The Unspotted Issue in an Audit; Ethics and Crimes (7/24/20; 8/2/20)

In an ABA Tax Section Court Procedure Virtual meeting on Wednesday, there was a one-hour discussion of ethical issues in handling a matter in the Tax Court.  The participants in the discussion were:

• Judge L. Paige Marvel, United States Tax Court, Washington, D.C.
• Elizabeth G. Chirich, Chief, Branch 1, Procedure & Administration, IRS Office of Chief Counsel, Washington, D.C.
• Guinevere Moore, Moore Tax Law Group, LLC, Chicago, IL
• Kandyce Korotky, Covington & Burling, Washington, D.C. (Moderator)
• Mitchell I. Horowitz, Buchanan Ingersoll & Rooney P.C., Tampa, FL

The discussion was excellent.  I highly recommend those who can access the recording of the event on the ABA web site to do so.  (I would provide a link but have not yet located the link, perhaps because the recording has not yet been put up.)

During the discussion I posted two questions which, apparently because of time, the participants did not respond to.  I offer the questions and some comment here.  The questions were:

1.        Question : What if the IRS sets up only one issue in the notice of deficiency and the IRS never spotted a big issue involving omitted income. There is no real gray area in the unspotted issue; the taxpayer clearly would owe tax if the unspotted issue were fully litigated (indeed taxpayer's counsel did not think she could even make a nonfrivolous argument that the omitted income should not have been included). After filing the petition, IRS Counsel offers to concede that one issue (the spotted issue in the NOD) and sends a stipulated decision document saying that the deficiency is $0. Because the taxpayers' counsel knows that stipulation that there is no deficiency is not true, can the taxpayers' counsel sign the stipulated decision?
2.        Question: This may be a philosophical question rather than one you can answer here:  What good are ethical rules when they don't provide answers -- i.e., when different ethical lawyers acting ethically can reach different conclusions -- does that simply reward the aggressive attorney (who may even be a lawyer who charges for the benefit offered to the taxpayer by being aggressive within the ambiguities -- even creative ambiguities -- in the ethical rules) and the taxpayer engaging this ethically aggressive attorney?  And would about the more conservative ethical attorney and his client?  Is the ethically conservative attorney providing less than ethically aggressive representation then not zealously representing the client?  There is more but I'll stop there?

The second question is more philosophical, so I will focus on the first question.  Here is the key background:

Supreme Court Notes of Revisions to Slip Opinions (7/15/20)

Readers of Supreme Court Slip Opinions have undoubtedly noticed the following caveat at the beginning of the majority or plurality opinions:

NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D.  C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.

So, I suppose that if you are working from the Slip Opinion that you downloaded or perhaps cut and pasted in whole or in part (as I often do), it would behoove you to check for revisions.  I assume that the various standard services (WestLaw, Lexis-Nexis, etc.) routinely update their versions of the opinions for that, so users of those services can be reasonably assured that they are working from opinions with the revisions.  (I don't know whether those services alert readers that the text has been revised and, if so, what text was revised.)  But those working from the Slip Opinion (unless viewed on the web site that) should check for the revisions.

I just learned today that there is a way to determine whether the original Slip Opinion has been revised.  The Court publishes notice that opinions have been revised.  You have to look in a particular place, because my docket search for one case for which the Slip Opinion had been revised did not show that the opinion had been revised.  See e.g., the docket for Seila Law LLC v. CPFB, ___ U.S. ___, ___ S.Ct. ___ (2020).  The opinion is here and the docket is here.  Neither indicate that the opinion has been revised.

The Court's notice of revision appears in a reverse chronological list of opinions by term, that links to the opinion and shows, with links, the date(s) of revisions, if any. The list is here.  For the Seila Law opinion originally rendered in June 2020, noted above, the list shows as of today a revision on 7/8/20 and the linked document showing the revisions is here.  My quick review of the decided cases for the 2019 term did not indicate any revisions in tax cases.

I suppose there might be other places on the Court's website where changes are noted, but I don't know of them.  The safer bet would be to review the list linked above.

My thanks to an article in the Supreme Court Brief email today by Tony Mauro from Law.com under the title “Revisions in Decisions.”  The article notes that the Supreme Court began publishing notes of revisions in 2015 in response to a law review article critiquing the practice of otherwise secret revisions.  Prior to the new practice, when the Slip Opinion was revised, the Slip Opinion was changed on the Court’s site but no notice of where the revision was made was given.  Since 2015, the Court has given notice as indicated above.  The article notes:

Some of the revisions are minor but amusing, as in 2018 when Justice Stephen Breyer, a French-speaking francophile, misspelled “laissez faire” as “lassez faire.” But other revisions have some significance. Here are the changes made in June 2020 decisions: 

>> In Seila v. CPFB, Justice Clarence Thomas made reference to the 1988 Morrison v. Olson decision and “all nine members” who participated in the case. The revision clarified that Morrison was ruled on by eight justices, with Justice Anthony Kennedy recused. 

