New Cumulative Supplement to Federal Tax Procedure Book (10/28/17)

I provide a new cumulative supplement to the Federal Tax Procedure Book.  The cumulative supplement, dated 10/28/17, may be downloaded on the Page to the right titled Federal Tax Procedure Book & Supplements, here.

As always with my publications, I encourage readers to advise me of any matters that need corrections, additions, deletions, etc.

More on Skidmore (10/19/17)

I recently posted on Skidmore deference:  Other Views of Skidmore "Deference" (10/12/17; 10/15/17), here.  I offer more here on Skidmore, having searched through my database I keep to catalog items that I either actually read or wished I had read.  I just did a simple search on Skidmore.  I got about 525 hits indicating the sections in which Skidmore is cited (some sections had more than two references to Skidmore).  I browsed through the hits and offer the following additional excerpts about Skidmore deference.  I do caution readers than this is not a scientific or representative sampling of all the literature that is out there.

Kristin E. Hickman and Matthew D. Krueger, In Search of the Modern Skidmore Standard, 107 Colum. L. Rev. 1235, 1250, 1252-1253, 1255-1256, 1271, 1280-1281, 1291, 1310 (2007), here (footnotes omitted):

II. What Is Skidmore Deference? 

Drawing fine distinctions among deference standards may seem a purely academic exercise. Legal realists contend that such an effort is pointless, as courts only invoke deference standards to justify their preferred outcome. Although we acknowledge that this critique may be true in some instances, we nevertheless submit to the contrary that deference standards matter. We accept that courts feel constrained by deference standards and speak sincerely when they discuss the application of those standards. 

It is easy enough to recognize the consensus view that Skidmore gives judges more discretion than Chevron's command of mandatory deference. Similarly, from the Court's articulation of the two standards, one can readily discern that Chevron deference involves two binary inquiries, while Skidmore requires courts to evaluate several factors. Nevertheless, once a reviewing court finds itself in Skidmore's realm of discretionary deference, elucidating the appropriate degree of deference is not so simple as plotting a point on a line. Standards of review are not precision instruments. Rather, to paraphrase Justice Frankfurter, standards of review are more accurately described in terms of the "mood" a reviewing court should possess in evaluating the issue at bar. The question to be answered, therefore, is what sort of mood Skidmore analysis contemplates. 

* * * * 

Commentators also generally agree that Skidmore is less deferential than Chevron, falling somewhere further away from the deference pole. This is all well and good, but it offers little guidance for the application of Skidmore as a stand-alone doctrine. 

* * * * 

The independent judgment model of Skidmore deference thus understands the "persuasiveness" of an administrative interpretation to depend ultimately on the interpretation's merits or rightness. This conception discounts Skidmore's contextual factors and does not require courts to regard the presence or absence of those factors as particularly relevant. At most, this view understands Skidmore to require "due regard" be given to the agency's view, while "instructing courts to adopt the statutory interpretations that they themselves deem best." In effect, then, Skidmore directs courts to treat the agency's view just as it would the view of any litigant.  

* * * * 

Other Views of Skidmore "Deference" (10/12/17; 10/15/17)

In my Federal Tax Procedure book (both editions), I say (footnotes omitted):

Before introducing my summary of the state of the law on IRS interpretations other than regulations, I first return to Skidmore deference which is a weaker form of interpretive deference (weaker in comparison to Chevron deference).  Skidmore v. Swift & Co., 323 U.S. 134 (1944).  Although formulations of Skidmore deference may vary, I think it is fair to say that agency interpretations not entitled to Chevron deference are entitled to some deference to the extent that they are persuasive.  Skidmore deference seems to stand somewhere between Chevron deference and no deference.  If the agency interpretation is intrinsically persuasive (including touchstones of thoroughness and consistency), does it need any deference in order to carry the day?  Presuming the Court means something in paying homage to Skidmore deference, perhaps it means that a court must give slight tilt in favor of an agency interpretation when it does not rise to the level required for Chevron deference.  So, in a case in which the court will not apply Chevron deference, it might still apply Skidmore deference.  (This, of course, raises the question I cannot answer here as to how much conceptual space there is for any given agency interpretation between Chevron deference and Skidmore deference; are there really many cases that can pass muster under Chevron but would not pass muster under Skidmore?)

I just read -- well, given its length, skimmed -- the en banc opinions in Aqua Products, Inc. v. Matal, ___ F.3d ___, 2017 U.S. App. LEXIS 19293 (Fed. Cir. 2017), here, a patent case (which may be even more onerous than a tax case).  There is a lot of discussion in the various opinions about Chevron and its progeny, but only one discussion about Skidmore.  Judge Moore says in his dissent (p. 11 of his dissent in fn. 8):

   n8 An agency interpretation not entitled to Chevron deference may nonetheless be entitled to Skidmore deference which the Supreme Court describes as follows: "Such a ruling may surely claim the merit of its writer's thoroughness, logic, and expertness, its fit with prior interpretations, and any other sources of weight." Mead, 533 U.S. at 235. Skidmore deference is a somewhat ethereal concept as it amounts to deference which the Supreme Court explains is proportional to the ruling's "power to persuade." Id. This feels a lot like saying I defer to your interpretation because I have determined that it is correct.

Still another conceptualization of Skidmore is present in Secretary U.S. Dept. of Labor v. American Future Systems, Inc., ___ F.3d ___, 2017 U.S. App. LEXIS 19991 (3rd Cir. 10/13/17), here (at slip op. 10-12, footnotes omitted):

District Court Holds that Temporary Regulations are Legislative and Thus Fail APA's Notice and Comment Requirement (10/10/16)

In Chamber of Commerce v. U.S. IRS, ________ (W.D. Tex. 10/6/17), here, the Court concluded that the so-called inversion Temporary Regulation was a legislative regulation that could not become effective until there was either the APA required notice and comment because no reasoned good cause statement had been given as required for immediate effectiveness of legislative regulations.   Caveat:  this is a revised opinion.  I have not attempted to locate the differences between the original opinion issued 9/29/17 and this revised opinion.  All of the following discussion relates to the revised opinion issued 10/6/17.

First, I offer the Court's explanation of the Temporary Regulation, which it called the Rule.

The Rule was issued pursuant to statutory authority in the Internal Revenue Code, which provides: 

The Secretary shall prescribe such regulations as may be appropriate to determine whether a corporation is a surrogate foreign corporation, including regulations (A) to treat warrants, options, contracts to acquire stock, convertible debt interests, and other similar interests as stock, and (B) to treat stock as not stock. 

26 U.S.C. § 7874(c)(6). And further, 

The Secretary shall provide such regulations as are necessary to carry out this section, including regulations providing for such adjustments  to the application of this section as are necessary to prevent the avoidance of the purposes of this section, including the avoidance of such purposes through (1) the use of related persons, pass-through or other noncorporate entities, or other intermediaries, or (2) transactions designed to have persons cease to be (or not become) members of expanded affiliated groups or related persons. 

26 U.S.C. § 7874(g). The statute uses terms granting broad authority to the Secretary of the Treasury for example: "such regulations as may be appropriate" and "such regulations as are necessary to carry out this section." The statute does not limit the broad authority granted in the first part of each subsection by identifying regulations that would not be appropriate or providing boundaries to the Secretary's authority under the statute. Instead, the statute gives examples of what the Secretary may employ by using the word "including" several times. Further, the examples given in the statute of regulations the Secretary may issue include significant authorizations, such as the authority to "treat stock as not stock," which could substantially alter a calculation under the statute based on the stock of a corporation.

Based on the broad authority granted by Congress, the court concludes the Rule does not exceed the statutory jurisdiction of the Agencies. The Rule directs that certain stock be disregarded in calculations made under the statute, which falls into the statute's allowance that regulations may "treat stock as not stock." Further, the Rule aims to "prevent the avoidance of the purposes" of the statute, which is specifically named as an authorized function of regulations issued pursuant to the statute. 

The court concludes the Rule does not exceed the statutory jurisdiction of the Agencies.

The Court then holds (pp. 8-10) that the IRS gave a reasoned explanation for the Rule consistent with the broad grant of authority. Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).

JAT Note: The Court to this point has not distinguished between a legislative regulation and an interpretive regulation.

The Court then holds (pp. 10-13) that the Temporary Regulation, issued without notice and comment, violates the APA requirement for notice and comment.  In this portion of the discussion, the Court does not mention the fact that interpretive regulations are exempted from the APA notice and comment requirement.  So, the assumption must be, for purposes of that discussion, that the Temporary Regulation was a legislative regulation.

The Court then turns (pp. 13-15) to the interpretive regulation exception to the APA notice and comment requirement.  This is the nub of the reason I write this blog entry, so I quote the key part:

Federal Tax Procedure Book Revisions on Section 6110 (9/10/17)

I posted here a new cumulative supplement, dated 9/10/17, for the Federal Tax Procedure Book.  The significant addition for this cumulative supplement is to expand the discussion of Section 6110, here.  I offer just the text (no footnotes) below.   This new material is to be inserted in the Student  Edition at end of p. 56 and in the Practitioner Edition at end of p. 85. See the supplement for the footnotes.

l. Public Access to and Precedential or Persuasive Value of Less Formal IRS Written Determinations.

The more formal IRS interpretations have historically been published so as to be easily accessible to the public.  Regulations are published in the Federal Register; Revenue Rulings and Procedures and some notices are published in the Internal Revenue Bulletins and Cumulative Bulletins. Less formal written interpretations (such as PLRs and TAMs) formerly were not published publicly.  These written determinations usually interpret the substantive law in the context of the taxpayer’s facts.  For example, a PLR or TAM will address a taxpayer’s facts and apply an interpretation of the law to the facts.  These written determinations and the interpretations are not intended to be formal IRS interpretations (such as by regulation or Revenue Ruling) and hence require lower levels of review and procedure.

Notwithstanding that these written determinations are not formal IRS interpretations, IRS personnel could access these determinations and use their interpretations to influence the IRS actions involving other taxpayers.  Furthermore, the taxpayers and practitioners involved in the process of the written determinations would often know of the interpretations (e.g., they would have copies of the TAMs and PLRs) and could use the interpretations in the future to their benefit in other matters before the IRS.

By the mid-1970s, responding to suits for access to these written determinations, courts reached different conclusions but raised concerns about a secret body of law. In this environment, in 1976, Congress enacted § 6110.  That section starts with the command that “the text of any written determination and any background file document relating to such written determination shall be open to public inspection.”  § 6110(a).  A written determination includes a “ruling, determination letter, technical advice memorandum, or Chief Counsel advice.”  § 6110(b)(1).

Pursuant to this command, the IRS routinely makes available the text of written determinations less formal that Revenue Rulings and Revenue Procedures.  The IRS must redact the portion of the written determination that discloses certain matters where nondisclosure is warranted (such as taxpayer identification (cf. § 6013), information otherwise exempt from disclosure by statute or executive order relating to national defense or foreign policy, trade secrets or financial information and certain other sensitive matter).  § 6110(c).  The text that is disclosed even as redacted will show the IRS’s informal interpretations of the law.

The IRS makes these written determinations available on its FOIA Electronic Reading Room web site.  Also, many tax publishers publish these informal written determinations as the IRS makes them available.  In a tax practice, these written determinations made public under § 6110 must be consulted in researching tax issues, particularly with respect to transactions, return reporting, and litigation.  For example, a taxpayer considering an important transaction may want to know the IRS’s position, and written determinations may be the only source available for issues presented.  That taxpayer may want to seek a PLR if these written determinations indicate that the IRS may rule favorably or may not want to seek a PLR if these written determinations indicate that the IRS may not rule favorably.

New Cumulative Supplement for Tax Procedure Book (9/10/17)

I have posted here a new cumulative supplement to the Federal Tax Procedure Book.

Authority to Compromise Tax Liabilities After a DOJ Referral (9/4/17)

On Saturday, I posted a blog entry on the Federal Tax Crimes Blog regarding the Tax Court's application of the civil fraud penalty for multiple years after the taxpayer pled guilty to tax evasion involving only one of the years.  See Taxpayer Held Liable for Civil Fraud Penalty after Plea to Tax Evasion for One of the Years (Federal Tax Crimes Blog 9/2/17), here, discussing Cantrell v. Commissioner, T.C. Memo. 2017-170, here.

I thought some fans of tax procedure might be interested in the blog entry since the civil fraud penalty and collateral estoppel are important issues for tax procedure.  The application of the civil fraud penalty and collateral estoppel for the year of conviction in Cantrell is fairly routine.

What was not routine, and what tax procedure enthusiasts may not fully appreciate is the treatment of offers in compromise after a tax evasion conviction.  Cantrell dealt with one aspect of that issue and I expound further on it in the blog entry.  There are many nuances, so I refer readers to the blog entry linked above, where I discuss some of them.

At the inception, readers will want to read § 7122(a), here, titled Compromises, which seems to be very simple:

The Secretary may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense; and the Attorney General or his delegate may compromise any such case after reference to the Department of Justice for prosecution or defense.

I discuss in an addendum to the Federal Tax Crimes Blog post linked above some of the nuances caused by this statutory division of authority to compromise.  Federal tax procedure enthusiasts my want to read the blog, particularly the addendum.

Good summary of Chevron (8/30/17)

In Sinclair Wyoming Refining Co. v. EPA, 2017 U.S. App. LEXIS 15192 (10th Cir. 2017), here, a nontax case, Chief Judge Tymkovich offers the following general discussion of Chevron.  This discussion does not require changes to the Federal Tax Procedure Editions, but it is a good summary so I offer it here.

When a court reviews an agency's legal determination, it generally applies the analysis set out by the Supreme Court in Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984). Under Chevron, reviewing courts apply a two-step analysis. Chevron step one asks "whether Congress has directly spoken to the precise question at issue." Id. at 842-43. If Congress's intent is clear, then both the court and the agency "must give effect to the unambiguously expressed intent of Congress." Id. at 843. Courts determine Congress's intent by employing the traditional tools of statutory interpretation, beginning—as always—with an examination of the statute's text. See New Mexico v. Dep't of Interior, 854 F.3d 1207, 1223-24 (10th Cir. 2017). But, if Congress has "not directly addressed the precise question at issue"—if "the statute is silent or ambiguous with respect to the specific issue"—the court must determine at Chevron step two "whether the agency's answer is based on a permissible construction of the statute." Chevron, 467 U.S. at 843-44. 

In some circumstances, however, a court never reaches the Chevron analysis. In such cases, we do not need to answer the step one or step two questions. As the Supreme Court explained in United States v. Mead Corp., 533 U.S. 218, 121 S. Ct. 2164, 150 L. Ed. 2d 292 (2001), the initial step of the Chevron inquiry is actually to determine whether Chevron should apply at all. See Cass R. Sunstein, Chevron Step Zero, 92 Va. L. Rev. 187, 247 (2006) (conceptualizing the inquiry of whether Chevron applies as "Chevron step zero"); see also Gutierrez-Brizuela v. Lynch, 834 F.3d. 1142, 1157 (10th Cir. 2016) (Gorsuch, J., concurring) (discussing the step zero inquiry and the confusion created by Mead). n3
   n3 We note that neither party discussed the Supreme Court's decision in City of Arlington v. Federal Communications Commission, 569 U.S. 290, 133 S. Ct. 1863, 185 L. Ed. 2d 941 (2013), in their supplemental briefs. We have not previously addressed the effect—if any—City of Arlington might have on our application of the Mead inquiry. But we do note that Justice Scalia, writing for the majority in City of Arlington, reaffirmed that courts must determine whether Chevron or Mead controls at step zero. See 133 S. Ct. at 1874 ("The dissent is correct that United States v. Mead requires that, for Chevron deference to apply, the agency must have received congressional authority to determine the particular matter at issue in the particular manner adopted. No one disputes that." (emphasis added)).

Public Interest Entity Fails in FOIA Attempt to Force IRS to Disclose President Trump's Tax Returns (8/29/17)

In Electronic Privacy Information Center, v IRS, 2017 U.S. Dist. LEXIS 131911 (D. D.C. 2017), here, the court rejected the EPIC's attempt to obtain the tax returns of President Donald J. Trump.  I have added the following footnote to p. 144 of the Practitioner Edition after the sole paragraph in (there is no change to the Student Edition), but provide the entire text paragraph (for context) and the footnote:

Ch. 4.  Confidentiality and Disclosure of Return Information.
IV.  Exceptions–Must be Congressionally Approved.
H. Other Permitted Disclosures

Section 6103 contains a plethora of other permitted disclosures. All are grounded in some perception of national priority that trumps the general need for secrecy. I do not expect you to know these other exceptions for this class.  You should, however, know that, when you practice in this area, you simply have to slug through the various and many permitted disclosures to assess risks of disclosure for your client and remedies that may be available for wrongful disclosure.  Your intuition based on the foregoing examples should also give you a sense of when a national priority exists for which Congress might have provided an exception.  But you still must read the statute, because sometimes Congress' sense of national priorities may be different than what you think it is or should be. fn. 611a 

