Wednesday, December 9, 2020

PDR on Remand to 4th Circuit with Further Confusion of the APA's Legislative / Interpretive Rule Distinction (12/9/20)

In Carlton & Harris Chiropractic Inc. v. PDR Network, LLC, 2020 U.S. App. LEXIS 38073 (4th Cir. 2020), here, the Fourth Circuit punted to the district court the important and potentially contentious issues on remand from PDR Network, LLC v. Carlton & Harris Chiropractic, Inc., 139 S. Ct. 2051 (2019).  I wrote on the Supreme Court’s opinions in PDR previously.  Supreme Court Again Weighs In At the Edges on Legislative and Interpretive Rules (6/23/19; 7/2/19), here.

The Fourth Circuit held, as I reasoned in the blog, that the rule in issue (an FCC Order) was interpretive rather than legislative.  If it were a legislative rule, it would have been required to be promulgated as a regulation with notice and comment and, since it was not so promulgated, the Rule does not fail for that reason.  As an interpretive rule, however, the interpretation in the rule would be subject to Chevron analysis and potential deference if Chevron applied to such subregulatory guidance (Chevron does not) and to potential Skidmore analysis if not Chevron-eligible.

I do note that the Fourth Circuit muddles the analysis of the difference between legislative rules (which must be notice and comment regulations) and interpretive rules (which may, but need not be and usually are not, notice and comment regulations).  As I have noted often in this blog and in an article which I cite and link below, there are two relevant categories of interpretive rules – interpretive rules with notice and comment and interpretive rules without notice and comment.  The latter, in IRS lingo (and much administrative law lingo), are referred to as subregulatory interpretive rules.  Interpretive rules in notice and comment regulations are subject to the Chevron interpretive regime testing whether the interpretation is a reasonable interpretation and, usually, requiring Chevron deference if the interpretation is reasonable.  Although the Supreme Court has suggested that some subregulatory interpretations might be entitled to Chevron deference, I am not aware of any instance in which the Supreme Court or any other court has given Chevron deference to subregulatory interpretations.

Now, I quibble with the following paragraph of the Fourth Circuit’s opinion:

The convenience of having to jump through fewer procedural hoops to issue agency guidance, however, "comes at a price: Interpretive rules 'do not have the force and effect of law and are not accorded that weight in the adjudicatory process.'" Perez, 575 U.S. at 97 (quoting Shalala v. Guernsey Mem'l Hosp., 514 U.S. 87, 99, 115 S. Ct. 1232, 131 L. Ed. 2d 106 (1995)); see also Batterton v. Francis, 432 U.S. 416, 425 n.9, 97 S. Ct. 2399, 53 L. Ed. 2d 448 (1977) ("[A] court is not required to give effect to an interpretative regulation."). The 2006 FCC Rule is interpretive, and so the district court wasn't bound by it. 

Thursday, December 3, 2020

CIC Services Supreme Court Oral Argument (12/3/20)

I have previously written on the Supreme Court’s grant of certiorari in CIC Servs., LLC v. IRS, 925 F.3d 247 (6th Cir. 2019), reh., en banc, denied 936 F.3d 501 (2019), cert. granted 140 S. Ct. 2737 (2020).  See particularly Certiorari Granted in CIC Servs on AIA Application to Pre-enforcement Guidance Challenges (Federal Tax Procedure Blog 5/12/20), here.  The Supreme Court heard oral argument on the case on Tuesday.  

  • The oral argument recording is here (Supreme Court) and here (CSpan) 
  • The transcript is here (Supreme Court)

I have not had time to fully consider the oral argument, but just wanted in this blog to make some quick observations guided in principal part by a discussion from SCOTUSblog, Blaine Saito (Guest), Argument analysis: Justices struggle to define boundaries of Anti-Injunction Act, here.  After I have had more time late today, I may expand the discussion on this page.  [JAT Note as of 5:45pm, I made some small changes below but, upon reflection, will likely not make additional postings related to the oral argument; there will be ample opportunity to comment when the case is decided with, likely, several opinions.]

Here are my thoughts inspired mostly by the SCOTUSblog offering:

1. My sense is that the key concern is that the Notice set up taxpayers (a generic category to include promoters) for a penalty, perhaps even a criminal penalty, by a notice rather than by regulations rulemaking.  In the familiar legislative / interpretive rulemaking dichotomy, one can argue that the “rule” established by the notice is more like a legislative rule than an interpretive rule because it is not interpreting a statute in imposing a reporting obligation with penalty consequences.  Penalty consequences is sometimes said to be indicative of a legislative rule (although I think the claim is superficial as stated).  My quick search of the transcript does not indicate that the justices mentioned the legislative / interpretive rule dichotomy.

2.  If the notice is legislative rulemaking without the APA required notice and comment required for legislative rules (regulations) then upon subsequent challenge in a penalty proceeding under traditional tax procedure (e.g., a refund proceeding), the notice would fail because of lack of notice and comment and the penalty, presumably, would be held not to apply.  (E.g., see  statement of the Government lawyer (Bond) that "Petitioner's argument at bottom is that it is not required to provide this information because the statute only requires it to submit information covered by regulations." (Transcript pp. 46-47.))  But that is fairly late in the game and, in the meantime, the notice would have had an in terrorem effect and would have caused the incurrence of substantial unnecessary litigation and compliance costs.  So, on that basis, perhaps, a pre-enforcement challenge process – said to be the norm under the APA – should be permitted.  But, as the Government argues, the AIA, § 7421(a), is an exception to that norm.

3. The stated concern about the potential for criminal penalties was addressed by Government counsel, Assistant Solicitor General Jonathan Bond, by filing a good faith letter in lieu of the disclosure required by the Notice.  As reported by SCOTUSblog the discussion was:

Many of the justices were concerned about the potential that a company would open itself to criminal sanctions by failing to comply with the notice. Both Alito and Justice Neil Gorsuch noted that it is incredibly problematic to require someone to face criminal sanctions before asking a court to rule that an agency action was unlawful. In response, Bond remarked that the filing of the good-faith letter would suffice to avoid criminal sanctions. When further pressed by Alito about whether the term “willful” in the tax code should have a different meaning from ordinary willfulness, Bond responded in the affirmative. He noted that most of the court’s precedents do have a heightened definition of “willfulness” in the criminal tax context as opposed to other criminal contexts.

