Two Highly Recommend Articles (One a Draft) on Law Text Interpretation (7/10/26)

I write today to recommend two articles on interpretations of law text—Constitution or statute. Text interpretation is text interpretation. However, text interpretation by originalist/textualist leaning judges considers extra-text “history” leading to ratification of constitutional text in interpreting Constitutional text but reject such history (commonly called legislative history) for interpreting statutory text. (Why that difference I hope you ask?) For originalists in interpretation (often but not always textualists) the permissible tools are those that focus on the original public meaning or some variant of that to some imagined audience including as some fear “Joe the Ploughman” with arguably marginal reading skills generally or for law text. See Jack N. Rakove, Joe the Ploughman Reads the Constitution, or The Poverty of Public Meaning Originalism, 48 San Diego L. Rev. 575 (2011), here.

The first article addresses the effects of Loper Bright. Lindsay L. Clayton,  Defending Agency Actions After Loper Bright: Sea Change or the Same Old Beach? 74 DOJ J. Fed. Law. & Prac. no. 2, 49 (July 2026), here. An Appendix for the article is here. Ms. Clayton is Assistant Director in the Civil Division’s Tax Litigation Branch. The article is quite good in assessing the effects of Loper Bright on DOJ’s civil litigation. One would have to assume that, prior to publication in the DOJ’s house organ, the contents were vetted and approved by at least some of the attorneys in DOJ responsible for positions before the courts.

Some comments on Ms. Clayton’s articles:

The article repeats (pp. 50-51) the Loper Bright claim:

The decision criticized Chevron for requiring courts “to ignore, not follow, ‘the reading the court would have reached’ had it exercised its independent judgment” and for “demand[ing] that courts mechanically afford binding deference to agency interpretations.”

I believe that Loper Bright claim was false or, in any event, overstated what Chevron actually did. My claim is that Chevron allowed judges to apply (not defer to) an agency interpretation only where they were interpretive equipoise (same as ambiguity) where they could not decide whether the agency interpretation or the opposing interpretation was best or not best. In that zone of equipoise, courts were simply applying the agency interpretation as a default rule, like the rule of lenity; there were not deferring to an agency not best interpretation. I develop my claim further in an article for publication in the ABA Tax Lawyer sometime in the near future. But consider:

• For a succinct statement addressing Chevron’s meaning of reasonable interpretation and the latitude it gave courts to apply their own best meaning. See Jon Newman (respected 2d Circuit Judge), On Reasonableness: The Many Meanings of Law’s Most Ubiquitous Concept, 21 J. App. Prac. & Process 1, 83 (2021), here (“It would probably be too cynical to suggest that [under Chevron] the courts are just accepting agency interpretations with which they agree and rejecting those they disfavor, but in some cases that almost seems to be what is happening. Clearly there is no one meaning of “reasonable” in the context of Chevron deference.”)
• Judge Newman’s insight is consistent with empirical research of large data sets of cases that commoted about Chevron but none said or reasonably implied that the court deferred to a not best agency interpretation. Rather, Judge Newman was saying that the court determined a best interpretation and applied that interpretation or were in  interpretive equipoise. For my research, see Is Chevron on Life Support; Does It Matter? (Federal Tax Procedure Blog 4/2/22; 4/3/22), here; and Chevron Step Two Reasonableness and Agency Best Interpretations in Courts of Appeals (Federal Tax Procedure Blog 2/9/23), here. 
• Following through on my claim, the question is what courts do after Loper Bright do when they face ambiguous statutory text where they cannot honestly say that the agency interpretation or the opposing interpretation is the best? I cover that issue in my article addressing interpretive equipoise in percentage ranges, but just think about that. Keep in mind that Loper Bright cannot responsibly command or be interpreted to command that there cannot be ambiguity after applying all the tools of statutory interpretation.