>> In Financial Oversight and Management Board for Puerto Rico v. Aurelius Investment Justice Sonia Sotomayor, in a concurrence, wrote that the “people of Puerto Rico approved the modified Constitution” of Puerto Rico in 1952. The revision stated that, in fact, Puerto Rico’s “constitutional convention approved the modified Constitution.” 

>> Three days later, a second change in Sotomayor’s concurrence established that after the convention was approved, “the people of Puerto Rico subsequently ratified modifications in another referendum.”  

So far, no revisions have been made in the 10 decisions issued by the court in the spillover period of July. 

Baude NYT Opinion Piece on Originalism and My Questions (7/10/20; 7/13/20)

I alert readers to William Baude's excellent opinion piece in NYT yesterday:  Conservatives, Don’t Give Up on Your Principles or the Supreme Court (NYT 7/9/20), here.  For persons interested in constitutional interpretation (and the subset of statutory interpretation, both being interpretations of law), I recommend the article.  Baude, here, is a professor at the University of Chicago Law School.  I have cited Baude frequently on this blog.  See here.

I was going to leave a comment on the NYT page addressed to Professor Baude (although not expecting him to respond to a comment on the News page but hoping to draw responses from others).  But, alas, I could not figure out how to leave a comment.  So, I will post here my intended comment to the opinion piece in the hope that any of the readers here might want to comment either on this blog page or by email to me at jack@tjtaxlaw.com.

The comment is:

I address this question to Professor Baude (who is probably too busy to respond) but encourage anyone else having ideas on my comments to weigh in. 

Professor Baude, 

I read your NYT op-ed today with great interest, since I became interested in statutory (and, by extension,  constitutional) interpretation incident to teaching tax procedure at the University of Houston law school.  I have read a lot of your work and find it generally excellent, even when I do not necessarily agree with it.  Always worth considering.  So thank you for your continuing offerings on this subject. 

You say good things about originalism.  I am curious about what brand of originalism you find most attractive.  For constitutional interpretation, my sense is that most originalists claim that they search for the "original public meaning." Original public meaning is not what the drafters meant by the text drafted and approved but what some mythical contemporaneous public person not involved in the legislative process would have interpreted the words to mean.  Jed Rakove tongue in cheek says that might be Joe the Ploughman.

Whose Intent is Relevant for Interpreting Text -- the Drafters of the Text (Constitution or Statute) Or the Mythical Contemporaneous Public Person, Say Joe the Ploughman? (7/8/20)

In Chiafalo v. Washington, ___ U.S. ___, ___ S.Ct. ___ (7/6/20), here, the Court held (from the Syllabus):  “A State may enforce an elector’s pledge to support his party’s nominee—and the state voters’ choice—for President.”  I’ll just take that bare holding (without nuance) as stated in the quote.  What I want to address today is the majority opinion in which the draft, Justice Kagan, and seven other Justices joined (except that Justice Gorsuch joined Justice Thomas’ consent for the part relevant to this discussion).

I speak here of the proper referent when looking to the original meaning of text—in this case, constitutional text but also including legislative text.  Much bandied about by conservatives and libertarians is the notion of “original public meaning” which is usually refers to the meaning that some hypothetical hearer or reader of the text (constitutional or legislative) might give the text at the time of adoption or enactment.  In Bostock v. Clayton County, 590 U.S. ___, ___ S.Ct. ___ (6/16/20), here, a statutory interpretation case, the Justices seem to sign onto the notion that original public meaning was the proper referent rather than the intent of the legislators.  See Supreme Court Case on Statutory Interpretation (Federal Tax Procedure Blog 6/16/20; 6/24/20), here.

In Chiafalo, a constitutional interpretation case, the majority did not mention any notion of referring to original public meaning and instead referred to the words of the Constitution and the words of the Framers.  In his dissent, Justice Thomas takes the majority to task on this issue as follows (dissenting opinion p. 12):  “[T]he Framers’ expectations aid our interpretive inquiry only to the extent that they provide evidence of the original public meaning of the Constitution.”  The majority opinion does not frame its use of the Framers’ words as being used solely to determine the original public meaning.