I will further consider the detour on the willful issue later this week, probably on the Federal Tax Crimes Blog (and may cross-post to this Federal Tax Procedure Blog).

4. Justice Breyer did note a potential procedural issue in how the case was brought as a direct challenge rather that by filing a request for regulations rulemaking followed by litigating a denial of the request under perhaps the arbitrary and capricious standard.  CIC's counsel said (Tr. p. 12) that that avenue for challenge was narrower than a direct challenge because of the arbitrary and capricious standard.  For a contrary view, see Andy Grewal, CIC Services and Justice Breyer’s Broken Escape Hatch (Notice & Comment 12/2/20), here.

5. For a deeper dive into the arguments made, the briefs (including amicus briefs) may be reviewed on the Supreme Court's docket, here, or the parallel docket maintained on SCOTUSblog, here.

Monday, November 23, 2020

My Suggestions to Tax Court on Procedure Related Matters (11/23/20)

On September 1, 2020, I sent the Tax Court Clerk a letter with suggestions regarding matters related somewhat to tax procedure.  A copy of the letter is here.  I have not had any response to the letter.  I thought I would excerpt and post the contents of the letter here in the event others might be interested in the subjects:

September 1, 2020

Stephanie A. Servoss
Clerk of the Court
United States Tax Court
400 Second Street, NW
Washington, D.C. 20217

Re: Suggestions for Tax Court Rules or Other Practices

Dear Ms. Servoss:

I write to make suggestions that might be incorporated in Tax Court Rules or otherwise adopted:

1. Make Public Tax Court Style Manual.  If there is a Tax Court style manual or other similar guide for judges (such as there is, for example, in the U.S. Supreme Court), I think the taxpayers and the bar would benefit from that style manual being public information.  I have been informed that there is such a Tax Court style manual or guide but that it is not public information.  The public need for access to the manual plays beyond checking to see whether judges conform to the manual (the Court may not require conformance, which I infer from deviations in practices, such as the location of periods and endquotes, that are normally covered by style manuals).   For example, commenters on such style manuals state that it is better practice to conform court submissions to the court=s style manual unless there is a good reason to deviate.  Whether that concern is fair or not is not the issue.  Whether the public should know the contents of the style manual is the issue, for such use as the public may choose to put those contents. 

2. Make Public Changes to Opinions After the Original Publication.  The Supreme Court advises the public of changes to Slip Opinions.  An example of such public notice of change is at: www.supremecourt.gov/opinions/19pdf/19 7diff_o7kq.pdf.  I recommend that a similar public disclosure be made for Tax Court opinions. 

3. Establish a Process for NonParties to Advise the Court of Possible Material Nonsubstantive Errors.  By nonsubstantive, I mean to exclude comments on application of the law to the facts found and legal analysis.  Nonsubstantive thus would include material comments on the syntax or such matters that can lead to confusion for readers.  Many of the errors of this sort are apparent and any reader may just mentally supply the corrections.  For example, I noticed a verb missing in a sentence recently, but it was easy to supply mentally and likely would not be confusing to most readers (although it may slow them down a bit to do the mental gymnastics).  But some errors may require the reader to work harder to understand the opinion and thus might be appropriate for correction, much as the Supreme Court does.  Parties would be expected to call outcome determinative nonsubstantive errors to the Court=s attention but may not call them to the Court=s attention if they are not outcome determinative.  Many nonparties study Tax Court opinions and spot such errors in the few cases in which they appear and could offer a valuable service to the Court, taxpayers and practitioners where the Court determined that correction is appropriate.  I understand from my sources that, from time to time, nonparties (generally practitioners) may write informally to the judge (by email or letter) advising of the nonsubstantive errors but, quite appropriately, do not hear back and do not know whether any action was taken (short of periodically checking the slip opinions or final T.C. opinion).  The point is that, I think, it would be helpful to all involved (including readers) to have a regularized process to get the information to the Court for such use as it may deem appropriate.  I do not think that any response would be required to the person making the comment or suggestion, other than perhaps a routine form thank you letter or email.  I also do not think it would be necessary to make those letters (or emails if included in the process) from nonparties public on the web site or otherwise.  I suspect that most of the comments or suggestions will not require any action, but some may warrant action (e.g., correction of the slip opinions).

Thank you for considering these suggestions.

Sincerely yours,

John A. Townsend

cc: Alexandra Minkovich (by email: Alexandra.minkovich@bakermckenzie.com)
Chair, ABA Tax Section Court Procedure
and Practice Committee

Keith Fogg (by email: kfogg@law.harvard.edu)

JAT Comment:

More Coca-Cola - On Transfer Pricing and Blocked Income Regulation (11/23/20)

I recently wrote on burden of proof issues in The Coca-Cola Company v. Commissioner, 155 T.C. ___, No. 10 (2020), hereTax Court (Judge Lauber) Issues Significant Transfer Pricing Decision in Coca-Cola; Burden of Proof Issues (11/19/20; 11/21/20), hereCoca-Cola is a transfer pricing case, meaning that it is a valuation case.  Valuation cases are generally humdrum on the issue of valuation, an issue raised in many contexts including in abusive tax shelters since the 1970s when I first began observing them.  Transfer pricing can be abusive as well because valuation can be abused.  I don’t propose to delve into the factual issues bearing on valuation Coca-Cola and whether the underlying valuations Coca-Cola used were abusive.  

I rather today point to this discussion of the “blocked income” issue.  The issue is described in high overview (pp. 184-185, beginning here):

2. Brazilian "Blocked Income"

Petitioner alternatively contends that, if TCCC owned the Brazilian trademarks, Brazilian law would have prevented the Brazilian supply point from paying, for use of those trademarks, royalties anywhere close to the amounts determined in the notice of deficiency. During 2007-2009 Brazilian law restricted the amount of trademark royalty and technology transfer payments that a Brazilian entity could pay to a foreign parent. The parties have stipulated that those maximum amounts were approximately $16 million for 2007, $19 million for 2008, and $21 million for 2009.

