S. Attorneys.

It is ironic that both sides claimed support in Jackson’s speech. (Like Abraham Lincoln’s Second Inaugural equally ironic statement that “Both read the same Bible and pray to the same God and each invokes His aid against the other.”) I am familiar with Jackson’s speech from my days at DOJ Tax Division, and have just re-read it. My personal cut on the speech is that it favors the protesting Acting U.S. Attorney for SDNY,  Danielle R. Sassoon, rather than the President’s appointed DOJ hatchet man, Emil Bove with Pam Bondi in the background. Others can read the speech and reach their own conclusions.

The pre-eminent Jackson scholar is John Q. Barrett, here, a law professor and director of the Robert H. Jackson Center, here. The NYT article quotes Professor Barrett as follows:

John Q. Barrett, a law professor at St. John’s University who is writing a biography of Justice Jackson, said there was little doubt about how he [Jackson] would have viewed the Justice Department’s handling of the Adams case. “Pretty obviously he [Jackson] would be dismayed and appalled,” Professor Barrett said.

Agency Interpretations, Bell Curves, and Skidmore ooomph under Loper Bright (2/12/25)

Professor Christopher Walker, here, a frequent commentator on administrative law and on deference under Chevron and Loper Bright, has offered an interview on the current scene under Loper Bright.  Judicial Constraints on Agency Action (The Regulation Review 2/9/25), here. In that article, he states, based on his study of a large set of Chevron opinions, that “there was nearly a 25 percentage-point difference in agency-win rates when the courts of appeals applied Chevron deference than when they did not.”

I did a similar study of two smaller sets of opinions but enough to feel comfortable that it was a reasonably fair sample set. My conclusion was different from Walker’s and more in line with Second Circuit Judge Jon Newman’s conclusion that courts often invoke Chevron but do what they want to anyway—that is, interpret as they think is right (the best interpretation). Jon O. Newman, On Reasonableness: The Many Meanings of Law’s Most Ubiquitous Concept, 21 J. App. Prac. & Process 1, 83 (2021) (emphasis supplied), here. If that is right, Chevron was not ever as outcome determinative as people imagined from the rhetoric or the apparent win rate such as Professor Walker posits.

The conceptual model I posit is that, when courts defaulted to what appeared to be an agency win because the interpretation was “reasonable,” many of those cases really involved the courts’ determinations or hunches that the agency interpretations were the best interpretations. That’s the observation Judge Newman made. If that observation is true (I think it is), there should be a higher win rate because the indicated 25% difference in win rates in the Chevron era meant that, often, even usually, an agency win was not that just that the interpretation was reasonable but that the court thought it was best. Stated another way, Chevron was only outcome determinative when an agency not best interpretation was approved under Chevron. Judge Newman (and I) conclude that that was likely significantly less than 50% of the time when courts noised about Chevron.

Prominent Senate Finance Committee Members Offer Discussion Draft of Bill to Fix Certain IRS Procedure and Administration Issues (2/2/25)

Note to Readers: This blog entry was posted yesterday to a page rather than a blog page. I have moved it to the blog page. I will leave the page error up with a link to this blog entry. Please comment on this blog page.

Senators Crapo (R) and Wyden (D), prominent Senate Finance Committee members, have proposed a discussion draft, here, of a proposed bill making what Senator Wyden says would be “common-sense fixes to Internal Revenue Service (IRS) procedure and administration.” The proposed bill is nonpartisan. Many of the proposals address issues presented in cases that I have blogged about on the Federal Tax Procedure Blog. Senators Crapo and Wyden’s section-by-section explanation of the proposal is here. The announcement of this initiative, here, seeks comments by March 31, 2025; comments may be sent to discussiondraft@finance.senate.gov.

I have reviewed the section-by-section explanation and parts of the draft bill. For what it is worth, I applaud the proposal. It indeed does provide “common-sense” fixes to problems that have unnecessarily vexed tax procedure. It does not fix all problems, but it fixes a fair number of them. Nor does it fix issues the way I or other practitioners or interested parties would have fixed them, but the fixes are pretty good. With appropriate comments, perhaps other problems could be fixed, and of course the proposals may be fine-tuned and improved.

I link here to the Table of Contents for the proposed bill which I encourage readers to review.

JAT Comments:

My comments are necessarily selective for proposals that particularly interest me (based on my blogging). I encourage readers to read the entire bill and/or the section-by-section explanation.