FTP Book Clean Up - Restitution-Based Assessments (RBAs) (7/8/26; 7/10/26)

In working on my 2026 editions of my Federal Tax Procedure Book for publication on SSRN in early August, I am trying to eliminate bloat accreted over the years from the text and the footnotes (particularly the footnotes). I conceive the text (as opposed to footnotes) to be directed to students of tax procedure for whom I provide the Student Edition without footnotes. I hope to shorten the text, but the major changes will be in footnotes. I feel that some of the eliminations I make in the footnotes have good discussions, so I will be posting on the Federal Tax Procedure Blog some of the eliminations (doing some clean-up).

I start today with a footnote on “restitution-based assessments” (“RBAs) under §§ 6201(a)(4) & 6213(b)(5). The discussion of RBAs is in the text discussing exceptions to the prohibitions on assessment arising from the general requirement in income and estate and gift tax cases that the IRS first issue a notice of deficiency. One of the exceptions is “restitution for tax in a criminal tax case which may be assessed despite the  prohibition (“restitution-based assessment, or “RBA”).” I eliminate from the footnote the discussion after citing the statute sections for the RBA, §§ 6201(a)(4) & 6213(b)(5). The eliminations are (as I have cleaned them):

Certain points about RBAs:

1. First, normally, tax restitution is not available for Title 26 offenses. However, courts may impose tax restitution for Title 18 convictions, such as the ubiquitous Klein / defraud conspiracy under 18 U.S.C. §  371(a). See Daugerdas v. Commissioner, 171 F. 4th 924 (7th Cir. 2026) (holding that §  6201(a)(4)(A) authorizes the IRS to assess and collect tax restitution ordered in Title 18 convictions and the IRS collection measures do not have to be consistent with the restitution order for deferred payment of restitution).

2. In tax cases, in pleading guilty to a Title 26 offense, a defendant often agrees to “contractual” restitution in the plea agreement that the sentencing court then incorporates as a restitution order in the criminal judgment. Or, in imposing sentence for Title 26 offenses, a court may impose restitution as a condition for some benefit (such as supervised release for some period rather than incarceration).

3. The net effect of these statutory changes to the Code is that (i) the IRS can immediately assess the tax restitution as if it were a tax (the assessment acronymed RBA) and (ii) deploy the IRS collection tools for tax assessments. Carpenter v. Commissioner, 152 T.C. 202 (2020), aff’d 788 F. App’x 187 (4th Cir. 2019); and Reynolds v. Commissioner, T.C. Memo. 2021-10 (also holding that the IRS can collect on the RBA even if the person has an agreement with DOJ for installment payment of the restitution). However, if the sentencing judge sets the terms of installment payment of the restitution, the Tax Court can consider those terms in a CDP proceeding contesting an IRS levy and the IRS should consider that as well. White v. Commissioner, T.C. Memo. 2026-56 (remanding to IRS Appeals to consider).

CFC Invalidates GILTI Gap-Filling Regulation That Avoided Textual Statute Inconsistency (7/7/26)

In Keysight Technologies, Inc. v. United States, ___ Fed.Cl. ___ (7/2/26), the Court held invalid a Treasury Regulation designed to plug a gap in the statutory text. The opinion may be found: CFC here, TN here, GS here [to come].

The Court opens with this sentence projecting the outcome (Slip Op. 1):

When Chevron fell, so too did the presumption that statutory ambiguity favors the agency. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), overruled by Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024).

If that were not clear enough as to where it is going, the Court opens the next paragraph (bold face supplied by JAT):

This controversy relates to the Treasury’s self-inflicted fix of a mismatch between foreign subsidiaries with fiscal- or calendar-year tax filing requirements that Congress quietly built into the global intangible low-taxed income ("GILTI") statutory scheme.

And the next paragraph (bold face supplied by JAT):

The Treasury’s antipathy for this inconsistency resulted in the Secretary promulgating Regulation 1.951A-2(c)(5) ("the Regulation").

I won’t parse the quoted text any further (although my bold face may imply something).

The technical issue was whether Treasury could, by interpretive regulation, fix what appears textually to be a timing glitch producing materially different tax result based on differences in tax years between calendar year taxpayers and fiscal year taxpayers. As the Court says (Slip Op. 2): “Enactment of the TCJA created an inconsistency between treatment of certain taxpayers depending on whether they were fiscal-year or calendar-year filers.”