Relying on what is commonly called the "blocked income" regulation, respondent contends that these Brazilian legal restrictions should be given no effect in determining the arm's-length transfer price. See sec. 1.482-1(h)(2), Income Tax Regs. The regulation generally provides that foreign legal restrictions will be taken into account only if four conditions are met. See id. subdiv. (ii). Petitioner contends that this regulation does not apply here or that the necessary conditions were met. Alternatively, it contends that the blocked income regulation is invalid under the Administrative Procedure Act and/or Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984).

As the parties have observed, the validity of section 1.482-1(h)(2), Income Tax Regs., has been challenged by the taxpayer in 3M Co. & Subs. v. Commissioner, T.C. Dkt. No. 5816-13 (filed Mar. 11, 2013). The Court has granted a motion to submit the 3M case for decision without trial under Rule 122, and the case is still pending. We will accordingly reserve ruling on the parties' arguments concerning the blocked income regulation until an opinion in the 3M case has been issued.

The Blocked Income Issue as I recall it from my transfer pricing forays over the years hearkens back to Commissioner v. First Sec. Bank of Utah, 405 U.S. 394 (1972), here.  In that case, in high level summary, the Court held that § 482 did not authorize the IRS to allocate income from one related company to another if state law prohibited the income from being paid.  The Blocked Income Issue is whether the foreign law prohibition upon paying royalties prohibits the IRS from allocating the income to the U.S. party.  The underlying “Blocked Income” regulations, 26 CFR 1.482-1(h)(2), here, imposes the following conditions on the First Sec. Bank results (no allocation).

(ii) Applicable legal restrictions. Foreign legal restrictions (whether temporary or permanent) will be taken into account for purposes of this paragraph (h)(2) only if, and so long as, the conditions set forth in paragraphs (h)(2)(ii) (A) through (D) of this section are met.

(A) The restrictions are publicly promulgated, generally applicable to all similarly situated persons (both controlled and uncontrolled), and not imposed as part of a commercial transaction between the taxpayer and the foreign sovereign;

(B) The taxpayer (or other member of the controlled group with respect to which the restrictions apply) has exhausted all remedies prescribed by foreign law or practice for obtaining a waiver of such restrictions (other than remedies that would have a negligible prospect of success if pursued);

(C) The restrictions expressly prevented the payment or receipt, in any form, of part or all of the arm's length amount that would otherwise be required under section 482 (for example, a restriction that applies only to the deductibility of an expense for tax purposes is not a restriction on payment or receipt for this purpose); and

(D) The related parties subject to the restriction did not engage in any arrangement with controlled or uncontrolled parties that had the effect of circumventing the restriction, and have not otherwise violated the restriction in any material respect.

I don’t propose to develop the Blocked Income Issue further here, since I am sure it has been adequately developed in the 3M case to which the Coca-Cola both referred and deferred.  Readers should just be aware that further enlightenment is coming in 3M.

JAT Comments.

Thursday, November 19, 2020

Tax Court (Judge Lauber) Issues Significant Transfer Pricing Decision in Coca-Cola; Burden of Proof Issues (11/19/20; 11/25/20)

Yesterday, the Tax Court decided The Coca-Cola Company v. Commissioner, 155 T.C. ___, No. 10 (2020), here, a transfer pricing company case in which the IRS seems to have substantially prevailed.  Transfer pricing cases are fact intensive cases.  However, in this discussion, I won’t wander through the morass of facts but rather deal with burden of proof issues that, although presented in a fact setting, can be considered at a conceptual level independent of the facts of the case.  However, I do ask that readers keep in mind that transfer pricing cases are, at bottom, simply valuation cases.

I recently wrote an article on burden of proof in tax cases.  John A. Townsend, Burden of Proof in Tax Cases: Valuation and Ranges—An Update, 73 Tax Lawyer 389 (2020), here.  In that article, I discussed the seminal case of Helvering v. Taylor, 293 U.S. 507 (1935), see discussion beginning on p. 411, here.  In that case in summary and without nuance, the Court held that in a deficiency case in the Tax Court, once the taxpayer shows the deficiency is “arbitrary and excessive,” the IRS bears the burden of persuasion (risk of nonpersuasion) to show that the taxpayer has a deficiency.  Three nuance points:  (i) I address in the article (p. 397 n. 28, here) that “arbitrary and excessive,” although stated in the conjunctive is really disjunctive; (ii) if the issue involves a deduction turning upon valuation, the taxpayer will bear the burden of persuasion with respect to value to support the deduction; and (iii) the burden of persuasion is often called the risk of nonpersuasion which is more descriptive of how the burden of persuasion performs, but I used the term burden of persuasion here.

I illustrate the key concept of the article in a simple example. Assume that the taxpayer receives property in a service income transaction.  Taxpayer reports $40 income on his tax return based on valuing the property at that amount.  The IRS determines a deficiency of tax by valuing the property at $100.  The parties litigate in the Tax Court.  The Tax Court cannot find a finite value by a preponderance of the evidence but can find a range where the low end of the range is the lowest value proved by a preponderance of the evidence and the high end of the range is the highest value proved by a preponderance of the evidence.  Let’s say that range is from $70 to $80.  (This range may also be called the range of equipoise where the Court (or other trier of fact) is in equipoise as to the valuation based on the preponderance of the evidence standard.)

In the example, Helvering v. Taylor, 293 U.S. 507 (1935) requires that the value be determined at $70 because the taxpayer has shown the deficiency determination excessive because of the excessive valuation.  The IRS thus bears the burden of persuasion as to an amount that would produce some deficiency amount.  In the example, the evidence proves by a preponderance a value of at least $70 and the Tax Court should determine the deficiency accordingly.

Sunday, November 8, 2020

The IRS Says Audit Rates Increase as Income Rises and Offers Data and Explanations (11/8/20)

The IRS offers a web page titled “Audit Rates Increase as Income Rises” (Page Last Reviewed or Updated: 03-Nov-2020), here.  The web page provides tables with data drawn for the years 2013-2015 from the 2019 Databook, Table 17a, showing that the audit rates are significant for the no total positive income returns because of the high rate of refundable EITC errors.  For positive income returns, the audit rates range from less than 1% for $1-$25,000 of positive income and up to 12% in one year and 8% in the other two years for income up to and exceeding $10 million of positive income.  