1. Fixing the supervisor written approval timing requirement in § 6751(b). Sec. 113. Modification of procedural requirements for penalties and disallowance periods.

As I have noted before, current § 6751(b) is poorly drafted. See e.g., Eleventh Circuit Makes Clarity from Confusion as to the Written Supervisor Approval in § 6751(b) (Federal Tax Procedure Blog 9/20/22), here. Poor draftsmanship is not surprising given its genesis in the IRS Restructuring and Reform Act of 1998. See Federal Tax Procedure (2024 Practitioner Ed.) pp. 345 and (2024 Student Ed.) 22. I have posted 26 blog entries, here, on the Federal Tax Procedure Blog discussing § 6751(b). The poor draftsmanship has given hope to those who have abused the tax system that they can avoid penalties for playing the audit lottery for a real or perceived IRS footfault in the assertion of penalties. This hope has played itself out in, for example, syndicated conservation easement cases as recently as January 30 in Park Lake II v. Commissioner, T.C. Memo. 2025-11, GS here (finding no footfault, so that the case can proceed on the merits which may be not much but will chew up a lot of IRS, taxpayer, and Court time and resources).

The solution in the proposed bill is to amend § 6751(b) to require that the supervisor approval must occur before the initial determination of the penalty (much like the current law) but defines initial determination by adding at the end of § 6751(b):

Tax Court Rejects Constitutional Challenges to Appeals Office CDP Participation (1/30/25)

In Tooke v. Commissioner, 164 T.C. ___, No. 2 (1/29/25), here * and GS here**, the Court, in a CDP case, rejected taxpayer arguments that (i) Appeals Office participants violated the Appointments Clause of the Constitution and (ii) Appeals Office violated the Separation of Powers requirement of the Constitution. I just provided a nonnuanced summary of the arguments rejected. This blog entry will serve primarily as notice to practitioners and students of the holding, an important one; I copy and paste the Tax Court syllabus which, I think, fairly summarizes the full opinion:

           P filed federal income tax returns for taxable years 2012 through 2017 but did not pay the tax. The Internal Revenue Service (IRS) assessed the tax and separately issued P a Notice of Federal Tax Lien Filing and a Final Notice of Intent to Levy. P timely requested a collection due process (CDP) hearing with the IRS Independent Office of Appeals (Appeals). During the CDP hearing, P raised constitutional arguments that Appeals, and the employees who work therein, serve in violation of the constitutional separation of powers, particularly the Appointments Clause; these arguments were rejected. The Appeals Officer prepared a draft Notice of Determination, which was subsequently reviewed and approved by the Appeals Team Manager.

          Pursuant to I.R.C. § 6330(d)(1), P timely filed a Petition with the Tax Court. During this proceeding, P filed two Motions concerning the constitutional separation of powers and the CDP hearing before Appeals: (1) an Appointments Clause Motion, asserting that the Appeals Officers who conducted the CDP hearing, the Appeals Team Manager who reviewed and approved the Notice of Determination, and the Chief of Appeals (Chief), who the statutory scheme tasks with the “supervision and direction” of Appeals, see I.R.C. § 7803(e)(2)(A), but did not  [*2] participate in the CDP hearing, each serve in violation of the Appointments Clause, see U.S. Const. art. II, § 2, cl. 2; and (2) a Separation of Powers Motion (Removal Power Motion), asserting that Appeals, codified by the Taxpayer First Act, Pub. L. No. 116-25, § 1001(a), 133 Stat. 981, 983 (2019) (codified at I.R.C. § 7803(e)(1)), is a de facto independent agency whose head, the Chief, a position also codified by the Taxpayer First Act § 1001(a), 133 Stat. at 983 (codified at I.R.C. § 7803(e)(2)(a)), is subject to an unlawful removal restriction.

          Held: We reject P’s “root-to-branch” theory of causation. P has not made the necessary showing that the Chief’s tenure affected his hearing and prejudiced him in some way. See, e.g., United States v. Smith, 962 F.3d 755 (4th Cir. 2020); United States v. Castillo, 772 F. App’x 11 (3d Cir. 2019).