Basically, the taxpayer argued that it, as a fiscal year taxpayer, was entitled to a benefit that a calendar year taxpayer could not achieve. Without wallowing around in the details, it appears to me that an intuitive view of how Congress enacts tax legislation, one can fairly infer that Congress did not intend the result that the regulation sought to forbid and the Court blesses. Congress appears to have had no specifically articulated intent on the precise issue, but Congress generally does not make such distinctions to permit disparities between otherwise similarly situated taxpayers.

Second Circuit Says § 6751(b) Means What It Says-Appeals Officer in CDP Appeal Must Verify the Supervisor Approval Requirement (6/30/29)

In Besicorp Group, Inc. v. Commissioner, ___ F.4th ___ (2d Cir. 2026), 2Cir here and GS here, the Court held that, in a CDP Appeals Office Conference, the Appeals Officer must verify the IRS’s compliance with § 6751(b)’s written supervisor approval requirement for penalties. The Court says that in 29 pages cogently, if not succinctly, traversing the applicable statute and other authority. Those 29 pages are not all fluff without lessons for students and practitioners, so I address certain key points.

1. I open with a comment I make in a soon to be published article. Section 6751(b) is nonsensical and a textual mess. That comment was focused on the courts’ flailing around to make sense of the mess and was an argument for courts to approve the regulations adopted in December 2024 to make sense of key components of § 6751(b). However, as to the text in § 6751(b) that Besicorp interprets and applies, the text is clear, so Besicorp is correct that CDP Appeals Office proceedings require verification of the written supervisor approval requirement. (I except from that the possible application of res judicata discussed below in ¶ 5.) That is a textualist reading of the text; I don’t see any reasonable mode of interpretation that would reach a different conclusion.

2. Of course, in making that verification, the Appeals Officer must wade into the mess of the other components of § 6751(b) which are a mess with differing interpretations by the courts. I suppose, the Appeals Officer might rely upon the § 6751(b) regulations, either proposed or permanent, although the Besicorp Appeals Office hearing likely occurred before the regulations were proposed or adopted. (In this regard, the Second Circuit argument in Besicorp was 2/5/24; and Besicorp (and consolidated cases) were filed in the Tax Court in 2017. See T.C. dkt. Entries here, before the 2024 regulations were even a twinkle in the Commissioner’s eye.

3. The income tax liabilities in Besicorp and consolidated cases arose from bullshit tax shelters. The Court says the tax and interest (Slip Op. 3) reporting and tax savings from “tax shelter transactions designed to avoid the payment of taxes,” as determined by the IRS. The tax shelter transactions were of the “intermediary tax shelter” aka Midco ilk. (Slip Op. 10.) Besicorp’s deficiency was $50 million. (Slip Op. 5.) And, being a category of bullshit tax shelters, the IRS also asserted the 40% penalty which for Besicorp was “roughly $20 million penalty on a $50 million deficiency for its accuracy-related gross valuation misstatements,” citing § 6662(h). (Slip Op. 5.)

4. The taxpayers involved in Besicorp and consolidated cases may have been affiliated with the promoters who promoted the bullshit tax shelters. Indeed, from my work in this area, I found it was not uncommon for the promoters who “earned” very large amounts from promoting the fake tax savings (a price taxpayers were willing to pay for fraud insurance) to themselves then “shelter” their income with their own bullshit tax shelters (always permitting some variance in the smoke and mirrors game). I note in this regard that one of the attorneys for the taxpayers was also an attorney for at least one promoter and related corporation.

Wherefore Art Thou Tax Court? (6/29/26; 7/1/26)

In two cases today, the Court held that

• The general rule is that (i) the President can fire executive agency personnel at will even if the statute says that they can only be removed for cause or for some other similarly worded reason  Trump v. Slaughter, 609 U. S. ___ (2026) (stating the general rule); but
• An exception to the general rule in the case  of members of the Board of Governors of the Federal Reserve where the statute requires “for cause” removal. Trump v. Cook, 609 U. S. ____ (2026) (stating the exception).