The web page explains (excerpts):

Despite common misperceptions about IRS examination rates, the reality is that the likelihood of an audit significantly increases as income grows.

Taxpayers with incomes of $10 million and above had substantially higher audit rates than taxpayers in every other income category for each calendar year from 2010 through 2015. Those with incomes above $1 million also had higher exam rates than all other groups earning less.

* * * * 

The typical audits for higher-income taxpayers involve at least three different tax years, often include related entities, and routinely take years to resolve. The highest income taxpayers face the most significant chance of an examination, and they face the most highly trained and experienced IRS agents and teams utilizing our most sophisticated tools and techniques.

One may ask, whether regardless of the audit rates, should the IRS simply audit fewer lower-income taxpayers receiving EITC? Here’s the challenge with doing that: Error rates on tax returns claiming EITC are around 50%, and the improper payment rate involving EITC claims is more than $17 billion each year. There are several factors behind why the improper payment rate is at that level – some of this is that, despite significant guidance provided by the IRS and others, people (including tax preparers) simply misunderstand the complex EITC rules, and others involve misreporting income. Each year, at the start of the tax filing season, IRS participates in EITC Awareness Day events throughout the country in an effort to increase participation by eligible people and enhance the rate of compliance.

The IRS fully appreciates the importance of the refundable EITC and the significant difference it makes for people. More than 25 million people claim EITC per year, generating more than $63 billion each year to people in need. This program lifts millions of Americans out of poverty, and the IRS is proud to work hard each year to raise awareness about the program since many, many people simply overlook claiming this important refundable credit that they are entitled to.

At the end of the day, the IRS strives to properly serve compliant taxpayers and uphold the nation’s tax laws, ranging from civil side audits and notices to criminal investigations in the most egregious cases. We face tough choices each year as far as where to deploy resources given the breadth of our responsibilities, but our choices are guided by fair and impartial audit plans throughout the process.

Friday, November 6, 2020

FTPB 2020 Update 06 – Presumptions in Litigation (11/6/20)

In the discussion of Presumptions in the 2020 editions of the Federal Tax Procedure book (Practitioner Ed. pp. 576-577; Student Ed. pp. 399-400), I quote Rule 301. Presumptions in General Civil Actions and Proceedings.  I had not updated that discussion to include the revision of Rule 301 in 2011.  (Apologies to readers.)  As revised the Rule (here) reads:

Rule 301. Presumptions in Civil Cases Generally

In a civil case, unless a federal statute or these rules provide otherwise, the party against whom a presumption is directed has the burden of producing evidence to rebut the presumption. But this rule does not shift the burden of persuasion, which remains on the party who had it originally.

As stated in the Committee Notes on Rules-2011 Amendment, the Rule was amended in 2011 solely for readability and stylistic reasons but without change in substance from Federal Rule of Evidence 301 as enacted in 1976.  That means that the discussion in the 2020 editions is appropriate for present purposes.

I have also in the working draft for the 2021 editions of the Federal Tax Procedure book made other changes in the section dealing with Presumptions.  Those changes are not materially different from the discussion in the 2020 editions, so I do not offer them now.  However, those wanting most of that nuance can find it in John A. Townsend, Burden of Proof in Tax Cases: Valuation and Ranges—An Update, 73 Tax Lawyer 389, 403-407 (2020).  (The article can be viewed and downloaded at SSRN here.)

Tuesday, November 3, 2020

Robert Frank Editorial on Decline in Enforcement Resources and Tax Evasion (11/3/20)

 Noted economist Robert H. Frank (Wikipedia here) has written an excellent NYT op-ed: Without More Enforcement, Tax Evasion Will Spread Like a Virus (NYT 10/30/20), here.  Excerpts

Few people enjoy paying taxes, but as Oliver Wendell Holmes Jr. reminded us, “Taxes are what we pay for civilized society.” On reflection, most of us therefore offer at least implicit support for penalties against tax evasion — penalties that have little meaning unless backed by significant enforcement resources.

Yet prodded mainly by anti-tax Republicans, Congress has cut the Internal Revenue Service budget steadily since 2011. By 2019, the agency was auditing only one in every 222 individual returns, down from one in 90 in 2011. Similar reductions have occurred for corporate returns, and were proportionately larger for the wealthiest individuals and largest corporations.

These cuts have not saved the government money. The former I.R.S. commissioner John A. Koskinen estimated, for example, that every $1 trimmed from the agency’s budget has resulted in $4 in lost revenue. But this estimate refers only to direct, or first-round, losses. Because the extent to which people comply with tax laws depends strongly on the behavior of others around them, the ultimate revenue losses are certain to be much larger.

* * * *

What the reductions in I.R.S. funding will continue to unleash, then, is a characteristic feature of all behavioral contagion processes: an explosive chain of feedback loops that greatly amplify any initial change in behavior.

Monday, October 26, 2020

Two Updates on Syndicated Conversation Easements (10/26/20)

I report in brief two recent developments in syndicated easement cases that have been the focus of so much IRS audit and investigation activity and Tax Court cases.

First, In Pine Mountain Preserve, LLLP v. Commissioner, ___ F.3d ___ (11th Cir. 2020), here, the Eleventh Circuit reversed the Tax Court and held “(1) that the 2005 and 2006 easements satisfy § 170(h)(2)(C)’s granted-in-perpetuity requirement, (2) that the existence of an amendment clause in an easement does not violate § 170(h)(5)(A)’s protected-in-perpetuity requirement, and (3) that the Tax Court applied the wrong method for valuing the 2007 easement.”  I will not dive into the legal issues in those holdings since they do not involve tax procedure (independent of the underlying substantive tax law issues).  