Schwarzbaum Redux – 11th Circuit Issues New Opinion to Correct Statement of FBAR Willfulness Civil Penalty Standard (1/23/25)

 In United States v. Schwarzbaum, ___ F.4th ___ (11th Cir. 1/23/25), CA11 here and GS here, the 11^th Circuit revisited the long-running Schwarzbaum FBAR civil penalty litigation. I discussed the immediately preceding visitation/opinion in 11th Circuit on Third Consideration Seals FBAR Willful Penalty Except for Relatively Small Amount Held Excessive Fine under 8th Amendment (Federal Tax Procedure Blog 9/4/24) here. In this new opinion, issued yesterday, the Court starts:

Appellee’s [United States’] petition for panel rehearing is GRANTED. We VACATE our prior opinion in this case and substitute the following in its place:

The Slip Opinion for the prior opinion was 53 pages; the Slip Opinion for this new opinion is 55 pages. For purposes of Federal Tax Crimes and Federal Tax Procedure Blogs, the material changes * only correct misstatements in the original opinion that the FBAR willfulness civil penalty standard is the same as the FBAR willfulness criminal penalty standard (the Cheek/Ratzlaf standard). (See new footnotes on p. 40 n. 7 and p. 46 n. 10.) As all readers of this blog surely know, the civil penalty standard includes recklessness but the criminal penalty standard requires the stricter specific intent requirement in Cheek and Ratzlaf. I don’t think that those corrections affect the bottom-line holdings, so I just copy and paste the succinct summary I provided in the original blog entry.

(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.

Supreme Court Stays District Court Injunction Against Filing Requirements of Corporate Transparency Act (1/24/25; 1/26/25)

Corporate Transparency Act Case Overview

The first Corporate Transparency Act ("CTA") case to reach the Supreme Court involved a preliminary skirmish over a district court’s universal injunction. This injunction prevented the Treasury and the IRS from enforcing the filing requirements of the Corporate Transparency Act (“CTA”). For more details, see Texas District Court Enjoins the Corporate Transparency Act Nationwide (Federal Tax Procedure Blog (12/5/24; 1/6/25), here, as well as the articles linked below.

Legal Proceedings

The district court action consisting of holding the CTA unconstitutional and enjoining the CTA spawned the following:

1.   Appeal on the Merits: The appeal on the merits to the Fifth Circuit is currently pending expedited consideration.

2.   Requests to Lift the Injunction: Requests to lift the injunction filed (i) in the Fifth Circuit, which ultimately denied the request, and then (ii) in the Supreme Court where it was docketed as No. 24A653, here.

Supreme Court Order

On January 23, 2025, the Supreme Court entered an order on the docket (No. 24A653), here:

Application (24A653) for stay presented to Justice Alito and by him referred to the Court is granted. The December 5, 2024 amended order of the United States District Court for the Eastern District of Texas, case No. 4:24–cv–478, is stayed pending the disposition of the appeal in the United States Court of Appeals for the Fifth Circuit and disposition of a petition for a writ of certiorari, if such a writ is timely sought. Should certiorari be denied, this stay shall terminate automatically. In the event certiorari is granted, the stay shall terminate upon the sending down of the judgment of this Court. Justice Gorsuch concurring in the grant of stay. (Detached Opinion). Justice Jackson dissenting in the grant of stay. (Detached Opinion)

Media Coverage

Use of AI, Including Large Language Models (LLMs), in Tax Court Brief Writing (And Really Other Legal Analysis) (1/22/25; 4/29/25)

 AI (artificial intelligence) is ubiquitous now; or at least the discussion of AI is ubiquitous. See generally Artificial intelligence. (2025, January 22), Wikipedia, here.  I asked ChatGPT about use of AI by lawyers and received the response linked here. I write today on some instances recently called to my attention of misuse of AI in briefing in Tax Court cases, but I understand that similar misuse has been identified in briefing in other courts.

Use of AI in legal briefing has received considerable attention, from general discussion of the strengths and weaknesses to specific instances where lawyers have been called out when they used AI that failed. E.g., Is AI a Good Tool for Legal Brief Writing? (Spellbook 10/22/24), here (general discussion, but noting in part for today’s blog that “AI tools can sometimes "hallucinate" information and generate fake citations that human lawyers must carefully check.”); What Are the Best AI Tools for Writing Legal Briefs? (Bloomberg Law 6/10/24), here (nothing that AI in large language models (“LLM”) can produce “false information” via what are called “hallucinations;” and that, as a result, “21 federal trial judges have issued standing orders regarding AI, and attorneys are often required to disclose all uses of AI.”) Suffice it to say that my understanding is that AI generated content must be carefully checked and appropriate revisions made before submitting that content in a brief submitted to the court. (This is confirmed by my limited use of AI as discussed at the end of this blog.)

