New Policy Statement That Appeals Is Not to Raise New Issues (7/23/13)

The IRS released a Memorandum for Appeals Employees, here, on the subject of Implementation of the Appeals Judicial Approach and Culture (AJAC) Project.  "The AJAC Project is returning Appeals to a quasi-judicial approach in the way it handles cases, with the goal of enhancing internal and external customer perceptions of a fair, impartial and independent Office of Appeals."  For purposes of this blog entry, the approach should limit Appeals to deciding the controversies that the parties put before it, rather than raise new issues not previously spotted by Exam or re-visit issues settled or dropped by Exam.  In furtherance of that objective, the Memorandum advises of a new IRS Policy Statement as follows:

Policy Statement 8-2 (Formerly P-8-49) 

(1) New issues not to be raised by Appeals. 

(2) Appeals will not raise new issues. Appeals also will not reopen an issue on which the taxpayer and the Service are in agreement.

The memorandum implements this policy with new IRM provisions in various contexts -- Collection Due Process, Offers in Compromise, Collection Appeals Program, and Examination Cases.  I focus here on Examination Cases.  The effect of the new approach on Examination cases is set forth in Attachment 5 to the Memorandum.  Key points in attachment 5 are:

• The prohibition on raising new issues also applies in Appeals consideration of docketed cases.  (IRM 8.4.1.15.3).
• Guidance is given when the taxpayer raises new issues.  Id.
• Guidance is given when an issue not before Appeals is identified; although the Appeals  Officer cannot raise it on appeal, if it is a systemic issue, a process for the issue to be reported is provided.  "A systemic issue is an issue that requires a change or modification to an established procedure, process or operation (e.g., training issues, computer program, campus procedure for processing claims). These are issues that potentially impact more than one taxpayer."  IRM 8.6.1.6(1).
• "Reopening a previously agreed issue or raising a new issue has the same implications, and is, for all practical purposes, one and the same. Therefore, for purposes of this section, treat reopening an agreed issue the same as raising a new issue."
• "A new issue is a matter not raised during Compliance's consideration. (3) A new theory or alternative argument is not a new issue."
• "(1) Appeals will not raise new issues and will focus dispute resolution efforts on resolving the points of disagreement identified by the parties. The Appeals process is not a continuation or an extension of the examination process."  IRM 8.6.1.6.2(1).  "In resolving disputes, Appeals may consider new theories and/or alternative legal arguments that support the parties' positions when evaluating the hazards of litigation in a case. However, the Appeals hearing officer will not develop evidence that is not in the case file to support the new theory or argument."
• "In docketed cases, the Appeals hearing officer will consider a new issue affirmatively raised by the government in pleadings and may consider any new evidence developed by Compliance or Counsel to support the government's position on the new issue. The Appeals hearing officer's consideration of a new issue in a docketed case will take into account that the government has the burden of proof."

 The old version (currently on the web as of 7/23/13), here, is:

1.2.17.1.2  (Approved 01-05-2007)
Policy Statement 8-2 (Formerly P–8–49) 

1. New issues not to be raised unless material 

2. An issue, on which the taxpayer and the Service are in agreement, should neither be reopened by Appeals nor should a new issue be raised, unless the ground for such action is a substantial one and the potential effect upon the tax liability is material. The existence of unreported income, deductions, credits, gains, losses, etc. stemming from a tax shelter which is a listed transaction constitutes such a substantial ground with a material effect upon the tax liability.

Appeals raising of new issues was extremely rare under this old rule.  I have been practicing for over 35 years and have never had a new issue raised on Appeal.  But it was a possibility and a risk.

At least in some cases, the old policy gave incentives to avoid an appeal at the conclusion of which is probably the most efficient timing from an administrative perspective.  Some taxpayers would get to appeals after filing the petition in the Tax Court, with the thought that the press of the expected docket call would limit the time Appeals would be substantively involved and likely to spot new issues.  Other taxpayers pursued their refund remedies with careful attention to timing so that, if new issues were raised, the statute of limitations would foreclose any adjustment other than by offset.

This is a welcome clarification of Appeals' role.

Of course, the fact that Appeals will not raise new issues does not mean that, should litigation ensue in the Tax Court or a refund forum, the Government will not be permitted to raise new issues.  Then, the ability of the Government to raise and pursue new issues will be governed by the respective court's control of its docket.

More on Litigation and IRS Raising Civil Fraud New Matter (7/11/19)

My last post involved the IRS raising the civil fraud penalty as new matter by amended answer and prevailing. IRS Raises Fraud In Tax Court Amended Answer and Prevails (Federal Tax Procedure Blog 7/9/19), here.  The key point of the blog entry was the danger of unspotted issues after an audit and the risks of petitioning the Tax Court for redetermination. 

First, on that issue, I offer the relevant portion of the working draft of my Federal Tax Procedure Book will be published on SSRN in early August 2019 (footnotes omitted):

New Matters [In the Tax Court]. 

The IRS can raise new issues in its answer that seek to increase the amount of the deficiency on a basis not asserted in the notice of deficiency or to justify the deficiency asserted (or part thereof) on some basis not asserted in the notice of deficiency.  Jurisdictionally, the Tax Court case is a case to redetermine the correct amount of tax liability for the year(s) involved, thus permitting it to determine a higher deficiency amount or an overpayment.  § 6214(a) & 6512(b). So the IRS can seek additional taxes and penalties not previously asserted.  The statute of limitations will be open because, to reprise what we learned earlier, the statute is suspended during the period the Tax Court case is pending.  §§ 6213(a) and 6503(a).   This is one of the dangers in proceeding in the Tax Court where the IRS has not previously spotted an issue.  Since the statute of limitations is suspended upon issuance of the notice of deficiency (§ 6503(a)), all new matters may be raised, assuming that the statute of limitations did not bar the notice of deficiency in the first place. 

The IRS's ability to raise new issues after its original answer is, however, limited by rules of fairness.  If the IRS does assert new matters after filing its original answer, it will formally do so by moving to amend the original answer.  The Tax Court rules, like the Federal Rules of Civil Procedure applicable in district courts and the Court of Federal Claims' Rules, permit amended pleadings, usually requiring the approval of the Court which is liberally granted to promote justice on the underlying merits. New issues cannot be inserted too late in the process so as to deny the taxpayer the effective opportunity to respond.  And, as to “new matters,” the IRS bears the burden of persuasion.  (Of course, if the new matter is the civil fraud penalty not asserted in the notice of deficienty, the IRS would have the burden of persuasion anyway to prove civil fraud by clear and convincing evidence, so asserting civil fraud as a new matter has no affect on the burden of persuasion.) 

The IRS is allowed to raise a new theory or ground in support of an issue raised in the notice of deficiency without the theory or ground being a new matter.  Depending upon how much variance the new theory or ground has with the notice of deficiency, the variance might be considered a new matter subject to the foregoing new issues discussion.  Certainly, if it is raised so late that the taxpayer cannot fairly respond with evidence addressing the new issue, the Court should deny the IRS’s attempt to assert the new issue. 

If the IRS asserts an affirmative defense (such as estoppel), it will be deemed denied and the taxpayer need not file a responsive pleading, which is usually called a “reply.”  If, however, the IRS raises “new matter” either in an answer or an amended answer, the taxpayer should file a reply providing the IRS notice as to the taxpayer's position on the new matter.  This is frequently done via a simple denial of the various matters pled with respect to the new matter. 

I think it would be helpful to illustrate the new matter issue.  Recall that § 6662 provides a 20% substantial understatement penalty that is then increased to 40% if the understatement is attributable to a gross valuation misstatement.  If the notice of deficiency asserted the 20% penalty but, in its answer, the IRS asserts the 40% penalty, the IRS will have the burden of proof on the increase in the penalty.  That seems to be the straight-forward reading of the rule shifting the burden of proof to the IRS.  But, let’s focus on one issue raised in this setting.  The taxpayer can avoid the accuracy related penalties if there was reasonable cause for the position on the return.  This is like an affirmative defense to the penalty.  Thus, as to the 20% penalty asserted in the notice and contested in the petition, the taxpayer bears the burden of proving reasonable cause even after the IRS meets its production burden under §7491(c); as to the increased 40% penalty, however, the IRS bears the burden of proof, including establishing absence of reasonable cause. 

Finally, an even worse case for the taxpayer who improvidently petitions for redetermination is that the IRS can raise as new matter a civil fraud penalty.  Say in the above example, the notice of deficiency asserted either the 20% or 40% accuracy related penalty in § 6662 and then in the answer (or amended answer), the IRS asserts the 75% civil fraud penalty in § 6663.  Note in this regard that, if the IRS raises the civil fraud penalty as a new matter, its burden of proof is not affected because, as to civil fraud, the IRS bears the burden of persuasion by clear and convincing evidence anyway, just as it the civil fraud penalty had been asserted in the notice of deficiency.  So,  if the IRS prevails, the taxpayer will be even worse off for having filed a petition for redetermination.  Thus, taxpayers and practitioners should think carefully about unspotted potential issues before filing a petition for redetermination in the Tax Court.

Now let's work this a little more.  This IRS favorable result works because the statute of limitations is still open in Tax Court proceedings.

District Court Rejects State End-Run of Federal Tax SALT Limitations with State Creditable "Charitable" Contribution (4/8/24)

In New Jersey v. Mnuchin, ___ F.Supp. 3d ___,  2024 WL 1386080, 2024 U.S. Dist. LEXIS 59122  (S.D. N.Y. 3/30/24), CL here and GS here, the Court rejected now familiar attacks, including APA and Chevron. This time the attacks come from the states rather than those who fear the administrative fear (either in reality or to stir the base). The complaint of the states (including New York and Connecticut components as named plaintiffs) is that Treasury failed both substantively (improper interpretation a la Chevron) and procedurally in promulgating the Final Rule interpreting § 170 (the charitable deduction provision). The Final Rule denies a charitable contribution deduction where the state gives a quid pro quo in the form of a state and local tax credit. The state tax credit was simply a state end-run around the 2017 Tax Act “SALT” (state and local tax) deduction limitation. 

The Court described the Treasury response to the state legislation (Slip Op. 2-3, footnotes omitted and cleaned up):

On June 13, 2019, the Treasury Department and the Internal Revenue Service ("IRS") promulgated a new regulation (the "2019 Final Rule") governing the availability of charitable contribution deductions for payments made to state and local governmental units where the taxpayer receives or expects to receive a state or local tax credit in return. The new regulation involves an interpretation § 170, which in part governs the deduction of charitable contributions on federal income tax returns.

The 2019 Final Rule provides that "the amount of the taxpayer's charitable contribution deduction under [S]ection 170(a) is reduced by the amount of any state or local tax credit that the taxpayer receives or expects to receive in consideration for the taxpayer's payment or transfer." 26 C.F.R. § 1.170A-1(h)(3)(i).

In this action, Plaintiffs seek a declaration that the 2019 Final Rule is invalid under the Administrative Procedure Act, 5 U.S.C. § 706. Plaintiffs contend that Defendants — Treasury, the IRS, and their officers (the "Government") — exceeded their statutory authority in promulgating the 2019 Final Rule, and that the issuance of the Rule was arbitrary and capricious.

The Court dispensed with threshold issues such as 

• Standing (Slip Op. 16-29), 
• Anti-Injunction Act (Slip Op. 29-32) , and 
• Violation of the Regulatory Flexibility Act (Slip Op. 32-36).

Moving to the Merits of the Claim under the APA (Slip Op. 35-59), The Court first holds that the Regulation easily passes Chevron’s two-step analysis.  Key points:

Appeals Judicial Approach and Culture Project (AJAC) (9/10/13)

Stephen Olsen blogs on the Procedurally Taxing blog on IRS's appeals new initiative / approach, called Appeals Judicial Approach and Culture Project (AJAC).  See Stephen Olsen, AJAC is here! (Procedurally Taxing 9/9/13), here.  I highly recommend that blog entry to tax procedure afficionados.  (Note that one advantage is that the authors of the Procedurally Taxing Blog has appropriate materials from and references to the Saltzman and Book treatise which is the most cited treatise on tax procedure.)

I had recently blogged on AJAC's new issues approach, New Policy Statement That Appeals Is Not to Raise New Issues (Federal Tax Procedure Blog 7/23/13), here.

Treasury and IRS Policy Statement on Tax Regulatory Process (3/17/19; 4/19/20)

Treasury and the IRS have issued a joint Policy Statement on the Tax Regulatory Process (3/5/19), here.

I am in the midst of finalizing an article titled:  The Report of the Death of the Interpretive Regulation Is an Exaggeration.  I have just included a discussion of this new policy.  I thought I would offer my discussion although framed in the context of the article.  Here is a cut and paste of the discussion.  This discussion in the article has only a few short(er) footnotes, so I omit the footnotes.

I offer this short introduction so that readers will have some context offered by the article.

In the article, I argue that the Administrative Procedure Act ("APA") permits two types of regulations (those published as regulations in the Federal Register) -- (i)  legislative regulations and (ii) interpretive regulations.  The distinction between the two categories is:

(i) a legislative regulation is promulgated pursuant to express statutory authority to set the law where the regulation functions like a statute because, within the scope of the delegation, the regulation is the law.  The classic tax example of a legislative regulation is the consolidated return rules promulgated by regulation under § 1502. 

(ii) an interpretive regulation is promulgated as an interpretation of a statute Congress enacted (in the case of tax, generally in the Internal Revenue Code (Title 26)).  There is no classic tax example of an interpretive regulation; I use the example of the away from home regulation addressed in United States v. Correll, 389 U.S. 299 (1967), here.  

As Kenneth Culp Davis, the leading authority on administrative law said shortly after enactment of the APA:  "According to the theory, legislative rules are the product of a power to create new law, and interpretative rules are the product of interpretation of previously existing law."

Basically, as the Courts have said, legislative regulations are the law (and thus, in the jargon, have the "force of law"), whereas interpretive regulations simply interpret to law (and do not have the force of law, even if courts give the agency interpretation deference under the Chevron framework).

The distinction between legislative and interpretive regulations has a lot of nuance which I develop in the article.  Indeed, I develop that nuance in  the article, perhaps at too great a length in the article (which I post on SSRN after I offer for comments in a conference in April 2019)  Still, the foregoing is the essence of the argument.  [Addendum 9/25/19, the article is here:  Townsend, John A., The Report of the Death of the Interpretive Regulation Is an Exaggeration (June 6, 2019). Available at SSRN: https://ssrn.com/abstract=3400489.]

With the foregoing, readers with some background in administrative law and the APA specifically should be able to understand the general concepts in the new Policy Statement and my comments below [Addendum as of 4/19/20:  the following is from my working draft of the article for revision later; hence, some of it may reflect developments or thinking after I posted the original of this blog entry on 3/27/19; my footnotes are not included.]

Developments - Federal Tax Procedure Book 2018 Editions and Altera (7/25/18; 7/27/18)

The 2018 editions of the Tax Procedure Book (Student Edition and Practitioner Edition) are available for download on SSRN as of 7/17/18.  The SSRN postings are linked on the page to the right titled "2018 Federal Tax Procedure Book & Supplements (7/17/18)."  

I am posting on this blog today a dramatic new development -- the Ninth Circuit's decision in Altera Corp. v. Commissioner, ___ F.3d ___ (9th Cir. 2018), here, sustaining the relevant § 482 regulations and reversing the Tax Court decision which struck them down.  I did not include this Ninth Circuit decision in my new editions of the book, so will include it in the new cumulative update that I provide from time to time to

In Altera, the Court decided 2-1 that the IRS's regulations requiring the inclusion of of employee stock-based compensation in cost-sharing arrangements which, if valid, avoid Section 482 adjustments.  The opinions (majority and dissenting) are quite good.

In high level summary, the majority concludes (i) from the APA procedural perspective, the regulations are valid (promulgated with the appropriate notice and comment and reasonable consideration as to the final contents of the regulations); and (ii) from the substantive perspective, the regulations are entitled to Chevron deference (Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)), thus upholding the inclusion of employee-stock based compensation.

These types of issues are discussed in some detail in the new editions of the Federal Tax Procedure Book and in the article.  The genre of issue is fairly standard in administrative law.  Readers who are not familiar with the issues, should read the majority and dissenting opinions.

The two issues in a little more detail are:

1.  APA Procedure.

The majority opinion concludes that the notice and comment and regulations pre-amble discussion did fairly cover the final content of the regulations and thus the regulations were procedurally valid.  The dissenting opinion disagrees and, like the Tax Court, does not think that there was sufficient notice or reasoned explanation for the final regulation to be sustained procedurally under the APA.

2.  Substantive Interpretation.

The majority opinion concludes that the regulation is entitled to Chevron deference.  The dissenting opinion concludes that no Chevron deference at all is warranted because of the procedural defect the dissenting judge found (see paragraph 1 above).  This permits the dissenter to then reach a substantive interpretation unfettered by Chevron deference.  In Chevron parlance, the reviewing court unconstrained by Chevron deference can then reach its own most reasonable interpretation of the statute even if the IRS interpretation is reasonable, albeit less reasonable than the Court's most reasonable interpretation.  But, the dissenting judge goes one step farther -- she concludes that the IRS's interpretation was not even a reasonable interpretation and was inconsistent with the "plain language of the statute."  She then states:  "For at least this reason, I also disagree with the majority’s conclusion that Treasury’s reading of § 482 satisfies the second step of the Chevron test."  It is not clear whether the dissenting judge would stop the Chevron inquiry at Step One or would get to Step Two and hold the IRS interpretation unreasonable.  Either way, for the dissenting judge the IRS would lose on the substance because she interprets the substance differently than the IRS.  But, of course, the dissenting judge lost the battle of ideas on the panel.

Regulations Interpreting Pre-1996 Code Provisions; Fixing Hewitt (1/6/22; 5/12/23)

Note: See discussion at the bottom of this blog entry of the Proposed Regulations to impose a new reporting obligation for past transactions not disclosed under  Notice 2017–10.

My immediate past posting was on Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021),  11^th Cir. here and GS here.  See 11th Cir. Invalidates Proportionate Sharing Regulations As Procedurally Arbitrary and Capricious for Failing to Address a Significant Comment (12/30/21; 12/31/21), here.  In that blog entry, I discussed some administrative law issues, mostly the Administrative Procedure Act ("APA").  As I noted, the effect of Hewitt holding is only to declare the regulation invalid because of procedural irregularity under the APA's arbitrary and capricious standard in 5 U.S.C. § 706(2)(A), here (also called variously the State Farm test, the hard look test, and testing the regulation for the agency's reasoned decisionmaking).

Today, I add that Treasury may fix the regulations problem retroactively by a new round of Notice and Comment and promulgating a new regulation adopting an interpretation of the statute that will pass the arbitrary and capricious test of procedural regularity.  (Whether the regulation would be precisely the same as the one invalidated would depend on whether in light of experience and the comments the older invalidated regulation needs to be updated.)

Tax procedure enthusiasts will know that § 7805(b) provides limitations on retroactivity of regulations promulgated under § 7805(a).  I won't go through those limitations now but link the Code section here.  Those limitations were adopted in 1996.  Prior to 1996, Treasury regulations under § 7805(a) could be retroactive to the effective date of the statute being interpreted.  The reason is that, contrary to ill-considered claims by some courts and scholars of relatively recent vintage, § 7805(a) regulations are interpretive regulations which interpret the statute and do not create new law (a requirement for legislative regulations).  The current limitations in § 7805(b) as revised in 1996 do not apply to Code provisions enacted prior to 1996, so that the law of retroactivity for § 7805(a) regulations applies.  (I cover this in my Article, John A. Townsend, The Report of the Death of the Interpretive Regulation Is an Exaggeration (SSRN last revised 12/15/21), here, linking to the article for reviewing or downloading, at pp. 61-62.  (As an aside, this retroactivity feature for regulations interpreting pre-1996  Code provision was the whole point of the United States v. Home Concrete & Supply, LLC, 566 U.S. 478, 504-505 (2012) where the regulation interpretation was retroactive and failed only because the interpretation (as opposed to the regulation) was foreclosed by the Supreme Court’s earlier Colony case (see particularly Justice Kennedy's dissent).) 

FTPB 2020 Update 05 - New IRM Summary of the § 6751 Written Supervisor Approval Requirement (10/22/20)

One of the most frequent high-profile items in tax procedure in the last couple of years has been § 6751(b)’s written supervisor approval timing requirement.  In the absence of regulations, the Tax Court has struggled on a case-by-case basis to apply the requirement in various factual situations – seemingly a myriad – that can arise.  To put it mildly, the ad hoc treatment is daunting to the Tax Court, the IRS and practitioners.  

The IRM was recently revised to cut through the smog of this ad hoc treatment.  The provision is here and I quote in full:

20.1.1.2.3.1 (10-19-2020)
Timing of Supervisory Approval

For all penalties subject to IRC 6751(b)(1), written supervisory approval required under IRC 6751(b)(1) must be obtained prior to issuing any written communication of penalties to a taxpayer that offers the taxpayer an opportunity to:

• Sign an agreement, or
• Consent to assessment or proposal of the penalty

For a little background, I cut and paste from my Tax Procedure Book (this is from the working draft for the 2021 editions, with some of the text changed from the 2020 editions and with footnotes omitted; note that the only change that I specifically note here is to reflect the new IRM provision with the font in red):

Second, § 6751(b)(1) prohibits the assessment of a penalty “unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.”  Although not stated in the statute, the purpose of the requirement is to prevent agents from improperly using the threat of a penalty as inappropriate leverage–a “bargaining chip”–to extract concessions when the IRS institutionally had not made a determination to assert a penalty.  The wording of the statute, however, is facially nonsensical because there is no such thing in the tax law as the determination of an assessment and, in any event, the assessment comes long after the threat of penalties could have been made to bully taxpayers.  In statutory interpretation lingo, if not nonsensical, the statutory text is “ambiguous,” a characterization which has spawned many opinions as the courts try to deal with the deficiencies in the statutory text through purposive interpretation strategies to apply the text as the courts think or speculate Congress intended but did not say in the statutory text. Section 6751(b) is a quintessential case illustrating this struggle to interpret and apply “ambiguous” statutory text on an ad hoc, case by case basis to interpret the “law” that can then be applied in future cases.

I attempt to bullet-point key features of the statutory prohibition under the current state of play.  I state the current state of play in general overview, but do not develop many of the nuances, some of which are yet to come.  There undoubtedly will be further refinements as the courts address various unique fact patterns, so stay tuned.  With those caveats, here is my summary:

• The most significant issue has been the timing of the written approval.  Once the courts accepted that timing must be before the assessment despite the statutory text, the issue is to identify the timing of the initial determination required for the written approval.  The statutory text provides no guide for determining that earlier timing, but by focusing on the requirement for an “initial determination” and the purpose indicated in the legislative history, courts have concluded that initial determination is “the document by which the Examination Division formally notifies the taxpayer, in writing, that it has completed its work and made an unequivocal decision to assert penalties.”  In the context of an income tax audit, the latest date for the initial determination is the 30-day letter (or an equivalent (including the 60-day letter in a TEFRA audit) sent to the taxpayer) stating Examination’s determination to assert one or more penalties and offering the taxpayer a right to contest the determination in Appeals.  Mere notice to the taxpayer that the agent is considering asserting penalties and asking the taxpayer to discuss the penalties is not the determination requiring written approval.  Further, a communication offering a reduced penalty as part of a campaign to settle issues such as abusive shelters involved many taxpayers which say that, if the settlement is not accepted, an examination will be conducted and may result in penalties is not an initial determination.  However, a Revenue Agent’s Report (“RAR”) including penalties delivered to the taxpayer is the written determination requiring written approval.  And, even a notice that the IRS has preliminarily determined to assert a penalty that the taxpayer can avoid by action on his part is not the initial determination requiring written approval.  Cutting through all this, the IRM was recently revised to state guidance to agents succinctly (perhaps cryptically) that the “written supervisory approval required under IRS 6751(b)(1) must be obtained prior to issuing any written communication of penalties to a taxpayer that offers the taxpayer an opportunity to [i] Sign an agreement, or [ii] Consent to assessment or proposal of the penalty.”  While that guidance may not be outcome determinative in cases arising from audits where the operative facts preceded the date of the new IRM, it perhaps might be the solution going forward to render the commotion around timing moot.

A Reminder on Chevron in Agency Adjudications (3/25/24)

With the Supreme Court poised to decide the future, if any, of Chevron deference, I hesitated to provide a discussion of a current decision on deference. Still, I thought it would be helpful to do so because the case discussed in this blog involves the application of Chevron deference to agency adjudications which differ materially from the current cases before the Supreme Court involving agency rulemaking. The context for this blog entry is retroactivity in agency adjudicative interpretation which has different features than agency rulemaking interpretation. (That is not to say that whatever the Supreme Court does will not affect appellate review of agency interpretations in adjudications.)

As an aside, I do wonder why courts, such as the Second Circuit in the case prompting this blog entry, are deciding cases on the basis of Chevron deference, rather than postponing them for decision when the current Supreme Court challenges are resolved (probably by the end of May).

As an introduction to today’s discussion, I think it helpful to state the material differences between agency rulemaking and agency adjudications as respects interpretation and retroactive application. In this introduction, I state general propositions in most cases without citations. All of the subjects are covered in my prior article, The Report of the Death of the Interpretive Regulation Is an Exaggeration (last revised 4/8/22), posted on SSRN, here.

In this discussion, I will refer to Chevron deference as the applicable benchmark, but as I have previously discussed, deference to agency interpretations with the key features of Chevron deference was applied long before Chevron. Those key features of are—(i) ambiguity in the statutory text; and (ii) reasonable agency interpretation within the scope of the ambiguity. Supreme Court opinions prior to Chevron stated deference in those terms. See The Tax Contribution to Deference and APA § 706 (December 14, 2023 SSRN 4665227), here.

Agency rulemaking

If the rule is legislative in character, the rule must be promulgated in a notice and comment regulation. The only exception is when the legislative rule is accompanied by a “good cause” statement as to why it should be immediately effective when first promulgated (called an interim final rule in general administrative law jargon and a temporary regulation in tax jargon). The general rule is that, without explicit statutory authority for retroactivity, legislative rules cannot be retroactive prior to the date of promulgation of the rule. (This parallels the general rule that legislation cannot be retroactive.) Legislative rules being the law rather than interpretations of the law are not susceptible to Chevron deference, which tests the reasonableness of an interpretation within the scope of ambiguity in the statutory text. (The statement made by many pundits and even courts that Chevron deference applies to legislative regulations or only to legislative regulations is an oxymoron; making such statements, even by pundits or courts, does not make them true.)

If the rule is interpretive in character, the general rule is that a valid interpretation can be retroactive to the date of enactment of the statute. The concept is that the interpretation merely clarifies an ambiguity in the statutory text within its reasonable scope of interpretation from the date of enactment; the application of the interpretation does not offend due process since all persons to whom the law could apply were on notice that some interpretation of the ambiguous statutory text may be forthcoming; in other words, they did not reasonably rely upon some alternative interpretation. This is the same rule that applies generally to court interpretations of statutes—retroactivity to the date of enactment of the statute.

Fifth Circuit En Banc Reverses the Bump Stock Regulation By Wobbling Around Statutory Interpretation Issues (Including Chevron) (1/8/23)

In Cargill v. Garland, 57 F.4th 447 (5th Cir. 2023) (en banc), CA5 here and GS here, the Fifth Circuit reversed the prior panel opinion and held that the ATF bump stock regulation interpreting the term "machinegun" to include a so-called bump stock. The holding, one of statutory construction, may be stated as follows: 

• "A plain reading of the statutory language, paired with close consideration of the mechanics of a semi-automatic firearm, reveals that a bump stock is excluded from the technical definition of "machinegun" set forth in the Gun Control Act and National Firearms Act." (Slip Op. 3)
• But, even if the statutory term machinegun were not unambiguous, the statutory term "machinegun" is not ambiguous enough to include bump stocks as a permissible interpretation because of the rule of lenity when criminal consequences might attend, requiring ambiguities to be resolved in favor of the citizen potentially subject to those criminal consequences.

In the course of these core holdings, the en banc majority, concurring and dissenting opinions delve into many topics that I have discussed in connection with the bump stock cases related to Chevron and Chevron-related issues (in a broad sense). I collect at the end of this blog in paragraph 16 some of my earlier Federal Tax Procedure blogs on these issues arising in prior cases involving the bump stock regulations.

I address several key points in the various opinions (the en banc majority, the concurring, and the dissenting opinions).

1. I state at the outset that I believe this commotion about bump stocks is inherently political. Those judges fearing the administrative state (at least in their rhetoric landing them a place on a court) are more likely to reach the decision the en banc majority reached. Those judges whose rhetoric does not include fear of the administrative state and believe that administrative agencies can enrich our society and make it work better are less likely to reach the decision the en banc majority did. Both sides can pull up soundbites masquerading as reasoned decisionmaking to justify the result they prefer. At the end of the day, I think the real issue is whether there can be a symbiotic relationship between Congress, the Executive, and the Courts which together act reasonably to make our system work.

2. The en banc majority main holding is that the meaning of the statutory term "machinegun" is plain and unambiguous. In the Chevron framework, that would be a Step One determination that stops the Chevron analysis. There have been many words spent in addressing precisely what is meant by plain meaning and unambiguous to avoid the Chevron framework (or, equivalently, stopping the Chevron analysis at Step One), but I think the en banc majority's claim is that the other courts finding ambiguity means that those other just missed the meaning of the term that is so plain to this en banc majority. Everyone can agree that, when enacted in the 1930s, the statutory term machinegun did not include a bump stock which did not then even exist. But once they began to exist around 2000, I don't think it is so plain that the statutory term machinegun should not include bump stocks. This seems to be an eye of the beholder thingy, with political implications (which is what originalism is about).

3. At least in less political analysis, determining whether the statute is plain requires the use of the normal tools of statutory construction. Rhetoric aside, the normal tools of statutory construction include Skidmore respect for an agency interpretation. Skidmore v. Swift & Co., 323 U.S. 134 (1944). None of the en banc opinions cite Skidmore. (Note in this regard that Skidmore is not deference as many so-called smart judges and scholars mislabel it.  See Really, Skidmore "Deference?" (Federal Tax Crimes Blog 5/31/20; 2/14/21), here.

Assessment Statute of Limitations When Contesting an Allegedly Invalid Notice of Deficiency (8/16/12)

In the text, I noted (Footnoted version pp. 187-188; Nonfootnoted version p. 133):

Parsing the text of the statute, § 6503(a)(1) suspends the period of limitation on assessments until 60 days beyond whichever of the following dates applied (depending upon whether the taxpayer petitions the Tax Court): (1) if the taxpayer does not petition the Tax Court, the end of the 90-day period during which the IRS was prohibited from making the assessment (the same 90 period during which the taxpayer could have petitioned the Tax Court but did not), and (2) if “a proceeding in respect of the deficiency is placed on the docket of the Tax Court,” the date the Tax Court decision becomes final. n647 

 n647 Recognizing the text’s substantial meaning, see Shockley v. Commissioner, 686 F.3d 1228 (11th Cir. 2012).

Section 6503(a) is here.  The Shockley opinion is here.

I ask you now to focus on the quote establishing second suspension period indicated in the quote - "if a proceeeding * * * is placed on the docket of the Tax Court" and the accompanying footnote.  In a recent article, practitioners have critiqued the Shockley holding for its potential consequences beyond the limited confines of the case.  Andy R. Roberson and Kevin Spencer, 11th Circuit Allows Invalid Notice to Suspend Asssessment Period, 136 Tax Notes 709 (Aug. 6, 2012) (criticizing Shockley for the scope of its potential application in other cases).  The article is here.

Professor Yin Article on the Tax Legislation Process and Legislative History (12/17/22)

George Yin, a retired UVA law professor (bio here) has published an article that takes on some of the conventional wisdom of jurists and scholars who reject or are at least suspicious of legislative history as useful for statutory interpretation. Those jurists (including most prominently the late Justice Scalia) and scholars often are considered textualists, although that is a broader category than those who reject or are suspicious of legislative history. Yin calls the subcategory “new textualists” or sometimes just textualists.  Yin’s article is George K. Yin, Textualism, Textualism, the Role and Authoritativeness of Tax Legislative History, and Stanley Surrey (December 4, 2022). Law and Contemporary Problems, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4286174.

Here is the SSRN Abstract description of the article:

When Stanley Surrey died in 1984, the school of thought sometimes known as the “new textualism” that has gained such influence in the United States over the last three decades had not yet emerged. Surrey would have been very interested in this development. As revealed in his recently published memoirs, he had extensive first-hand experience with the tax legislative process and recognized early on the connection between that process and statutory interpretation. He would have been surprised by some of the assumptions about the process underlying the new textualist claims as well as recent empirical findings about the process reported by scholars.

This essay aims to fill in some of Surrey’s missed engagement. Drawing on his memoirs and other sources, the essay describes aspects of the tax legislative process—the preparation of tax statutes and legislative history—of significance to statutory interpretation and the positions of the new textualists. Importantly, the description is at the granular level at which Surrey experienced it, material not generally included in standard political science or legal scholarship on the topic. After considering the on-the-ground realities of the tax legislative process, this essay contends that in interpreting tax statutes, courts should rely upon both textual canons and other common tools of judicial interpretation (questioned by recent scholar-empiricists) and legislative history (questioned by textualists). The essay also explains why, contrary to the claims of textualists, committee reports are authoritative evidence of statutory meaning.

Yin’s article is particularly directed to interpretation of federal tax statutes (i.e., principally the Codes in 1939, 1954 and 1986 iterations). Yin is former Chief of Staff of the Joint Committee on Taxation, which is heavily involved in the tax legislative process and in producing legislative history. He knows the process and knows that the claims these textualists make about legislative history are not true for tax legislation.

The process Yin describes for tax legislation--but apparently perhaps to a lesser degree for other legislation-- involves both tax legislation experts (the JCT) and each House’s legislative counsel who bring statutory drafting expertise to the table that the tax Committees and their members usually lack.

I have written on the use of legislative history before. See the following that I think relate to the topics in Yin’s new article:

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.

Failure of Taxpayers' Proof of Value Loses Case (10/8/14)

In Cavallaro v. Commissioner, T.C. Memo 2014-189, here, the Tax Court held that the parents owning a company merged with a company owned by the children had not received enough value in the merged companies and thereby made a gift to the children.  The court also held that the parents had reasonable cause to rely upon their tax advisors and thus avoided penalties.

I focus here on the valuation issue of whether a gift was made.  The law is clear that a gift can be made under such circumstances if one party shifts value to other related parties.  The Court resolved the actual value issue on the basis of the burden of proof.  Most of the time, valuation issues are decided after each side has proffered expert testimony with the Court finding a value somewhere in between.  Even where the parties are reasonable in their valuations, they are usually reasonably aggressive positions and the value really is somewhere in between.  In Cavallaro, however, the Court found the value the Commissioner claimed because, it found, that taxpayers had failed to meet the burden of proof imposed upon them.  Basically, the potential for a shift in value from the parents to the children occurred only if the parents' company did not own certain valuable technology.  The parents' claim was that the children's company owned the valuable technology, hence the parents did not receive less than they contributed to the merger and did not make a gift to the children.  The parents' experts made their expert reports assuming the validity of the claim that the parents' company did not own the technology.  The Court found, however, that the parents' company did own the technology, thereby rendering the parent's expert witness reports irrelevant.  All the Court then had was the claim by the Commissioner (which had been reduced from the amount originally asserted in the notice of deficiency), supported, of course, by the Commissioner's expert report.  The Court thus had no basis for doing anything other than sustaining the Commissioner based on the taxpayers' failure to meet the burden of proof.

Key components of the holding are:

1.  The Court first held that the taxpayers had the burden of proof even though the IRS had substantially reduced its valuation from the amount originally asserted in the notice of deficiency.  The Court reasoned.

In general, the IRS's notice of deficiency is presumed correct, "and the petitioner has the burden of proving it to be wrong". Welch v. Helvering, 290 U.S. 111, 115, 54 S. Ct. 8, 78 L. Ed. 212, 1933-2 C.B. 112 (1933); see also Rule 142(a). The Commissioner has conceded that the taxable gifts totaled not $46.1 million (as in the notices of deficiency) but instead $29.6 million (as yielded by Mr. Bello's analysis). Where the Commissioner has made a partial concession of the determination in the notice of deficiency, the petitioner has the burden to prove that remaining determination wrong. See Silverman v. Commissioner, 538 F.2d 927, 930 (2d Cir. 1976) [**52]   (holding that the burden of proof does not shift where the Commissioner's change of position operates in favor of the taxpayer), aff'g T.C. Memo. 1974-285; cf. Rule 142 (shifting the burden "in respect of * * * increases in deficiency").

2.  The Court then rejected the argument that the reduction shifted the burden under Tax Court Rule 142(a)(1) which imposes the burden of proof on the commissioner "in respect of a new matter."  For much the same reason as Silverman, the Court rejected the argument.  The Court did say that the IRS's assertion of the accuracy related penalty rather than the fraud penalty was a new matter (even though the taxpayer's claim of reasonable cause would have been a defense to the fraud penalty originally asserted); and in any event, the Court found the defense proved so neither penalty applied.

The Scalia-Posner Spat Over Statutory Interpretation (9/18/12)

The Scalia-Posner spat is ratcheting up, with Justice Scalia allegedly accusing Judge Posner of the big lie -- Posner's assertion that Scalia used legislative history.  Fanning furor, Justice Scalia says appeals court judge lied (Reuters 9/17/12), here.  I suppose that, in Justice Scalia's different universe, such an accusation is as low as one can go.

At any rate, I previously blogged on Justice Scalia's new book, in collaboration with Bryan Garner, on Statutory Interpretation which is an important part of my Federal Tax Procedure class and book.   Review of Scalia Book on Statutory Interpretation (7/17/12), here.

I have nothing substantive to offer over this spat, but I think it does illustrate that there is something important -- if neither right nor wrong -- about the role of legislative history in statutory interpretation.

Addendum:

This is a good article by a scholar.  Eric Segall, The Scalia-Posner War and Why it Matters, here.  Excerpts:

Important DC Circuit Opinion That Chevron Deference is Irrelevant if Agency Interpretation is Best Interpretation (8/9/22; 8/15/22)

In Guedes v. ATF, 45 F.4th 306 (D.C. Cir. 8/9/22), DCCir here and GS here, the Court rendered an important decision.  Although it is not a tax case, it deals with administrative law themes – APA and deference – important in the tax area.  The case involved the proper interpretation of the statutory term “machine guns” [I split the statutory word "machineguns" as is common] includes so-called “bump stocks.”  There was an earlier Circuit opinion in Guedes, Guedes v. ATF, 920 F.3d 1 (D.C. Cir. 2019), here, cert. denied cert. denied, 589 U. S. ___, 140 S.Ct. 789 (2020); see Guedes Cert Denial on Bump Stock as Machinegun, Justice Gorsuch's Cryptic Statement and My Digression (Federal Tax Procedure Blog 3/2/20; 3/5/20), here.

The Court summarized the key conclusion of the opinion in the opening (Slip Op. p. 3):

The central question on appeal is whether the Bureau had the statutory authority to interpret “machine gun” to include bump stocks. Employing the traditional tools of statutory interpretation, we find that the disputed rule is consistent with the best interpretation of “machine gun” under the governing statutes. We therefore affirm.

 The Court expounds (Slip Op. pp. 8-10)

             The threshold question is whether to treat this case as a matter of pure statutory interpretation or to apply the Chevron framework. Both parties advocate for the former. Plaintiffs argue that Chevron does not apply for a multitude of reasons: the rule is interpretive in nature; the government waived Chevron deference; the Court may not apply Chevron to a statute with criminal penalties; and the rule of lenity must supersede Chevron in the criminal context. The Bureau also characterizes the Rule as interpretive, and it likewise urges us to analyze the Rule under a statutory interpretation framework.

            The Guedes II panel employed the Chevron framework—just as the District Court had done—in denying the motion for preliminary injunction. The panel concluded that the Bump Stock Rule was a legislative rule; the Bureau explicitly relied on Chevron in crafting it; the government cannot recharacterize a rule as legislative or interpretative during litigation; and the government cannot waive Chevron. 920 F.3d at 18, 21–23.

            Ultimately, we need not wrestle with the Chevron framework here. Rather, the parties have asked us to dispense with the Chevron framework, and in this circumstance, we think it is appropriate to do so. See Am. Hosp. Ass’n v. Becerra, 142 S. Ct. 1896 (2022) (rejecting agency’s interpretation “after employing traditional tools of statutory interpretation,” rather than inquiring into the interpretation’s reasonableness under Chevron). Using a statutory interpretation lens, we decide that the Bureau offered the best construction of the statute without wading into the subsidiary questions that the Chevron analysis poses.

Chevron and Interpreting Through Agency Adjudications (8/28/21; 9/3/21)

I am updating an article I wrote earlier and realize that the working draft has some digressions in the footnotes are best eliminated from that article.  However, some of those digressions are, I think, worthy of being recorded somewhere, so I will post them as blog entries.

 The context for the digression was the statement in the body of the draft update to the article that, beyond interpreting in rulemaking, agencies interpret in adjudicatory proceedings.  The interpretation process in agency rulemaking is much the same as for adjudicatory proceedings.  They both can involve interpretation of ambiguous statutory text within the scope of the ambiguity.  Courts test those interpretations in either context for reasonableness and overturn them if the interpretations are not reasonable.  In the agency rulemaking process, that review is under the Chevron Framework.  So too, courts test reasonableness in agency adjudicatory proceedings under the Chevron framework.  Thus, in both types of interpretation—rulemaking and adjudication—the same test applies as Chevron is currently applied.

In Kristin E. Hickman and Aaron Nielson, Narrowing Chevron's Domain, 70 Duke L. J. 931 (2021), the authors argue for constricting Chevron to apply only in rulemaking and not in adjudication.  A key component of the argument is that through agency adjudicatory interpretations, agencies are legislating rather than interpreting.  Professor Hickman makes the same argument for interpretations in regulations (such as Temporary and Final Treasury Regulations) which may have an effective date before the Final Regulations after Notice and Comment are issued.  My article critiques the latter claim.  But I want to address the claim in the adjudication context because, in my opinion, agencies do not engage in legislative rulemaking in adjudications.  That is a point I address in text and footnotes that I have deleted from the article.

So here is my digression now deleted from the article.  I attach a pdf of the article with the footnotes here.

            One other predicate matter.  Besides interpreting ambiguous statutory text by rulemaking, agencies can interpret ambiguous statutory text in adjudicatory proceedings.n1  For example, the Board of Immigration Appeals ("BIA"), a Department of Justice adjudicatory body, is "the highest administrative body for interpreting and applying immigration laws." n2  By delegation from the Attorney General, n3 the BIA resolves "appeals from certain decisions rendered by Immigration Judges and by district directors of the Department of Homeland Security (DHS) in a wide variety of proceedings in which the Government of the United States is one party and the other party is an alien, a citizen, or a business firm." n4

             This adjudicatory administrative process functions like a court proceeding, resolving disputes between parties by interpreting and applying the law.n5 Although not rulemaking, adjudicating presents the legislative/interpretive distinction; if, in adjudications, agencies were to attempt to create law outside the interpretive space allowed by the ambiguous text, the agency would be improperly legislating which requires legislative rulemaking with Notice and Comment and Prospectivity.n6  I recognize that some authorities assert that adjudications interpretations can be legislative in character and on that basis question retroactive effect.n7 I disagree, but need not address the issue because this article deals with legislative rulemaking via the Notice and Comment process as to which the law is relatively clear.

Footnotes:

If It's A Tax, What About the Origination Clause? (9/14/12)

One of our first topics in my Federal Tax Procedure class is the roles of the various players -- Congress, the Executive Branch and the Courts (OK, the grand jury as well).  And, one of the first topics it the Origination Clause.  The Origination Clause is Section 7, Clause 1, of the Constitution which says:

All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills

Wikipedia, here,  provides this background on the Origination Clause (footnotes omitted):

This establishes the method for making Acts of Congress. Accordingly, any bill may originate in either House of Congress, except for a revenue bill, which may originate only in the House of Representatives. In practice, the Senate can simply circumvent this requirement by substituting the text of any bill previously passed by the House with the text of a revenue bill.  When the Senate sends an appropriation bill to the House, the House may return it to the Senate with a blue slip, thereby settling the question in practice. Either House may amend any bill, including revenue and appropriation bills. 

The Origination Clause stemmed from an English parliamentary convention that all money bills must have their first reading in the House of Commons. It was intended to ensure that the "power of the purse" lies with the legislative body responsible to the people. The clause was also part of a compromise between small and large states. The latter were unhappy with equal representation in the Senate.

The Volokh Conspiracy has this discussion of the Origination Clause as a new line of attack on the "tax" as pronounced by the Supreme Court for the individual mandate in the Affordable Care Act.  Randy Barnett, New Obamacare Challenge: The Origination Clause (The Volokh Conspiracy 9/13/12), here.  Here are excerpts of the press release related to the new attack.

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.

Teaching Tax Through Movies -- Loverly (7/11/22)

Please note that I added toward the end a comment from Robert Steinberg with a tax parody on a My Fair Lady song.

I was in my former life an Adjunct Professor at University of Houston Law School where I taught courses in Tax Procedure and in Tax Crimes.  Often in the courses, I would mention My Cousin Vinny to illustrate (often by stretch) some point relevant to the classes.  

This offering caught my attention.  Alice G. Abreu (Temple), Teaching Tax Through Film Is Not As Crazy As It Sounds, 19 Pittsburgh Tax Rev. 183 (2022), here.  I was intrigued to see what Professor Abreu offered her students in the way of teaching tax law through the movies. I offer the relevant portions (pages 205-207 of the article (pages 24-26 of the pdf), footnotes omitted).

The films for this course were chosen for a breadth of genres and eras from the 1960s to last year. Some were animated; some were about superheroes; some were musicals. I aspired for every student to enjoy at least one film, and I hope they enjoyed many more. At the same time, an underlying need was to choose films that highlight specific tax topics. Although all films raise important tax issues, some are more clearly on point for the topics we covered.