The valuation issue is interesting, though, because the Eleventh Circuit said that the Tax Court appeared to just "split the baby" on valuation.  (See Slip Op. pp. 9 & 21-24.)  At least, the myth is that courts having to deal with tough valuation issues often just split the baby (choose a mid-point between the parties' valuation positions) or come close to the midpoint with a variance masking that, really, they did just split the baby.  In valuation lingo, that looks like the fact finder (courts here) are in equipoise on some range of values around that mid-point.  See John A. Townsend, Burden of Proof in Tax Cases: Valuation and Ranges—An Update, 73 Tax Lawyer 389 (2020), available here on SSRN.

The Eleventh Circuit required that, on remand, the Tax Court value the easement contribution based on the regulations in  § 1.170(A)-14(h)(3)(i) which, as I understand in the case will require that the contribution be valued as follows: (i) value the whole property on the date of the contribution; (ii) value the taxpayer’s remaining interest in the property (as burdened by the easement), and (iii) deduct the difference.  In many of the conservation easement cases and certainly the abusive ones, the devil is in the valuations.  Taxpayers often overstate the “before” value and understate the “after” value resulting in inappropriate charitable contributions.  (That is setting aside unique abuse in unique methodologies other than the methodology in the regulations.)

Second, in AM 2020-010 (10/5/20), here, the IRS attorney gave advice on the following subject:  Determining the Fraud Penalty in TEFRA Syndicated Conservation Easement Cases.  The TEFRA audit and litigating regime has been replaced for years beginning in 2018 by the centralized partnership audit regime enacted in the Bipartisan Budget Act of 2015, but there are still plenty of TEFRA cases in the audit and litigation pipeline that can be subject to the analysis in the memorandum.  The summary conclusion is:

Saturday, October 24, 2020

Corporate Taxpayer (AIG) "Settles" Tax Shelter Litigation Admitting Tax Shelters Were Shams (10/24/20)

 The SDNY U.S. Attorney (Acting) issued this stunning press release yesterday:  Acting Manhattan U.S. Attorney Announces Settlement Of Tax Shelter Lawsuit Against AIG For Entering Into Sham Transactions Designed To Generate Bogus Foreign Tax Credits (USAO 10/23/20), here.   Key excerpts for this blog entry (most of the release) are:

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, announced today the settlement of a tax refund lawsuit brought by insurance and financial services company AMERICAN INTERNATIONAL GROUP, INC. (“AIG”) involving seven cross-border financial transactions that the United States asserted were abusive tax shelters designed to generate bogus foreign tax credits that AIG improperly attempted to use to reduce its tax liabilities in the United States.  AIG filed this tax refund lawsuit in 2009, seeking to recover disallowed foreign tax credits and other taxes related to the 1997 tax year.  The United States obtained overwhelming evidence that these transactions lacked any meaningful economic substance, were devoid of any legitimate business purpose, and instead were designed solely to manufacture hundreds of millions of dollars in tax benefits to which AIG was not entitled.  According to the terms of the settlement, approved yesterday by United States District Judge Louis L. Stanton, AIG agreed that all foreign tax credits that AIG claimed for the 1997 tax year and all later tax years for these same transactions, totaling more than $400 million, would be disallowed in their entirety.  AIG further agreed to pay a 10% tax penalty.

Acting U.S. Attorney Audrey Strauss said:  “AIG created an elaborate series of sham transactions that were designed to do nothing – and in fact did nothing – other than generate hundreds of millions of dollars in ill-gotten tax benefits for AIG.  Our system of taxation is built upon the premise that all citizens and corporations must pay the taxes they owe, no more and no less.  People and companies who game that system to avoid paying their fair share of taxes undermine public trust in our tax laws.  We will continue to be vigilant in holding accountable those who use economically empty transactions to avoid paying their taxes.”

As alleged in filings in Manhattan federal court:

During the mid-1990s, AIG Financial Products Corp. (“AIG-FP”), a wholly-owned subsidiary of AIG, designed, marketed, and entered into seven cross-border structured finance transactions with various foreign banks.  These complicated transactions, involving hundreds of agreements, numerous shell companies, and intricate cash flows, had no economic substance but rather exploited differences in U.S. and foreign tax laws to create profits from U.S. tax benefits.  In particular, the transactions generated more than $400 million in foreign tax credits that AIG used to reduce its U.S. tax liabilities.  The U.S. has a worldwide tax system that taxes companies on income earned abroad, but also grants credits for foreign taxes paid.  AIG, was able to turn a profit by obtaining credits from the U.S. Treasury for foreign taxes it did not actually pay in full.  AIG obtained more than $61 million in foreign tax credits during the 1997 tax year alone, the tax year resolved by the settlement. 

In 2008, the Internal Revenue Service (“IRS”) issued a Notice of Deficiency to AIG that, among other things, disallowed the foreign tax credits AIG had claimed in connection with the seven transactions and asserted a 20% tax penalty.  In 2009, after paying the deficiency, AIG filed a lawsuit against the United States in Manhattan federal court challenging the IRS’s determination and demanding a refund.  In response, the United States asserted that the IRS had correctly disallowed the tax benefits because the transactions had no economic substance, a basic requirement for seeking tax benefits. 

According to the terms of the Settlement, AIG agreed that all foreign tax credits that AIG claimed in connection with the seven cross-border transactions that were the subject of the litigation would be disallowed in full for the 1997 tax year and all subsequent tax years during which the transactions were operating, totaling more than $400 million.  AIG further agreed to pay a 10% penalty.  The settlement allows AIG to retain certain income expense deductions relating to six of the transactions that were structured as borrowings, as well as remove certain amounts related to the transactions from its taxable income.  In addition, the settlement resolves certain of AIG’s tax refund claims unrelated to the cross-border transactions stemming from AIG‘s restatement of its publicly filed financials.

One nuance not in the press release is that the press release suggests that the penalty is 10%.  The IRS originally proposed a substantial understatement penalty and a negligence penalty.  Both of those penalties are 20% but only one can apply, so that the taxpayer's maximum exposure before the settlement was 20%.  Under the settlement, the taxpayer concedes the substantial understatement or negligence penalties for the bullshit transaction.  (See paragraph 7 of the Stipulation and Order of Settlement.)  That might suggest that the settlement could be read to imply some level of merit in the taxpayer's position, although I suspect that, from the Government's perspective, it was viewed that as simply a nuisance cost to the Government to resolve this bullshit litigation without expenditure of resources required to litigate the matter.