The Tax Court has no formal rule addressing the use of AI. However, a reader recently advised me of two Tax Court Orders by Judge Buch addressing the issue. Thomas v. Commissioner (T.C. Dkt 10795-22 at #36 Order dtd 10/23/24), here; and Westlake Housing, L.P. v. Commissioner (T.C. Dkt. No. 478-24L at # 32 Order dated 1/13/25), here. (I have posted both orders to my Google Docs to permit a permalink that readers can directly access without having to go through the DAWSON docket sheet which does not offer a permalink for direct access to the orders.)

Thomas is a short order (5 pages); Westlake is even shorter (2 pages). I discuss Thomas in some detail. The Court (Judge Buch) sets the issue up in its opening paragraph:

          This case was tried on September 17, 2024, in Atlanta, Georgia. In preparing for trial, the Court noticed that some of the authorities cited in petitioner’s Pretrial Memorandum did not exist, evidencing possible AI hallucinations. To inquire into these authorities, the Court held a hearing to provide petitioner’s counsel an opportunity to clarify the Pretrial Memorandum. During that hearing, petitioner’s counsel explained that someone else had prepared the Pretrial Memorandum, and she did not review the work that was provided to her. Rule 33 instructs that, in signing a pleading, counsel is certifying that he or she has read the pleading, that it is well grounded in fact; and that it is warranted by existing law. Because the Pretrial Memorandum violates this standard, we will deem it to be stricken. We will also take this occasion to address the use of AI as a tool to assist petitioners and practitioners. As discussed below, however, striking the Pretrial Memorandum will not affect the ultimate outcome in this case.

After then summarizing nicely the role of the Pretrial Memorandum (pp. 1 & 2), the Court noted:

Supreme Court Accepts Cert in Zuch as to Mootness in CDP where IRS Collected by Offset the Tax Subject to Levy (1/13/25)

On Friday, January 10, 2024, the Supreme Court granted the Solicitor General’s petition for writ of certiorari in Commissioner v. Zuch (S.Ct. No. 24-416), here. The order granting the petition is here; the Supreme Court’s docket sheet is here; the Third Circuit opinion is Zuch v. Commissioner, 97 F.4th 81 (3rd Cir. 2024), here. My blog on the 3^rd Circuit panel opinion in Zuch is 3rd Circuit Holds Tax Court Has Jurisdiction to Determine Overpayments in CDP Proceedings (3/29/24; 3/30/24), here. (Although I cite my prior blog, I recommend those new to the issue, spend their time on the briefing on the petition for writ of certiorari and the 3rd Circuit panel opinion.)

The Question Presented from the petition, filed by Solicitor General Prelogar but naming attorneys from the Solicitor General’s office and the Tax Division, is:

Whether a proceeding under 26 U.S.C. 6330 for a pre-deprivation determination about a levy proposed by the Internal Revenue Service to collect unpaid taxes becomes moot when there is no longer a live dispute over the proposed levy that gave rise to the proceeding.

The Question Presented from the Brief in Opposition. here, filed by a formidable Skadden Arps team led by Shay Dvoretzky, here, and joined by the ubiquitous Frank Agostino, here,

          The Internal Revenue Code authorizes the IRS to levy—that is, seize—a taxpayer’s property to collect unpaid taxes, but only after providing the taxpayer with notice and an opportunity for an administrative hearing before the IRS Independent Office of Appeals. (Appeals Office). See I.R.C. § 6330. At the hearing, the taxpayer may raise “any relevant issue relating to the unpaid tax or the proposed levy.” I.R.C. § 6330(c)(2)(A). The taxpayer may also challenge her underlying tax liability if she did not previously have an opportunity to do so. I.R.C. § 6330(c)(2)(B). After the Appeals Office renders its decision, the taxpayer may “petition the Tax Court for review of such determination,” “and the Tax Court shall have jurisdiction with respect to such matter.” I.R.C. § 6330(d)(1).

          The question presented is whether the Tax Court retains jurisdiction under I.R.C. § 6330 to review and issue declaratory relief as to the Appeals Office’s determination of the taxpayer’s underlying liability when, despite the parties’ live dispute about that liability, the IRS stops pursuing the levy.

JAT Comments: