Wednesday, December 7, 2016

Tax Procedure Book Errata - Interest Rates (12/7/16)

I provide interest rates for the more commonly encountered deferred payments (underpayments and overpayments) in Chapter 7, titled appropriate "Interest."  When I state the interest rate in the text, it is for the 3d quarter of 2016.  (That will be clear in the footnotes edition which cites the 2016 IRS publication.)  However, in the current text, I did not change the indicated quarter for the interest rates and thus said it was for 2014 or 2015.  That will be corrected in the next editions and going forward.

The interest rates for the first quarter of 2017 have recently been announced in IR-2016-159, Dec. 5, 2016 (with Rev Rul. 2016-28, 2016-51 IRB), here, are:

  • four (4) percent for overpayments [three (3) percent in the case of a corporation];
  • 1 and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000;
  • four (4) percent for underpayments; and
  • six (6) percent for large corporate underpayments [JAT note: sometimes called "hot" interest]. 

The announcement explains the basis for the interest as follows:
Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.  
Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point. 
The interest rates announced today are computed from the federal short-term rate determined during October 2016 to take effect Nov. 1, 2016, based on daily compounding.
Remember that these interest rates are adjusted quarterly.

In my practice, I generally have an accountant associated with my client representation.  The accountant makes the calculations when some degree of precision is required.  I generally just need to ball park the calculation in discussions with the client.  I use a software program called Tax Interest, here.  It is relatively inexpensive and very easy to use.  It is also more powerful than just for ball park calculations, but I just use it for my ball park calculations.  I find that some of the accountants with whom I work use that same program for making their interest and penalty calculations.

Tuesday, November 29, 2016

Revised Terminology: Issue Preclusion Rather than Collateral Estoppel and Claim Preclusion Rather than Res Judicata (11/29/16)

I have just read the decision in Bravo-Fernandez v. United States, 580 U.S. ___, ___ n. 1, & ___, n. 2, 137 S. Ct. 352, 356 n. 1 & 359 n. 2 (2016), here and GS here, which was decided today.  Based upon that decision I have modified the book at several points to use the terms issue preclusion instead of collateral estoppel and claim preclusion instead of res judicata.  The following is a goodnote I have added to discuss that change.
Issue preclusion is the term currently preferred for a concept previously called collateral estoppel; and claim preclusion is the term currently preferred for res judicata.  Bravo-Fernandez v. United States, ___ U.S. ___, ___ n. 1, ___________ (2016).  In Bravo-Fernandez, the Court described the related terms of issue and claim preclusion as follows (internal quotations and additions omitted):
Issue preclusion: “In criminal prosecutions, as in civil litigation, the issue-preclusion principle means that “when an issue of ultimate fact has once been determined by a valid and final judgment, that issue cannot again be litigated between the same parties in any future lawsuit.”
Claim preclusion: “instructs that a final judgment on the merits forecloses successive litigation of the very same claim.” 

Monday, October 17, 2016

Tax Procedure Book Errata - IRS Adopts New Rules Restricting Availability of In-Person Appeals Conferences (10/17/16)

The first paragraph in Chapter 10, at Par. VI. Conferences, (Student Edition p 347; Practitioner Edition 487) is revised to read as follows (I provide the footnotes here for the benefit of Practitioners; remember that the footnote numbers are provisional and will be different in the next edition; students should generally not read the footnotes; I note in red the key changes to the text):
The taxpayer will have at least one conference with the Appeals Officer.  Historically, the conference was in person at the Appeals Officer’s office, by telephone, or sometimes by correspondence. n1597 In October 2016, however, the IRS adopted IRM procedures that appeals conferences are generally held by telephone and, where the taxpayer desires an in-person conference, to offer the taxpayer “a virtual conference as an alternative when the technology for a virtual conference is available.” n1598 The IRM recognizes that “[T]here may be situations in which an in-person conference, including circuit riding should be held to help reach resolution;” in those cases, an in-person conference may be available. n1599 These new procedures limiting the circumstances in which an in-person conference is available are controversial. n1600 It is too early to determine how they will affect the actuality and perception of the Appeals procedures.
   n1597 IRM  (06-25-2015), Introduction to Discussion on Conferences.  This IRM provision has now been replaced by IRM  (10-01-2016), Introduction to Discussion on Conferences, and  (10-01-2016), Conference Practice, which discuss the IRS’s move away from in-person conferences in many cases.  I discuss this move in the text.
   n1598 IRM  (10-01-2016), Conference Practice.
   n1599 IRM  (10-01-2016), Conference Practice.
   n1600 See Leslie Book, Technology and the Tax System: A Less Personal Appeals Office Coming Our Way (Procedurally Taxing Blog 10/13/16). [This blog entry is here.]