So, which is it?  I don’t know.

I do know that the drafters of constitutions or legislation is done not by mythical members of the original public but by duly chosen representatives (either in a constitutional convention or a legislature).  They were chosen to act for the constituencies they represented.  If representative democracy means anything, surely it means that these chosen representatives speak for the communities they represent and their intentions mean something.  What are they—potted plants?  (Evoking the famous words of Brendan Sullivan in the congressional hearings in the Iran-Contra scandal, see Wikipedia here.  To know what their intent (and by representation their constituencies’ intent), what they said is relevant  to the interpretation of the text.  What some mythical person at the time, like Joe the Ploughman, might have thought the words meant is not really relevant in a representative democracy.  (On Joe the Ploughman, see Jack N. Rakove, Joe the Ploughman Reads the Constitution, or, the Poverty of Public Meaning Originalism, 48 San Diego L. Rev. 575 (2011), here.)  If we are talking about lenity or some similar concept for penalties, that is another issue because the public's ability to discern the meaning from the text is relevant, but if outside that context, the drill ought to be to interpret the statute in a manner consistent with the text and the intent of the representative drafters.

That is why I continue to think that, particularly in my field of interest (taxation), the legislative history is worthy of consideration.  Generally, tax legislative history is pretty good because of the quality of the nonpartisan Joint Committee Staff that has a substantial hand in the process of producing legislative history.  That does not mean legislative history should control.  Some legislative history is persuasive; some is not.  Like any other evidence, the judge must be discerning.  It is their job to be discerning and not throw out the baby with the bath water.

Federal Circuit Holds that Refund Suit for Overpayment Interest is in the Federal Circuit.(7/4/20; 7/6/20)

In Bank of America v. United States, ___ F.3d ___ (Fed. Cir. 7/2/20), here,  the Federal Circuit rejected the District Court for the Western District of North Carolina’s claim of jurisdiction over the taxpayer’s claim for refund of overpayment interest.  OK, you might ask, what was the trajectory from the W.D. N.C. to the Federal Circuit?  There is a story there but I am not going to dive into it.  Those wanting to know my previous ruminations on that trajectory can read the opinion and might review:  Pfizer Suit for Overpayment Interest Transferred to CFC for Tucker Act Jurisdiction (Federal Tax Procedure Blog 9/12/19; 9/25/19), here.  Added 7/6/20 12:00 pm:  For an excellent discussion on the merits, see Bob Probasco, The Tide Keeps Going Out, Carrying Overpayment Interest Suits Away from District Courts (Procedurally Taxing Blog 7/6/20), here.

Just to summarize the holding, the Court of Appeals for the Federal Circuit held that jurisdiction was properly in the Court of Federal Claims at the trial level rather that some taxpayer preferred forum choice of the district court in North Carolina (to avoid unfavorable precedent in the Federal Circuit).  In many cases involving tax issues, forum choices work in the favor of the taxpayer, but not this one.  The opinion is short, so I recommend that readers actually read it and even savor it.

I do note for those who are fans of the litigation and appeals process, the opinion does offer some lessons about what not to do.  Most importantly, what not to do is to irritate the Court of Appeals (or, really, any court for that matter).  I infer that Counsel for Bank of America did not avoid irritating the Court of Appeals.  A key excerpt is:

[*6]
Thus, the District Court concluded, with minimal additional analysis, that it had jurisdiction over the Merrill Lynch overpayment interest claims, including those exceeding $10,000. See id. at *4. n3
   n3 Although asked repeatedly to explain the lack of analysis in the District Court’s Order, counsel for Bank of America failed to provide any explanation. See Oral Arg. at 18:43–21:05, http://oralarguments.cafc.uscourts.gov/default.aspx?fl=2019-2357.mp3.

Appellate advocacy 101 which I learned while with DOJ Tax Appellate Section back in the old days was to answer the Court’s questions even when the answer may not be good for the client (in my case then, the United States/IRS).

Also, I just note briefly the Court’s excursion into legislative history.  Consider the Court’s introduction into that subject at p. 11 n6 (a footnote to the heading dealing with legislative history) which, in effect, pays homage to the notion that legislative history may not be relevant where the statutory text is not ambiguous.  Who knows what ambiguous means and, in any event, why would any rational court reject relevant and potentially persuasive legislative history as to either ambiguity or what the statutory text means?  But courts nowadays are driven by ideology rather than the persuasiveness for what statutory text means, so the courts have to make a passing and generally negative reference to legislative history.  Shame on them.

District Court Holds FBAR Nonwillful Penalty Is Per Form Rather than Per Account (7/1/20)

In United States v. Bittner (E.D. Tex. Dkt.4:19-cv-415 Dkt Entry 75 Order Dtd 6/29/20), CL Order here & CL Docket Entries here, the Court held that the nonwillful FBAR penalty was per form and not per account.  The holding is the first to so hold and rejects the holding in United States v. Boyd, 2019 WL 1976472 (C.D. Cal. 2019), CL Order here and CL Docket Entries here  I previously wrote on Boyd:  Two Cases Sustaining FBAR NonWillful Penalties on Per Unreported Account Basis (4/26/19), here.  As the Bittner court noted (Slip Op. 21 n. 8), the Boyd case is presently on appeal to the Ninth Circuit and oral argument is scheduled for September 1, 2020.

The Bittner result was significant, for it reduced the number of $10,000 per violation from 177 as asserted by the Government amounting to $1,770,000 to 4 as asserted by Bittner and held by the court, for an amount of $40,000.

The Bittner court also held that there was no material fact issue on summary judgment, so Bittner had not established reasonable cause that might have exempted him from some or all of the FBAR nonwillful penalties.

Readers of this blog can read the Bittner and Boyd opinions and make their own minds up.  I will say that, for a long time, I just assumed without detailed analysis that the nonwillful FBAR penalty was per form.  The conduct being penalized is the failure to file the form, regardless of the number of accounts.  Still, there are countervailing arguments.  They are presented in the Bittner and Boyd Orders, linked above.

I do call to readers attention the following from the opinion (Slip Op. 14):

Highly Recommended Article on Chevron and History of Deference (7/1/20; 7/7/20)

Readers of this blog will already know that I have been interested in the interface of administrative law and tax, and as subsets, interface of the Administrative Procedure Act (“APA”) and tax and the interface of Chevron deference and tax.  I have written an article posted on SSRN.  The Report of the Death of the Interpretive Regulation Is an Exaggeration (SSRN 6/20/19, as revised 1/25/20), here.  In that article, I argue against the notion, apparently current among scholars, that the Treasury interpretive regulation is no more.  I discuss what I think are the relevant facets of administrative law, the APA and Chevron.

One of the principal arguments I make is that Chevron did not create deference ex nihilo, but simply refined and regularized deference that already existed.  Justice Scalia said of Chevron that it was “a stable background rule against which Congress can legislate.”  City of Arlington v. FCC, 569 U.S. 290, 296 (2013).  In the article, I go through some of the history of deference prior to Chevron that shows that the Supreme Court often explicitly deferred to reasonable agency interpretations, noting some prominent tax examples of such deference.

For readers interested in the subject, I recommend a new article that dives deeper into the history of deference. Craig Green, Chevron Debates and the Constitutional Transformation of Administrative Law, 88 Geo. Wash. L. Rev. 654 (2020), here.  The summary of the article at the beginning is:

             Chevron v. NRDC is under attack. Chevron deference to agencies’ statutory interpretation is a pillar of modern government that judges and bureaucrats have used almost every day for thirty years. Until recently, most observers dismissed efforts to overrule Chevron as impossible or absurd, yet one of Justice Anthony Kennedy’s last acts on the Supreme Court suggested that Chevron deference might violate the separation of powers. 

            Constitutional threats to Chevron are surprisingly recent and grave. In 2015, Justice Clarence Thomas was the first judge in history to write that Chevron is unconstitutional. Anti-Chevron critiques by Justices Neil Gorsuch and Brett Kavanaugh were featured elements of their Supreme Court nominations. Justice Samuel Alito joined an opinion in 2019 that condemned all administrative deference. And even though Chief Justice John Roberts’s concerns have been more nuanced, his ambivalence may be decisive. A landmark ruling seems imminent—one way or the other—and now is the time to analyze relevant arguments and consequences. 

            This Article examines the history and merit of Chevron’s constitutional critiques. Reagan-era conservatives like Antonin Scalia used to celebrate Chevron as compatible with the separation of powers, and the Supreme Court viewed administrative deference as a perfectly ordinary practice for almost two hundred years. That historical evidence supports normative arguments that Chevron is consistent with basic structures of constitutional law. Overturning Chevron would be the most radical decision in modern history about constitutional structure, upsetting hundreds of precedents, thousands of statutory provisions, and countless agency decisions. Such a ruling would transform constitutional law itself, as judges apply newly aggressive theories to destroy established tools of democratic self-governance.

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