fn. 611a.  There is one disclosure authority within this general grouping that is worth a passing mention because of its topical interest in 2017 when this footnote was prepared.  Section 6103(k)(3) permits the IRS, upon approval of the JCT, to disclose return information “with respect to any specific taxpayer to the extent necessary for tax administration purposes to correct a misstatement of fact published or disclosed with respect to such taxpayer’s return or any transaction of the taxpayer with the Internal Revenue Service.”  Notice the qualifiers for this authority: (i) approval by the JCT; and (ii) necessity for tax administration.   See § 6103(b)(4) (defining tax administration).  Merely some national emergency does not fit this exception; rather the necessity must arise from tax administration and it is solely to correct a misstatement of fact.  It is hard to imagine this authority being invoked with these limitations, and so far as I am aware, it has never been invoked.  See for a failed attempt to require the IRS to exercise this authority to release President Donald J. Trump’s tax returns, Electronic Privacy Information Center, v IRS, ___, 2017 U.S. Dist. LEXIS 131911 (D. D.C. 2017) (calling this exception a “rara avis” and also stating that the Court is aware of no instance of its actual use, but (i) noting two instances where preliminary moves were made to obtain the required permission but the permission from the JCT were not granted and (ii) other citings in cases appear to have been errors).  This case also held that, under the APA or otherwise, there is no requirement that the IRS seek the approval of the JCT to make the disclosures.

I also revised footnote 555 on p. 135 as follows and offer the sentence in the text and the footnote:

The IRS generally “may” also disclose return information to the taxpayer or his or her representative or designee unless it determines that the disclosure would “seriously impair Federal tax administration.” fn 555

fn. 555 § § 6103(c) (as to taxpayer’s representative) and § 6103(e)(7) (as to taxpayer and others otherwise having access).  Regs. § 601.702(c)(5)(iii)(C) (“In the case of an attorney-in-fact, or other person requesting records on behalf of or pertaining to other persons, the requester shall furnish a properly executed power of attorney, Privacy Act consent, or tax information authorization, as appropriate.”).  For an interesting application of this limitation where the FOIA suit was dismissed because the requester seeking the returns of President Donald J. Trump did not provide President Trump’s consent to the disclosure, see Electronic Privacy Information Center, v IRS, ___, 2017 U.S. Dist. LEXIS 131911 (D. D.C. 2017).

Yin Article on Codification and Emergence of JCT (8/21/17)

George Yin, Professor at the University of Virginia School of law (faculty bio here), has posted to SSRN this article (in SSRB's suggested format):  Yin, George K., Codification of the Tax Law and the Emergence of the Staff of the Joint Committee on Taxation (August 1, 2017). Virginia Law and Economics Research Paper No. 2017-20; Virginia Public Law and Legal Theory Research Paper No. 2017-39. Available at SSRN: https://ssrn.com/abstract=3008878.  George was previously chief of staff of the Joint Committee on Taxation and is well situated to review its history and role.

As I note in my Federal Tax Procedure Book (both editions), the Joint Committee on Taxation plays a key role in tax legislation.  This new article provides interesting insight into how the JCT assumed the important role it plays today.

The SSRN Abstract is as follows:

In 1926, Congress created the Joint Committee on Taxation (JCT) and its staff. This article explains how, partly by design but largely by happenstance, the JCT staff helped change the nature of the legislative process. By serving at or near the intersection of three great divides in government — those between the parties, the houses of Congress, and the legislative and executive branches — the staff demonstrated the value of unelected professionals assisting directly in the formation of legislation and led Congress to rely more on its own resources in the legislative process rather than those of the executive branch. This article describes the emergence of the JCT staff from a modest conception much different from its eventual role. The staff’s work on a lengthy and highly technical project — a dozen-year effort to codify the tax statutes — contributed to the growth of its influence and the changes that would take place in the legislative process.

George's article led me to revise some portions of the working draft for the 2018 editions of the Federal Tax Procedure Book.  I have incorporated George's article particularly into the discussion of the U.S. Code system in the page at the right titled On the Internal Revenue Code (Title 26) and Statutes (8/21/17), here.

Also, George has previously written or spoken on the JCT and tax legislation in the following articles (which I cite in the Federal Tax Procedure Book:

• George K. Yin, Preventing Congressional Violations of Taxpayer Privacy, 69 Tax Law. 103 (2015).
• George K. Yin, James Couzens, Andrew Mellon, The "Greatest Tax Suit in the History of the World," and the Creation of the Joint Committee on Taxation and its Staff, 66 Tax L. Rev. 787 (2013).
• George K. Yin, Let's Get the Facts of the Couzens Investigation Right!, 2013 TNT 165-12 (8/26/13).
• Interview with George K. Yin, 25 ABA Tax Section News Quarterly 14, 17(Winter 2006).

These articles and other of George's articles can be found on George's SSRN author page, here.