Monday, October 10, 2016

Mitigation Provisions of the Code - §§ 1311-1314 (10/10/16)

I have recently been revisiting the mitigation provisions of the Code (Discussed in the Federal Tax Procedure book at Chapter VI - Statutes of Limitation, VII. G. (Student Edition pp. 177-185; and Practitioner Edition pp. 256-265).  I will have a revised version of that discussion in the next edition of the Federal Tax Procedure Book (currently planned for early August 2017, although I will try to post the revised version of this mitigation discussion prior to then)

On the last page of the discussion in the current edition (2016), I have the following (footnotes omitted)
5. Supplementary Reading for Mitigation Enthusiasts. 
I commend to your further study on mitigation the best (in my judgment) tax procedure law review article ever written: John M. Maguire, Stanley S. Surrey and Roger John Traynor, Section 820 of the Revenue Act of 1938, 48 Yale L. J. 509 (Part 1) and 719 (Part 2) (1939). Students using this book may not recognize the authors, but they are a team of all-time legal “superstars.” The authors were young brain trusters lured to Washington by Franklin Delano Roosevelt's “New Deal.” They assisted in the drafting and enactment of the mitigation provisions of the Code in the late ‘30s. Maguire and Surrey rose to the heights of tax academia with distinguished private and public careers. Traynor became one of this country's most respected jurists as a Justice on the California Supreme Court where he shaped the debate of thoughtful discussion in many legal areas. All law students and lawyers should at least know who Traynor is. The ultimate contributions to American jurisprudence by each these authors in their own way was foreshadowed by this article.
I have received permission from the Yale Law Journal to provide linked copies of the two part law review article so that readers of this blog and the book can review online or download, as appropriate.  The links are here (Pat 1) and here (Part 2).

Sunday, September 11, 2016

Tax Procedure Book Errata - Special Flora Mitigation Procedures for Certain Assessable Penalties (9/11/16)

I will revise the book to insert the following with respect to certain assessable penalties -- the return preparer penalties under § 6694 and the penalties under 6700-6703.  These penalties are assessable without predicate notice of deficiency or other such procedures permitting litigation before assessment.  Those penalties can be litigated in a traditional refund suit which will be subject to Flora's full payment rule.  The Flora full payment rule is mitigated in many contexts (included this context) by the divisible tax rule that would apply if the penalties are divisible.  There is another special Flora full payment mitigation rule applying to these penalties.  That mitigation rule is as follows:
This mitigation rule requires that (i) within 30 days of the assessment’s notice and demand, the person assessed the penalty pay 15% of the penalty and file a claim for refund and (ii) then file the refund suit in district court by the earlier of (a) 30 days from the denial of the claim or (b) 6 months and 30 days from the date the refund claim was filed.  If the taxpayer pursues this special district remedy, collection procedures on the balance will be suspended and the statute of limitations on collection will also be suspended.  [See § 6694(c) as to the preparer penalties and §§ 6703(c) as to the §§ 6700-6702 penalties.]
In addition, to the special procedure for partial payment and suit for refund, penalties subject to this special mitigation rule may be litigated in CDP procedures.

I have not yet incorporated these into the current working draft for the next version in 2017, but it will be included in that version.

I picked up the need for this revision from Taylor v. Commissioner, 2016 U.S. Dist. LEXIS 122216 (ED WA 2016), applying the rule to the § 6694 penalty.  In Taylor, the preparer timely paid the 15% and filed the claim for refund.  The denial of the claim was almost two years later.  By the time of denial of the claim, the period for filing the suit for refund for the special procedure had expired. The time for filing that suit was 6 months and thirty days after the filing of the claim for refund.

Friday, September 2, 2016

Tax Procedure Book Errata - Injured Spouse Relief for Joint Return Refunds Credited to Liability of Only One of the Spouses (9/2/16)

Keith Fogg posted a great discussion today on the Procedurally Taxing Blog: Special Statute of Limitations for Injured Spouse Relief (9/2/16), here.  I have added the paragraph below to my Federal Tax Procedure Book editions, appearing now as errata but will appear in the 2017 edition of the book editions.

Student Edition p. 151 and Practitioner edition at the end of the carryover section and immediately before 2. Constructive Overpayments, add the following paragraph (remember that the footnotes do not apply to the student edition):
Finally, as noted, the IRS may credit refunds otherwise due for tax debts and for nontax debts other federal, state agencies and even child-support payments certified by the state.  This creates a problem only one spouse owes the debt to which a refund on a joint return is credited.  In that case, the spouse who is not liable may have a separate interest in the refund on the joint return.  That spouse is called the injured spouse because that spouse’s asset is used to pay a debt of the liable spouse. n769.1  The IRS has procedures, called injured spouse relief, that permits the injured spouse to obtain the refund. n769.2  This relief to obtain the injured spouse’s share of overpayments credit to the liable spouse’s debt is sometimes confused with innocent spouse relief (discussed below beginning at p. 472 of the Student edition and p.  682 of Practitioner edition).  The IRM succinctly states the different as follows: “Innocent spouse status relieves a spouse of the responsibility for paying taxes that may then be collected from the other spouse. Injured spouse status involves obtaining a refund of a spouse's interest in an overpayment that has been offset under IRC 6402.”  n769.3  The injured spouse relief is based on general state law rights rather than being required by a particular Code section.
   n769.1 See generally IRM 25.18.5  Injured Spouse.  IRM  (03-04-2011), Background - IRC 6402 Offsets, subpar. 3 which is captioned “How Offset Issues Arise,” noting  in relevant part:
Offset issues arise where spouses file joint returns and only one spouse owes a IRC 6402 debt. In this circumstance, an allocation must be made to determine the liable spouse's interest in the overpayment, the amount that can be offset for the liable spouse's debt, and the amount to be refunded to the nonliable spouse. Rev. Rul. 80-7, 1980-1 C.B. 296, amplified by Rev. Rul. 87-52, 1987-1 C.B. 347. Due to different property rights in income tax and withholding and other credits, there is a difference in the allocation process for community property states as opposed to the other states. Rev. Rul. 85-70, 1985-1 C.B. 361.
In subsequent sections, the IRM provides the methods for allocating the amount of the refund to the injured spouse.  Having spent most of my career practicing in Houston, Texas, I was particularly interested to see a special IRM provision devoted allocations in Texas.  IRM  (03-04-2011), Injured Spouse Claims Involving Federal Tax Offsets in Texas.  Texas is just different. 
   n769.2 The relief is requested by Form 8379, titled Injured Spouse Allocation, which can be filed (i) with the return if the taxpayers know of the § 6502 creditable debt of the liable spouse and (ii) after notice of the credit in order to obtain the benefit for the injured spouse.  For more on the relief, see Keith Fogg, Special Statute of Limitations for Injured Spouse Relief (Procedurally Taxing Blog 9/2/16), discussing the TIGTA report titled Injured Spouse Cases Were Not Always Timely Resolved, Resulting in the Unnecessary Payment of Interest (Ref. No. 2016-40-042 5/19/16). One key point that Keith Fogg makes is that the statute of limitations for claiming injured spouse relief for credits to the liable spouse’s federal tax debts is three years whereas the statute of limitations for such relief for nontax debts is six years.  Keith also notes that one solution where a potential injured spouse knows of the creditable debt in advance is for the potential injured spouse to not file a joint return.  But, Keith notes, that might not be a satisfactory solution where the filing of a joint return will reduce the aggregate net tax liability.  
   n769.3 IRM  (03-04-2011), Background - IRC 6402 Offsets, subpar. 3.  The IRM also notes that some spouses entitled or potentially entitled to injured spouse relief filed mistakenly for innocent spouse relief.  Where that occurs, the IRS is instructed to notify the spouse of the difference via a specific form letter and provide a copy of Form 8379, titled Injured Spouse Allocation.