Of course, large corporations who should know better making sham (aka bullshit) tax shelter claims are not particularly unusual as I have noted on this blog.  But this litigation has one nuance that jumped out that I had not really focused on before – that is, the role of counsel bringing suits to sustain tax shelters that are shams.  I guess that problem lurked in all of the other civil litigation involving bullshit tax shelters.  But it just hit me here.  (I never personally had to face that issue because over my career of practice, I declined to represent taxpayers or promoters in civil tax cases involving bullshit tax shelters; although I do have an anecdote about that which I recount at the end of the blog.  See JAT Comments par. 2)

The question I ask is how exactly does an attorney sign the initial pleading and otherwise participate in a suit, either in the Tax Court or in one of the refund forums (district court or Court of Federal Claims), alleging that a sham tax shelter is entitled to the claimed tax benefits?  OK, I know, the argument is that sham is in the eye of the beholder so long as the technical tax traps appear to be checked off (even when sometimes they are not)?  The question I ask and cannot answer here is what is the role of the lawyers making such claims in litigation?  But, just think about how much energy (creative and  otherwise), time and resources were spent unnecessarily in creating the sham tax shelter to start with and then marshaling it through the administrative audit process (audit and appeals) and litigation before the taxpayer admitted the whole deal was a sham.  Isn’t there some better way to deploy our resources?

Thursday, October 22, 2020

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.

Thursday, October 8, 2020

New IRM provision on Offers in Compromise Including FBAR Penalties (10/8/20)

 I just picked up this provision in the IRM, here:

5.8.4.24.2 (09-24-2020)

Foreign Bank and Financial Reporting (FBAR) Assessments

An offer may be submitted which includes FBAR assessments or a taxpayer who submitted an offer to compromise their tax liabilities also has assessments based on FBAR. Since, the IRS does not have authority to compromise assessments based on FBAR, the taxpayer should be requested to submit an amended offer to remove FBAR liabilities which are included on the Form 656.

Note: FBAR penalties are assessed under Title 31 and do not appear in IDRS.

If the taxpayer has a liability for assessments under FBAR, an offer for tax liabilities other than the FBAR may be investigated. During the review of the taxpayer’s financial information, the OE/OS should conduct additional investigation actions to determine if the taxpayer continues to have assets outside the United States. Review the ICS history to determine what research may have been conducted by a field revenue officer. The OE/OS may also issue an other investigation (OI) to an ATAT or International RO group to research FinCEN and/or CBRS to assist in identifying current foreign assets in which they retain an interest.

Note: The taxpayer may also have pending assessments related to Offshore Voluntary Disclosure Initiative.

If the taxpayer is unable or unwilling to submit an amended offer removing the FBAR liabilities, the offer should be closed as a processable return.

JAT Comments:

1.  I am not sure how or if compromises of the FBAR penalties may be achieved.  I assume that there is some way to do that outside the IRS processes for tax liabilities.

2.  The known route to compromises of tax liabilities may be a side benefit of avoiding an FBAR penalty assessment under the various IRS programs (e.g., OVDP and Streamlined) where a substitute penalty is assessed as a miscellaneous tax penalty (sometimes called the “in lieu of” penalty).

This blog is cross-posted on the Federal Tax Crimes Blog, here.

Thursday, September 24, 2020

Occam’s Razor and the Distinction Between Legislative and Interpretive Regulations (9/24/20)

I have previously said that the Administrative Procedure Act ("APA") distinction between legislative and interpretive regulations does not address deference.  I did, however, address both the APA and deference in my article, Townsend, John A., The Report of the Death of the Interpretive Regulation Is an Exaggeration (August 23, 2020). Available at SSRN: https://ssrn.com/abstract=3400489.  But, I did not tie the two together as crisply as I should have. 

I recently realized, although they are different “regimes” – APA (including the legislative / interpretive regulation divide in the APA) and deference – they do address the same issue in the same way.  Indeed, the APA distinction between legislative and interpretive regulations was based on a similar distinction that applied to under pre-APA law for deference to agency interpretations and the related concept of retroactive application of agency interpretations (generally retroactivity the norm for interpretive regulations and generally prospectivity the norm for legislative regulations). 

Before and after the APA, the distinguishing difference between legislative and interpretive regulations is:  (i) the legislative regulation based on express authority to create the law (create a new obligation or right) is the law, with necessarily the force of law (example, § 1502 for consolidated return regulations); and (ii) the interpretive regulations based on express or implied authority to interpret otherwise ambiguous statutory text within the scope of the ambiguity, but does not add any new right or obligation within the scope of the statutory text (example § 162's away from home statutory text addressed in United States v. Correll, 389 U.S. 299 (1967)).  That was true before the APA, so when Congress used the APA used the legislative / interpretive concepts (called interpretative in the APA), that was the background that defined those terms in the APA and informed both Congress and original public readers of the APA as to their meanings.

What that means is that, if a regulations interpretation is entitled to deference, now called Chevron deference (as a reasonable interpretation within the scope of ambiguity in statutory text), the regulation is an interpretive regulation rather than a legislative regulation for both APA purposes and for deference.  Simply because a court defers to an agency regulations interpretation does not mean that the regulations interpretation has been magically transformed into a legislative regulation.  (Courts do sometimes state that deferring to a reasonable agency interpretation (say Chevron Step Two) gives the interpretation the force of law, a distinguishing characteristic of a legislative regulation; I do address that misunderstanding in some detail in the article, but bottom-line, force of law is a consequence of a legislative regulation after it is determined to be a legislative regulation rather than a test of whether the regulation is legislative to start with.)

As I reflect on it, sometimes the simplest explanation is the best explanation.  That is a variation of Occam’s Razor (with Occam variously spelled and sometimes called the law of parsimony).  See Wikipedia Enter, Occam’s Razor, here (noting that it is variously paraphrased by statements like "the simplest explanation is most likely the right one").

I will likely revise my article above to correct some errors, add some nuance, and incorporate this simpler explanation.

Wednesday, September 23, 2020

FTPB 2020 Update 04 - Correction on GATT Corporate Overpayment Interest (9/23/20)

The 2020 editions erroneously describe the regular corporate interest rate (2% above the federal rate) as the "GATT" rate.  The special reduced rate (.5% above the federal rate or 1.5% lower than the regular corporate overpayment rate) is the GATT rate.  The following are the corrections to paragraph III.B.2. subparagraphs a. and b.).  

a. General 1% Reduction.

For corporations, however, the overpayment interest rate is reduced by one percent (i.e., the rate is the short-term federal rate plus 2 percent rather than 3 percent).  § 6621(a)(1).  For the third quarter of 2020, this interest rate is 2%. 

b. Reduction for Corporate Overpayments Over $10,000.

There is a critical exception–for corporate overpayments exceeding $10,000–the short-term federal rate is only increased by 0.5 percentage points.  § 6621(a)(1) (flush language).  (This reduced interest rate is often referred to as the “GATT rate”).  Mathematically, the interest rate is 1.5% lower than the regular corporate rate discussed above.  For the third quarter of 2020, this interest rate is 0.5 %. 

As you can see, this low interest rate is a powerful incentive for corporations not to loan money to the Government via overpayment of taxes, because they can likely achieve a better return elsewhere.  (By the same token, of course, as noted above, the large corporate underpayment interest premium–the so-called “hot interest” in § 6621(c)–creates a powerful incentive to avoid being a debtor to the Government at least after the IRS makes the critical determinations of additional tax due and owing; in short, there are incentives for corporations to better manage the due tos and due froms in the tax area.)  Although S Corporations are normally not subject to tax, sometimes they can be; the court opinions conflict as to whether any overpayment by S Corporations will be subject to this reduced interest rate.  This reduction is also applied to any amounts due by the Government that are treated as a tax for purposes of calculating interest on the amounts due, such as, for example, interest due on wrongful levies.

Saturday, September 19, 2020

Sunstein Blog and Article Concluding that Chevron Deference is Consistent with Original Public Meaning of the APA (9/19/20)

In my Federal Tax Procedure Book, I deal with administrative law issues, particularly the Administrative Procedure Act (“APA”) and deference.  I have also written articles on the intersection of the tax law with these subjects.  The most recent is Townsend, John A., The Report of the Death of the Interpretive Regulation Is an Exaggeration (August 23, 2020), SSRN: https://ssrn.com/abstract=3400489.

I offer today an excellent blog posting -- Cass R. Sunstein, Chevron Is Not Inconsistent with the APA (Notice & Comment 9/16/20), here.  Sunstein (bio here) is a professor of law at Harvard Law School where he teaches administrative law and has a distinguished career in academia and government.  The linked blog entry is a summary of a key and somewhat startling conclusion he reached in another article published in recently, Cass R. Sunstein, Chevron As Law, 107 Geo. L.J. 1613 (2019), here, (the discussion is on pp. 1641, here, through 1657.

In Sunstein's blog, as well as in his article, Sunstein argues that the APA § 706 requirement that courts “shall decide all relevant questions of law” is not inconsistent with Chevron deference.  Sunstein apparently initially took the literal text of § 706 to mean that courts should decide interpretations of law de novo which eliminate deference to agency interpretations.  Of course, the APA was enacted in 1946, long before Chevron was decided in 1984 (Chevron U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1984)).  But, as Sunstein claims in his blog (as do I in my article), deference to reasonable agency interpretations much like Chevron deference was a feature of the standard of review in the federal courts before the APA was enacted and § 706 did not affect that standard of review.  As a result, the original public meaning—a mantra for textualists—of § 706 accommodated and allowed deference, much like Chevron deference.  Hence, the conclusion is that the hyperbolic claims about § 706 as mandating de novo judicial interpretation without deference are just wrong. 

Based on his research (tracking my own) he says that there was robust authority for deference at the time of the APA.  He says:  

Nothing in the legislative history of the APA repudiates these decisions. I repeat: Nothing. One more time: Nothing. (In a whisper, a shout: Not a word. Nothing.) That’s stunning. I confess that it astonished me.

And, the trajectory of cases soon after the enactment of the APA carrying forward deference is evidence that no one understood § 706 to have anything to do with deference.

He concludes:

In short: Many people think that Chevron is inconsistent with the original public meaning of the APA. But an investigation of the context makes it exceedingly difficult to defend that view.

JAT Comment:  Exactly.

Wednesday, September 2, 2020

FTPB 2020 Update 03 – Central IRS Web Site for BBA Centralized Partnership Audit Regime (9/2/20)

The IRS has announced a new website “intended to be  one-stop location for anything BBA-related, including regulations and other guidance and instructions related to the Partnership Representative (PR), electing out of the centralized audit regime, Administrative Adjustment Requests (AARs) and what to expect during a BBA administrative proceeding.”  IR-2020-199 (9/1/20), here.  The web site, titled “BBA Centralized Partnership Audit Regime” is here.

As of now, the web site has categories for links for (i) Filing Requirements, (ii) BBA Partnership Audit, (iii) Regulations and Interim Guidance, and (iv) a handy chart comparing partnership procedures under TEFRA and BBA.

This web page will be a key resource for the “BBA Centralized Partnership Audit Regime.”

I will try to go through the linked items in advance of the 2021 editions of the Federal Tax Procedure Book.


Tuesday, September 1, 2020

District Court Sustains FBAR Willful Penalty But Rejects Fraudulent Failure to File Penalty for Income Tax (9/1/20)

 In United States v. DeMauro (D. N.H. Dkt. 17-cv-640-JL Order and Verdict After Bench Trial dtd. 8/28/20), CL here, the Court sustained the FBAR willful penalty but rejected the fraudulent failure to file penalty.  In both cases, in broad strokes the conduct penalized is the same.  If that statement is correct, the difference in outcome is based on the differing burdens of persuasion.  The Government must prove application of the FBAR willful penalty by a preponderance of the evidence; the Government must application of the fraudulent failure to file penalty by clear and convincing evidence.

The willful FBAR penalty requires that the conduct penalized (failure to report) be willful.  In the FBAR civil penalty context, the Courts have held willfulness is (i) specific knowing failure to file (more or less the Cheek standard) or (ii) willful blindness or reckless disregard of the obligation to report.

The fraudulent failure to file penalty, like the civil fraud penalty for filed returns companion in § 6663, requires fraud.  The following is from my Federal Tax Procedure Book in discussing civil fraud under § 6663, but the same applies for the fraudulent failure to file:

The Code does not define fraud, but it may be viewed as the civil counterpart of criminal tax evasion in § 7201. n1 Examples of how courts have stated civil fraud under § 6663 are:  (i)  civil fraud requires “intentional commission of an act or acts for the specific purpose of evading tax believed to be due and owing”; n2 and (ii) civil fraud requires that “the taxpayer have intended to evade taxes known to be due and owing by conduct intended to conceal, mislead or otherwise prevent the collection of taxes and that is an underpayment.”n3  In making the determination, as with criminal cases, courts will often look to certain common patterns indicating fraud–referred to as badges of fraud, such as unreported income, failure to keep adequate books, dealing in cash, etc.n4  The key differences between the two is that § 6663 is a civil penalty and has a lower burden of proof (clear and convincing rather than beyond a reasonable doubt) as I note later.
   n1 Anderson v. Commissioner, 698 F.3d 160, 164 (3d Cir. 2012), cert. denied 133 S. Ct. 2797, 133 S. Ct. 2797 (2013) (“the elements of evasion under 26 U.S.C. § 7201 and fraud under 26 U.S.C. § 6663 are identical.”).
   n2 Erikson v. Commissioner, T.C. Memo. 2012-194.
   n3 Nelson v. Commissioner, T.C. Memo. 1997-49; Zell v. Commissioner, 763 F. 2d 1139, 1142-1143 (3rd Cir. 1985) (“Fraud means "actual, intentional wrongdoing, and the intent required is the specific purpose to evade a tax believed to be owing.”); and Fiore v. Commissioner, T.C. Memo. 2013-21 (“Fraud is the ‘willful attempt to evade tax’” and using the criminal law concept of willful blindness to find the presence of civil fraud; note that, in the criminal law, the concept of willful blindness goes by several names.)
   n4 E.g., Kosinski v. Commissioner, 541 F.3d 671, 679-80 (6th Cir. 2008).  For use of a negative inference from assertion of the Fifth Amendment privilege in concluding that the IRS had met its burden of proving civil fraud by clear and convincing evidence, see Loren-Maltese v. Commissioner, T.C. Memo. 2012-214.

Sunday, August 30, 2020

Citing History in Support of Statutory Meaning (8/30/20)

This is an interesting post on history of legislation in arguing for or explaining the legislation.  Eugene Volokh, TMH (Too Much History), a Form of TMI: Advice for Law Students and Young Lawyers (The Volokh Conspiracy 8/23/20), here.  Professor Volokh laments that, in arguing or just stating a position, writers often provide too much history rather than stating what the law (statute) is. 

An excerpt (longer):

One should generally resist this temptation. Judges are busy people, whose main goal is to figure out the law that is currently applicable to these facts, and then to apply it. The history is sometimes relevant to understanding current law, but often it's not. Give no more history than necessary to show the current law; and that's often zero history, especially if there's a solid binding precedent you can quote for the current rule.

My sense is that such TMH often stems from what I call the "data dump" impulse: You've done a lot of research, learned a lot (including the history of how the law developed), and now you feel like putting it all down on paper. That's fine—but once you write it down, go back over it in your editing passes, and delete everything that's not really necessary to proving and applying the current rule.

Of course, sometimes there's Not Enough History; sometimes understanding how the law developed helps explain what some ambiguous term means, and how it applies in this case. (Perhaps, for instance, you might think that the judge could be distracted by the Gertz principle, which he might already know; if so, you might note that Dun & Bradstreet limited Gertz to speech on matters of public concern.)

But even then, I suggest stating the current rule at the outset, which may help you see just what history you need to include to supplement the current precedent. And in my experience, TMH is much more common in law students' work than Not Enough History.

JAT Comments:

Monday, August 24, 2020

Updated Article: The Report of the Death of the Interpretive Regulation Is an Exaggeration (8/24/20)

I have updated my prior posting on SSRN of my article titled:  The Report of the Death of the Interpretive Regulation Is an Exaggeration.  I did make some significant changes.  The citation and the link in SSRN recommended format is

Townsend, John A., The Report of the Death of the Interpretive Regulation Is an Exaggeration (August 23, 2020). Available at SSRN: https://ssrn.com/abstract=3400489

The significant revisions are:

  • I provide more discussion to refute the notion that APA § 706 requires de novo review without  deference to agency interpretations.  (See pp. 74-76.)  APA § 706 provides:  “To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions,”
  • I add some more discussion on the anomaly of the spurious notion that when agencies interpret ambiguous statutory text they are legislating but when courts interpret ambiguous statutory text they are not legislating.  (See pp. 59-60.)
  • I significantly revised the opening discussion of the myth of tax exceptionalism.  (See pp. 8-11; see also p. 110.)  The argument is the same, but stated in a more logical way (I think).
I have made numerous other changes that I hope improve the article but the ones identified above are the significant changes.

Friday, August 14, 2020

FTPB 2020 Update 02 - Revised Editions of Federal Tax Procedure Book for Technical Corrections (8/14/20; 8/15/20)

As Revised 8/15/20

In the original editions of the Federal Tax Procedure Book the headings below the Chapter level in Chapters 16 and 17 were omitted.  In addition one heading in Chapter 18 was omitted.  In order to correct the Table of Contents and certain other very minor matters, I posted new editions on SSRN as of 8/15/20.  Please download the new editions for those corrections.  The content of the 8/15/20 editions is not materially changed from the 8/1/20 editions, but, because of how WordPerfect formats, the page numbers in the new editions may not exactly match those in the editions originally published on SSRN on 8/1/20.  The links to SSRN for download are on the page to the right titled Federal Tax Procedure Bookhere.


The Cumulative List of Updates is on the page at the right, titled "Federal Tax Procedure Book Updates," here.  The blog entries for updates may be viewed on the Label titled FTPB 2020 Updates, here.