The opinions may be viewed and downloaded here: Trump v. Slaughter, SC Slip Op. here and GS here; and Trump v. Cook, SC Slip Op. here and GS here. 

Of course, the general rule (concocted under the “unitary executive” theory) and the exception require a definition of an executive agency subject to the respective rule and exception. In other words, it is not clear that Cook states a single exception applicable to the Federal Reserve. 

In the tax world, the Tax Court is potentially implicated in this brouhaha. Consider the following statutory text:

26 U.S. Code § 7441 – Status
There is hereby established, under article I of the Constitution of the United States, a court of record to be known as the United States Tax Court. The members of the Tax Court shall be the chief judge and the judges of the Tax Court. The Tax Court is not an agency of, and shall be independent of, the executive branch of the Government.

26 U.S. Code § 7443 - Membership
* * * *
(f)Removal from office
Judges of the Tax Court may be removed by the President, after notice and opportunity for public hearing, for inefficiency, neglect of duty, or malfeasance in office, but for no other cause.

A strict textual reading of § 7441 specifically states that the Tax Court is not an executive body (agency in administrative law lingo). The President has the power to appoint Tax Court Judges, “by and with the advice and consent of the Senate, solely on the grounds of fitness to perform the duties of the office.”  § 7443(b). (That may suggest that politics should not be involved, but babies come in baskets (although politics is involved some of the Tax Court Judges are exceptional on the metric of “fitness to perform”).) Then, once the Senate has advised and consented, the President alone has the power to remove Tax Court Judges but only, to repeat, “after notice and opportunity for public hearing, for inefficiency, neglect of duty, or malfeasance in office, but for no other cause.”

Supreme Court Denies Cert in Murrin on Issue of Whether Taxpayer's Fraud is Required for § 6501(c)(1) Unlimited Statute of Limitations (6/22/26)

Today, the Supreme Court denied the petition for certiorari in Murrin v. Commissioner (Sup. Ct. No. 25-988), docket here. See Order List dated 6/22/26, here at p.3, The Third Circuit opinion from which Murrin sought cert was Murrin v. Commissioner, 158 F.4th 527 (3rd Cir. 2025), here.

The question presented in the petition here was:

Whether, under 26 U.S.C. § 6501(c)(1), the IRS may assess tax beyond the Code’s three-year limitations period based solely on the fraudulent intent of a third-party, even when the taxpayer herself neither intended to evade tax nor knew of any wrongdoing.

The question as framed by the SG in the Commissioner’s Brief in Opposition here was:

Whether the indefinite limitations period in 26 U.S.C. 6501(c)(1) applies to a false or fraudulent return prepared by a tax return preparer who acted with the intent to evade tax.

Tax Court Sustains IRS Interpretation for the Research Credit as Best Interpretation or, Possibly, with Loper Bright Deference from § 7805(a) (6/19/26)

In Smith v. Commissioner, T.C. Memo. 2026-50, TC No, 13382-17 here at #286 dated 6/16/26 and GS here, the Court sustained a regulations interpretation of the research credit over the taxpayers’ Loper Bright objections. Readers will recall that Loper Bright rejected Chevron deference for agency interpretations, exhorting courts to determine and apply the “best” interpretation. “Best interpretation” was not an inflexible command; Loper Bright permitted deference to agency interpretations when delegation was expressly or impliedly granted by Congress and courts might still find the agency interpretation persuasive under Skidmore.

A number of pre-Loper Bright cases sustained the applicable agency regulation by applying Chevron deference. In Smith, the taxpayers argued that (*30) “under the Supreme Court's landmark decision in Loper Bright, Treasury Regulation § 1.41-4A(d) is no longer the single best reading of section 41(d)(4)(H).”