Thursday, September 1, 2016

Tax Procedure Book Errata - Base to Which the Failure to File and Fraudulent Failure to File Penalty Rates Apply (9/1/16)

I did not state the penalty base for the failure to file penalty which comes in two flavors -- the fraudulent failure to file penalty and the general failure to file penalty.  See § 6651(a)(1) and (f).  (Actually, it is buried in the discussion of the fraudulent failure to file penalty, but being buried is not good enough.)  The respective failure to file penalty rates are 15% per month up to 75% for fraudulent failure to file and 5% per month up to 25% for the general nonfraudulent failure to file.  The base to which the respective rates apply is the same -- the tax due "reduced by the amount of any part of the tax which is paid on or before the date prescribed for payment of the tax and by the amount of any credit against the tax which may be claimed on the return."  § 6651(b)(1).

The penalty base is important and needs to be stated explicitly.  I have made that addition as follows:

In the Student edition p. 233 and the Practitioner edition p. 331, I have added the following sentence immediately after the first sentence in the section under D. Fraudulent Failure to File Return - § 6651(f).:
The base to which the 15% per month fraudulent failure to file penalty rate applies is the same base as the general failure to file 5% per month penalty – the tax due “reduced by the amount of any part of the tax which is paid on or before the date prescribed for payment of the tax and by the amount of any credit against the tax which may be claimed on the return.” fn
  fn § 6651(b)(1).
In the Student edition p. 248 and the Practitioner edition p. 352, I have added the following sentence immediately after the fourth sentence in the section under F.1. Most Returns with Tax Due:
The base to which the 5% per month penalty rate applies is the tax due “reduced by the amount of any part of the tax which is paid on or before the date prescribed for payment of the tax and by the amount of any credit against the tax which may be claimed on the return.” fn
   fn § 6651(b)(1).
Remember that the indicated footnotes are not contained in the Student edition.

Tuesday, August 30, 2016

Filing Motions for Reconsideration (8/30/16)

Keith Fogg has a great posting titled, descriptively, Motion for Reconsideration (Procedurally Taxing Blog 8/30/16). here.  I highly recommend that students and new lawyers doing any type of trial practise and particularly tax litigation practise click on the link and read the blog entry.

The starting point for this discussion is Senyszyn v. Commissioner, TC Memo 2016-137,. here, which I have previously discussed in my Federal Tax Crimes Blog because, although a civil case, the background is a criminal tax evasion case.  See Tax Court Again Rejects Collateral Estoppel For Some Deficiency and Civil Fraud Penalty Where No Tax is Due (Federal Tax Crimes Blog 7/24/16), here.  The issue was whether the Court had to apply the doctrine of collateral estoppel based on on the tax evasion conviction that had as an element an evaded tax (sometimes call tax due and owing or tax deficiency).  A specific amount of evaded tax is not required for conviction.  So, in his case, there was just some unstated amount of tax due and owing.  The Court knew based on the record that, in fact there was no tax evaded.  That knowledge certainly casts doubt on the criminal conviction, but the criminal conviction was not an issue in the case.  Judge Halpern, the Tax Court Judge, had to do justice in the case before him where the facts showed that there was no tax deficiency.  He simply decided to do justice.

Some of the key points Keith discusses are:

  • Filing motions for reconsideration is a strategic step.  Those motions can backfire.
  • Keith notes the procedures that the IRS has to follow to obtain approval to file a motion for reconsideration.
  • Keith notes that, bottom line, the doctrine of collateral estoppel exists to achieve efficient justice by avoiding re-litigating facts already determined.  But there may be outlier cases where following the previous determination will patently defeat justice.  This was one of them, and the judge exercised the equitable powers he perceived he had to do justice.
Again, I strongly urge that you read Keith's blog entry.

Monday, August 29, 2016

Tax Procedure Book Errata - Addition re Starting Date for Statute of Limitations to Return Filed Before Due Date (8/29/16)

I have made an addition to Example 1 on p.  115 of the Student Edition and 162 of the Practitioner edition.  I quote here the entire example, noting the text added in red and the footnote added in red.\
Example 1: The Year 01 return is mailed on February 1 of Year 02 and received by the IRS on February 6 of Year 02.  The return is timely filed, so the timely-mailing, timely-filing rule does not apply or need to apply.  The return is deemed filed on the due date of April 15 of Year 02.  (Note that this filing date applies to establish the filing date for purpose of the civil and criminal statutes of limitations even if April 15 falls on a weekend or holiday which is treated by § 7503 as being timley filed on the next succeeding.) fn.
   fn. See United States v. Johnson, 2016 U.S. App. LEXIS 15879 (6th Cir. 2016) and the relate case United States v. Johnson, 599 Fed. Appx. 242; 2015 U.S. App. LEXIS 5446 (6th Cir. 2015) dealing with the starting date for the criminal statute of limitations.  The same analysis applies for the civil statute of limitations, although if, as in Johnson, the return was fraudulent, the unlimited civil statute would apply.  The statutory analysis for both civil and criminal statutes is: (1) § 6501(b)(1) treats an early filed return as being filed on the “the last day prescribed by law;” (2) § 6072(a) provides that the last day prescribed by law for an individual return is April 15 of the next year; and (3) § 7503 provides that, where the day prescribed by law is a weekend or holiday, a return filed after the day prescribed by law but on the next business day after the weekend or holiday shall be “considered timely.”  The key point is that the day prescribed by law is still April 15; but a subsequent filing on the next succeeding business day is simply “considered timely.”  Hence, from a statutory interpretation context, conceded by the Government in the Johnson cases, the statute of limitations starts on the last day prescribed by law, which is April 15 for an early filed return.  Now, for a return filed after that normal due date which falls on a weekend or holiday, I suspect that the statute would start running on the date of filing. 
For more detail, see my Federal Tax Crimes Blog entry titled Government Avoids Hyde Amendment Fees and Expense Liability After It Blew the Criminal Statute of Limitations (Federal Tax Crimes Blog 8/29/16), here.

Monday, August 22, 2016

Tax Procedure Book Errata - Correction Related to Abatement of Erroneous Assessment (8/22/16)

Delete the entire section (1 paragraph) in Chapter 6 at V. Abatements of Erroneous Asessments (at p. 240 of the Practitioner edition and p. 167 of the Student edition substituting in its place the following (note that the footnote numbers may not tie to the current editions):

V. Abatements of Erroneous Assessments.

Section 6404(a) authorizes the IRS to abate an assessment of tax (or liability) which is “(1) is excessive in amount, or (2) is assessed after the expiration of the period of limitation properly applicable thereto, or (3) is erroneously or illegally assessed.”  All of these alternatives seem straight-forward.  For example, if the taxpayer has been assessed $100 in tax or interest but shows that the correct tax or interest liability is $50 rather than the $100 assessed, under subparagraph (1), the IRS can abate the excessive $50 amount assessed. n848
   n848 In King v. Commissioner, ___ F.3d ___, 2016 U.S. App. LEXIS 13269 (7th Cir. 2016), dealing with abatement of interest rather than tax, the Seventh Circuit reversed the Tax Court’s holding that “excessive” could mean “unfair.”  The Court cited several reasons, including the indeterminancy of the concept of “unfair” and the Chevron appropriate regulation saying that, in the context of tax, “excessive” means "in excess of the correct tax liability,” with the conclusion that, as to interest, it must mean in excess of the correct interest.  See Regs. § 301.6404-1(a).

As noted above, however, the taxpayer still must claim his right to a refund timely, and, if he fails to do so, the statute of limitations on actually getting the refund will prevent the IRS from refunding the tax.  If for some reason, after the statute of limitations for refund has closed, the taxpayer establishes his or her right to an abatement, the IRS may make the abatement because there is no statute of limitations on abatement.n849  The problem, of course, is that the IRS cannot refund or credit the abated tax liability, if paid, to the taxpayer and, instead, the payments will be posted internally by the IRS to the Excess Collections File.
   n849 ILM 200915034 (3/2/2009), published at 2009 TNT 68-16.

Sunday, August 21, 2016

Excellent Law Review Article on Statutory Interpretation and Use of Legislative History (8/21/16)

An  important topic in all tax courses, including Federal Tax Procedure, is statutory construction.  One of the issues I discuss is the use of legislative history in statutory construction.  (See practitioner edition beginning on p. 6 and Student edition beginning on p. 4.)

I have just read a law review article that I think would be a worthy read for those wishing to dig further into the issue.  The article is:  Robert A. Katzman, Madison Lecture: Statutes, 87 N.Y.U.L. Rev. 637 (2012), here.   Katzman is a judge on the Second Circuit and a prominent constitutional scholar in his own right.  I offer below some snippets and my own comments.  In most quotes, I omit footnotes, except in some cases where I think the footnote is important

First, in a bow to James Madison who is often called the father of the Constitution because of his major contribution to the Constitution:
I owe much to James Madison, that diminutive giant, one of the founding architects of our constitutional structure.
Then, the author deploys Madison in support of his argument that legislative history is an important tool in statutory interpretation:
Generally, the interpretative problem arises because the statute is ambiguous. n127 From the start, the founders understood that legislation would often be unclear and admit of differing interpretations. Madison wrote in The Federalist No. 37, describing laws in general:
All new laws, though penned with the greatest technical skill, and passed on the fullest and most mature deliberation, are considered as more or less obscure and equivocal, until their meaning be liquidated and ascertained by a series of particular discussions and adjudications. Besides the obscurity arising from the complexity of objects, and the imperfection of the human faculties, the medium through which the conceptions of men are conveyed to each other, adds a fresh embarrassment... . No language is so copious as to supply words and phrases for every complex idea, or so correct as not to include many equivocally denoting different ideas. Hence, it must happen that however accurately objects may be discriminated in themselves, and however accurately the discrimination may be considered, the definition of them may be rendered inaccurate by the inaccuracy of the terms in which it is delivered. And this unavoidable inaccuracy must be greater or less, according to the complexity and novelty of the objects defined. n128
   n128. The Federalist No. 37, at 255 (James Madison) (Cynthia Brantley Johnson ed., 2004). It merits a note that Madison and other founders proposed an active role for judges in the legislative process by having members of the Supreme Court serve on a council of revision to help the President exercise the veto power. 2 The Records of the Federal Convention of 1787, at 73-80 (Max Farrand ed., 1911). Such a scheme, argued Madison, would help "preserve a consistency, conciseness, perspicuity & technical propriety in the laws, qualities peculiarly necessary; & yet shamefully wanting in our republican Codes." Id. at 74. With respect, I think that is one proposal whose rejection was well advised.

2016 Editions (Student and Practitioner) of Townsend on Federal Tax Procedure (8/21/16)

I have prepared my 2016 editions (Student and Practitioner) of my Federal Tax Procedure Book.  I am providing links to the pdf versions of those books:
  • Federal Tax Procedure (Student 2016), SSRN link for download, here.
  • Federal Tax Procedure (Practitioner 2016), SSRN link for download, here.
I invite and welcome comments from  readers of these books as to how I might improve them.  Now that I am no longer actually teaching this course, I plan to keep up the publications and make them available once a year in August (hopefully so that those schools that use the book can do so at the beginning of the semester).  But, I no longer have the regular give and take with students on the subject and the book.  Hence, input from users of the book is invaluable.  I would appreciate input both on substance (errors and omissions as to content) and on style (grammar, syntax, misspelling, hard to understand sentences, etc.).  Please help me make this a better book (actually it is a single book -- the student version is the same as the practitioner version with the footnotes stripped out.

I have submitted these books to SSRN but they have not yet been cleared by their opaque processes.  When they are cleared, I will provide links in the columns to the right of this blog.

While I was teaching a class in Federal Tax Procedure (at UH Law School through Fall 2015), I used this blog for two purposes:  (i) to keep my students informed and (ii) to provide updates to the books.  I will continue to use this blog to provide such updates.  I will link all such updates as "Federal Tax Procedure Book - Errata."  In most cases, I will provide the appropriate page numbers for the errata, but some postings may be more general interest for tax procedure enthusiasts with no specific page numbers being appropriate.

I remind readers that the best blog on tax procedure is Procedurally Taxing, here.  You can get daily fixes (well most days' fixes) for your addictions to tax procedure on that blog.  My fixes on this blog will be more infrequent and more episodic and usually less nuanced and often less edifying.

For even more in depth reading on tax procedure, the best text is Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015), here.  Leslie Book is a principal contributor to Procedurally Taxing, but his magnum opus is the Saltzman and Book book (sounds redundant but it is not).  This book is the go-to resource for depth on the subject.  (I have to disclose that I am the principal author for Chapter 12 dealing with Criminal Penalties and the Investigation Function.)

Saturday, March 12, 2016

District Court holds the § 6707 Tax Shelter Reporting penalty Not Divisible (3/12/16)

I previously reported on a case in the Court of Federal Claims, Diversified Group Inc. v. United States, 123 Fed. Cl. 442, 2015 U.S. Claims LEXIS 1276 (2015), here, appeal docketed, No. 16-1014 (Fed. Cir. October 6, 2015), here, that held that the § 6707 penalty was not divisible for purpose of the Flora, here, full payment rule for refund suits.  See Flora Full Payment Rule and the Rough Edges (Federal Tax Procedure Blog 9/17/15), here.  In Pfaff v. United States, Civil Action No. 14-cv-03349-PAB-NYW, 2016 U.S. Dist. LEXIS 30844 (D. Colo. Mar. 10, 2016) [no link available], in a much shorter opinion, the District Court reached the same result that, in my judgment, does not provide anything not covered in the Diversified Group opinion.

Monday, February 15, 2016

Justice Scalia on Chevron Deference (2/15/16)

The Country mourns the death of Justice Scalia.  Despite being prone to hyperbole, he was a force and, I think, generally for good.  He made us think about his statements which were the product of a keen mind.

I provide below some of the more substantive quotes and references in the tax procedure area from my Federal Tax Procedure book (the latest published version can be downloaded on SSRN - footnoted version here and nonfootnoted; I probably will have updated versions later this year).  Justice Scalia was not a tax lawyer, so his opinions in the tax area are few.  Most of his influence in the tax area is in the context of whether administrative agency pronouncement, principally Regulations, are subject to so-called Chevron deference.  In the tax context, the announcements are regulations and other announcement subject to Chevron or some lesser deference.  So most of the quotes below relate to Chevron deference in some of its many manifestations.  Justice Scalia early signaled the importance of Chevron deference in a lecture after the Chevron opinion reprinted in the Duke Law Journal (Antonin Scalia, Judicial Deference to Administrative Interpretations of Law, 1989 Duke L.J. 511,(footnotes omitted) here):
Administrative law is not for sissies -- so you should lean back, clutch the sides of your chairs, and steel yourselves for a pretty dull lecture. There will be a quiz afterwards. 
Five Terms ago, the Supreme Court issued its opinion in the case of Chevron, U.S.A., Inc. v. NRDC, which announced the principle that the courts will accept an agency's reasonable interpretation of the ambiguous terms of a statute that the agency administers. Dealing with the question whether the Environmental Protection Agency could permissibly adopt the "bubble concept" -- that is, a plantwide definition of "stationary source" -- under the Clean Air Act, Justice Stevens for a unanimous Court adopted an analytical approach that deals with the problem of judicial deference to agency interpretations of law in two steps: 
First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.  
Failing an affirmative response to the first inquiry, the Chevron analysis moves to step two: 
If, however, the court determines that Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.
So, with that introduction, here are the significant Scalia quotes and references in my Federal Tax Procedure Book, primarily on Chevron:

On giving primacy to the text over other forms of statutory interpretation:
Some jurists, Justice Scalia the most visible, give primacy to the statutory text and are reluctant to look beyond the statutory text (for example, to the legislative history) for assistance in determining how the statutory text should be interpreted. fn15  They may discern what they often call the “plain meaning” to statutory text; in such cases, they profess to give little or no credence to broader legislative context, including legislative history (such as Committee Reports), because, they reason, only the statutory text was enacted by Congress and the text means what they believe it plainly says. fn 16  This approach to statutory interpretation is often called textualism. fn 17  If context is relevant at all to textualists, it is internal context (i.e., context within the statute itself rather than context determined from sources external to the statute) and perhaps the context of what the legislative words would mean to the hypothetical reasonable person versed in the English language as of the date of enactment (thus, for example,  permitting resort to a contemporaneous dictionary).  Other jurists find that broader legislative context assists in interpreting text and are willing to look to that broader context, most immediately the legislative history, to determine how the enacted text should be interpreted.  This approach to interpretation has different iterations that go by the terms intentionalism, purposivism and the practical reason (or dynamic) method.
   fn 15 Justice Scalia’s impact in the debate in terms of influencing others to the same position has been questioned.  See David S. Law and David Zaring, Law Versus Ideology: The Supreme Court and the Use of Legislative History, 51 Wm. and Mary L. Rev. 1653, 1659 (2010). Other authors conclude from smaller and perhaps less sophisticated samplings that Justice Scalia has had a significant impact, if not so much on other Justices on the Supreme Court then in the lower courts.  Id. 1671-1672, 1682.  Professors Law and Zaring, however, question the sophistication of the prior analyses to address the determinants in the use of legislative history.
   fn 16 Earlier in his career while on the D.C. Circuit Court of Appeals, Justice Scalia so pronounced by quoting a marvelous floor dialog between Senator Armstrong and Senator Dole, then Chair of the Finance Committee, in which Senator Dole denied having written or even read or even knowing whether any Senator wrote or even read the Committee Report and denied that the Report had been voted on by the Committee.  Hirschey v. F.E.R.C., 250 U.S. App. D.C. 1, 777 F.2d 1, 7 n.1 (D.C. Cir. 1985) (Scalia, J., concurring) (quoting 128 Cong. Rec. S8659 (daily ed. July 19, 1982)). Senator Armstrong concluded the dialog with the following comment: “[F]or any jurist, administrator, bureaucrat, tax practitioner, or others who might chance upon the written record of this proceeding, let me just make the point that this is not the law, it was not voted on, it is not subject to amendment, and we should discipline ourselves to the task of expressing congressional intent in the statute.”
   fn 17 See (also containing a fair general description of the concept and noting the difference between textualism, of which Justice Scalia is a proponent, and strict construction, of which Justice Scalia is not a proponent). 
On the use of legislative history in statutory interpretation, I quote from a law review article::