One problem with the taxpayers’ argument was that prior cases had sustained the interpretation under Chevron. The Smith opinion mentions (*31) “statutory stare decisis” which Loper Bright expressly approved for pre-Loper Bright cases applying (or appearing to apply) Chevron deference. Smith concludes that discussion (*33):

           Thus, we find that the holdings in our prior cases and the aforementioned decisions of the Federal Circuit and Federal Claims continue to remain in effect. See Diversified Grp. Inc. v. Commissioner, Nos. 17038-18L, et al., 166 T.C., slip op. at 21–22 (2026); see also, e.g., Garcia Pinach v. Bondi, 147 F.4th 117, 121, 131–33 (2d Cir. 2025) (analyzing Loper Bright and the doctrine of statutory stare decisis and leaving undisturbed the holding of a prior panel opinion).

More importantly, Smith reasons (*33-*34, emphasis supplied by JAT):

          Moreover, we find respondent’s power to persuade argument compelling. In reaching a conclusion on the validity of a regulation we may give “[c]areful attention to the judgment of the Executive Branch.” Loper Bright, 144 S. Ct. at 2273. For the views of Treasury in this context “constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance.” Id. at 2262 [*34] (quoting Skidmore, 323 U.S. at 140). “The weight of such a judgment in a particular case,” of course, “depend[s] upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.” Id. at 2259 (quoting Skidmore, 323 U.S. at 140); see also Varian Med. Sys., 163 T.C. at 106. Congress has delegated authority to Treasury under section 7805(a) to define criteria for Congress’s funded research exclusion found in section 41(d)(4)(H). Here, Treasury has exercised that authority and issued longstanding and favorable administrative guidance that offers both clarity and certainty for taxpayers.

Considering the foregoing, we conclude the regulatory requirements found in Treasury Regulation § 1.41-4A(d) used to determine whether research is funded are reasonably related to and otherwise consistent with the intent of section 41(d)(4)(H). Accordingly, we reject petitioners’ contention that the Supreme Court’s decision in Loper Bright undermines the prior decisions that relied on Treasury Regulation § 1.41-4A(d) and their effects as precedent in these cases. Further, we reject petitioners’ reading of the phrase “to the extent funded by any grant, contract, or otherwise” found in section 41(d)(4)(H) to mean only “a sum of money set apart for a specific objective” and likewise determine our reading of this phrase would not be as beneficial as the Treasury regulation requirements. In other words, we find no benefit to petitioners’ argument, should we be inclined to reject respondent’s reading of the Code for our own.

          On the basis of the foregoing, we decline to invalidate Treasury Regulation § 1.41-4A(d) and the requirements for determining funded research under section 41(d)(4)(H) incorporating both “contingent on success” and “substantial rights” elements.

As I read this, Smith is saying that, although the prior cases may have noised about Chevron deference and in some cases even appeared to apply Chevron deference, in truth and might pass muster under statutory stare decisis, the IRS interpretation was the “best” interpretation, passing muster under Loper Bright’s de novo interpretation imperative.

Smith muddles on the point of best interpretation by citing § 7805(a) as a Congressional delegation of interpretive authority for the substantive Code provision. Is Smith suggesting in citing § 7805(a) that the interpretive regulation was a delegation qualifying for Loper Bright deference? If so, since Smith seems to have determined the agency interpretation was the best, was the citation of § 7805(a) necessary or even appropriate?

One side note on § 7805(a): Throughout its history, § 7805(a) has been authority for interpretive regulations. That authority was muddled by those claiming that interpretive regulations when applied by courts using Chevron deference meant that the interpretive regulation was transformed into a legislative regulation. That claim was always nonsense (even when made by Justice Scalia); with the demise of Chevron deference, courts are free to get past the nonsense. 

D.C. District Court Vacates IRS Notice Limiting Test for Clean Energy Credit (6/18/26)

In Oregon Env. Council v. IRS, ___ F.Supp.3d ___ (D. D.C. 6/6/26), CL here and GS here, the Court rejected the IRS attempt to eliminate one of the tests the IRS had used to satisfy the “beginning of construction” dates for clean energy tax credits. For a long time, the IRS had Notices permitting “beginning of construction” to be tested under the “Physical Work Test” and the ”Five Percent Test” (or “Safe Harbor”). By Notice 2025-42, 2025-36, IRB 351 (2025), the IRS eliminated the Five Percent Test.

The Notice was based on the President’s Executive Order No. 14,315, titled  "Ending Market Distorting Subsidies for Unreliable, Foreign Controlled Energy Sources," directing the IRS to "take all action as the [Secretary] deems necessary and appropriate to strictly enforce the termination of the clean electricity production and investment tax credits under sections 45Y and 48E of the Internal Revenue Code for wind and solar facilities." Soon after the Executive Order but before Notice 2025-42, reacting to the Executive Order, “multiple interested parties,” filed comments. Some commenters urged the IRS to retain the existing tests, called the “Physical Work Test” and the ”Five Percent Test” (or “Safe Harbor”) or make any new test only prospective. Prominent Congressmen offered comments, some supporting the existing Tests. The IRS then issued Notice 2025-42, 2025-36, IRB 351 (2025) providing that the “beginning of construction” requirement will be based only on the Physical Work Test, thus eliminating the “Five Percent Test.”

The Plaintiffs (“a collection of governmental and private organizations”) sued alleging “that the Notice is harming them” in specific ways outlined in the opinion (but not relevant to this blog entry). Among the claims made was that the Notice violated the APA reasoned decisionmaking requirement for valid agency rules. See Motor Vehicle Manufacturers Ass'n of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 52 (1983).

After extensive analysis, the Court held (Slip Op. 49):

Notice 2025-42 falls short of these standards. The Notice’s elimination of the Five Percent Safe Harbor is a significant change in the IRS’s position on what it means to “begin construction” for purposes of clean energy tax credits. This changed position implicates “serious reliance interests,” which the agency actively invited by repeatedly restating its prior approach. See Encino Motorcars, 579 U.S. at 221–22. Although the record shows that the Defendants received clear warnings about those reliance interests before adopting the Notice, the agency failed to justify its decision to change course. Because neither the Notice nor the administrative record provides an explanation from which “the agency’s path may reasonably be discerned” in light of all the facts and circumstances, the Notice is arbitrary and capricious. See State Farm, 463 U.S. at 43.

On Legislative History—Supreme Court Faceoff Between Conservative and Liberal Justices with Comments (6/16/26)

In FS Credit Opportunities Corp.v. Saba Capital Master Fund, Ltd., 608 U. S. ____ (2026), decided June 22, 2026, SC here* and GS here**, the conservative and liberal Justices fussed about the proper role of legislative history in statutory interpretation. That fussing interested me because I had recently made substantial revisions to that fuss in my 2026 Working Draft of my Federal Tax Procedure book (Student and Practitioner Editions). I don’t think the fussing in FS Credit adds anything meaningful to the discussion, but it does offer a handy opportunity for those interested in the issue to be up to date on the Supreme Court’s views. So, I thought that, in addition to notifying readers and providing links to the Opinions, I would offer the current treatment of the issue from the Working Draft (due for publication on the SSRN platform in early August 2026). The Practitioner Working Draft (with text and footnotes) may be viewed or downloaded here. The Student edition is the Practitioner Edition text without the footnotes, so for readers generally I just copy and paste here the text only:

(5)    Legislative History in Statutory Interpretation.

           The pre-enactment history of enacted statutory text may be important in interpreting the enacted text (just as, for example, the history of the drafting and ratification of the Constitution may guide its interpretation). Relevant history is often discussed in two broad categories: Statutory History and Legislative History. (Actually, statutory history (defined below) is a subset of legislative history, but it is not uncommon to treat the two as separate categories.) Both types of history stop upon enactment of the statutory text being interpreted; at least conceptually, since the focus is on the meaning of the text upon enactment, there is no such concept as subsequent legislative history which at best would be comments on the meaning of the previously enacted text. (I return to subsequent legislative history below, beginning on p. 34.)

           Statutory history can include two broad categories: (i) enacted text only, including enacted text that has been revised by enacted text over time (call this category “enacted statutory history”); and (ii) the changes in the text of bills as they move through the legislative process to enactment (“drafting history”). Enacted statutory history considers only enacted text and any interpretive inferences that may be drawn from enacted text; drafting history also considers drafts of the text as it moved and changed through the legislative process. Textualists use enacted statutory history to draw inferences of enacted text meaning. Sometimes, textualists resort to drafting history treating it somewhat like enacted statutory history in drawing interpretive inferences.

           Legislative History includes all documents the legislature may have generated or considered in enacting the statutory text that might permit inferences as to the meaning of the enacted statutory text. Legislative history is the course of congressional consideration in identifying the need for legislation, drafting or revising the bills (the “drafting history” and statutory history for enacted statutory text), expressions by persons involved in the process as to how they understood the text of the bills, and the final statutory text. The principal sources of legislative history for statutes are the drafting history and the committee reports which I discuss below. (For tax legislation, the legislative history may also include proposals from Treasury (analogous to drafting history) and Treasury’s explanation of the proposals, most commonly along with Treasury’s annual budget request with tax proposals referred to as the Green Book.) Other sources include committee hearings, statements made on the floor of Congress in debating the legislation, and submissions to Congress by the executive branch. There is a long and substantial history of judicial use of legislative history in statutory interpretation, particularly in the tax area.

Tax Court Holds that IRS Must Prove Return Fraud After a Convicted Spouse is Convicted for Tax Evasion (5/30/26)

In Li v. Commissioner, T.C. Memo. 2026-42 (T.C. Case 12133-23 at #35, here, at #35, and GS here [to come], the Court addressed proof issues for applying the unlimited statute of limitations for a joint return spouse (“unconvicted spouse”) after the other spouse was convicted of tax evasion (“the convicted spouse”). Of course, as to the convicted spouse, collateral estoppel will apply to establish fraud for the unlimited statute of limitations (§ 6501(c)(1)) and the civil fraud penalty (§ 6663). Li addresses the issue of the effect of the convicted spouse’s conviction on the unconvicted spouse’s statute of limitations (§ 6501(c)(1)),

The background is the Allen issue. In Allen v. Commissioner, 128 T.C. 37 (2007), the Court held that fraud on a return by a return preparer without the taxpayer’s personal fraud invoked the unlimited statute of limitations in § 6501(c)(1). The issues Allen raises are discussed in several blog entries over the years, but I think they are presented in my most recent blogs: Update on Murrin Petition for Cert re Unlimited Civil Statute of Limitations for Non-Taxpayer Fraud Reported on Tax Return (Federal Tax Procedure Blog 5/19/26), here; and Further on Murrin and Allen and the Unlimited Statute of Limitations for Fraud on the Return (Federal Tax Procedure Blog 4/30/26), here.

Stripped down to basics, the current status of the Allen issue is as follows:

• for courts applying the Allen holding (that the preparer’s fraud alone will suffice to the unlimited statute of limitations; the taxpayer’s fraud is not required). This includes all courts addressing the issue except the Federal Circuit.
• the Federal Circuit held that the taxpayer’s fraud is required, at least in a context where the fraud on the return was not the preparer’s fraud (although the Federal Circuit did not intimate that preparer fraud would suffice).

Li dealt with the unlimited statute of limitations for the unconvicted spouse after the convicted spouse’s tax evasion conviction. The holding was that, as to the unconvicted spouse, the IRS must prove fraud on the return by clear and convincing evidence of fraud on the return (which need not necessarily be the unconvicted spouse’s personal fraud). In the Li facts, that means that the unconvicted spouse is not subject to collateral estoppel for the convicted spouse's conviction. Li does not address the issue I discuss in the first blog above as to whether fraud on the return committed by others than the tax return preparer (e.g., tax shelter promoters) will suffice.

I have synthesized the Li Opinion in my working draft for the Federal Tax Procedure Editions for 2026 (to be published in early August). I offer that synthesis here in the paragraph after discussing the Allen issue (note that the footnotes are presented after the text; the numbering on the footnotes will not be the same in the working draft or the final 2026 Practitioner Edition):