Wednesday, July 28, 2021

On Footnotes and the Demise of Appendix C from FTPB (7/28/21)

For the 2021 editions of my Federal Tax Procedure Book (Practitioner and Student editions), I decided the omit Appendix C where I digressed on footnotes.  I originally did that because footnotes in the Practitioner Editions are many and sometimes digressive in nature and wanted to add some humor on the subject.  I think the Appendix has outlived its use, if indeed it ever even had any use.  So, I am omitting the Appendix from the 2021 editions (which, I hope will be out in final by the end of next week.

I thought, however, that for those few misguided souls who liked such things, I would put the Appendix out here both in a cut and paste to the blog and a link to a pdf file, here.  (Those who review the pdf will see that the page number for the current working draft with Appendix C is 1,046, which will decrease to 1,043 when I strip this Appendix.)


In earlier versions, I included as a footnote a long diversion on footnotes.  The diversion got out of control (certainly too many words).  Accordingly, since I was really liked the thought of a diversion on footnotes, I decided to offer the diversion as an Appendix at the end of the entire text, a destination not to be reached or easily ignored by many readers of the text.

In an earlier article, John A. Townsend, Judge Posner's Opinion in Kikalos, 108 Tax Notes 593 (Aug. 1, 2005), I had a footnote on footnotes and offer it here but have significantly revised it. I don’t bother to indent it to show that I am quoting):

It was reported in 1999 that Judge Posner had never used a footnote in a judicial opinion. Lawrence Lessig, The Prolific Iconoclast, The American Lawyer (December 1999). I have not attempted empirical research, but I don't recall having seen a footnote in his opinions. I surmise that Judge Posner thinks that, if the point is worthy of the distraction of a footnote, the point can be concisely made perhaps with less distraction in the text.  Other noted jurists such as Justice Breyer and Circuit Judge Abner Mikva also tend to avoid footnotes.  Justice Neil Gorsuch Is No 'Footnotephobe' (National Law Journal Supreme Court Brief 7/3/19).  And Justice Scalia claimed not to read footnotes, but certainly was not averse to authoring footnotes.  William Jay, Tribute: The Justice who said he hated writing (SCOTUSBlog 3/4/16).

Thursday, July 22, 2021

Primer on Contesting IRS Third Party Summonses (7/22/21)

In Gaetano v. United States, No. 20-2182, 2021 U.S. App. LEXIS 21139 (6th Cir. July 16, 2021) (unpublished), CA 6 here, the Court rejected the taxpayers’ petition to quash IRS summonses to third parties.  As an unpublished opinion, it has less precedential weight.  Still, it offers a good summary of established law regarding contesting summonses.  

General on the Summons (cleaned up):

In United States v. Powell [379 U.S. 48, 57-58 (1964)] the Supreme Court held that the government can establish a prima facie case for judicial enforcement of an investigatory summons by demonstrating [*3]  that (1) the investigation will be conducted pursuant to a legitimate purpose, (2) the inquiry may be relevant to the purpose, (3) the information sought is not already within the [IRS] Commissioner's possession, and (4) that the administrative steps required by the Internal Revenue Code have been followed.

            The government generally makes this prima facie showing for enforcement through the submission of the affidavit of the agent who issued the summons. If the government makes this showing, the burden shifts to the taxpayer to disprove any of the required elements or to demonstrate that enforcement of the summons would be an abuse of the court's process. n2  Such an abuse would take place if the summons had been issued for an improper purpose."  That said, a taxpayer must provide specific facts and evidence to meet the heavy burden necessary to demonstrate an abuse of process.
   n2 Where, as here, "the IRS issues a summons not to the investigated taxpayer herself, but to a third party who may possess records related to the taxpayer . . . , the named taxpayer is entitled to notice that the summons has been issued, and has the right to intervene in the summons-enforcement proceeding." Byers v. United States, IRS, 963 F.3d 548, 553 (6th Cir. 2020) (citation omitted). No matter whether the IRS issues the summons to the investigated taxpayer or a third party, "[t]he same standards apply." Ibid.

Relevance (cleaned up):

Tuesday, July 20, 2021

10th Circuit Rejects Constitutional Challenges to Passport Denial or Revocation for Seriously Delinquent Tax Debt ( 7/20/21)

In Maehr v. United States Dep't of State, ___ F.4th ___, 2021 U.S. App. LEXIS 21406 (10th Cir. July 20, 2021), CA 10 here, the Court rejected Maehr’s constitution attack on the 2015 FAST Act’s provisions for denying passport issuance and permitting revocation of previously issued passports.  § 7345; 22 U.S.C. § 2714a(e)(1), (2).

Maehr mounted a credible but ultimately unsuccessful claim that these provisions violated constitutional rights based on the right to international travel.  Basically, the Court held that there was no fundamental right to international travel and thus the review was limited to rational basis review which was easily passed because the Government has an interest in collecting taxes.

Monday, July 19, 2021

Magistrate Judge Recommends Enforcement of IRS Summons to Delaware Dept of Insurance for Information Filed by Micro-Captives (7/19/21)

In United States v. Del. Dep't of Ins., Civil Action No. 20-829-MN-CJB, 2021 U.S. Dist. LEXIS 132716 (D. Del. July 16, 2021), here, the magistrate issued a Report and Recommendation that the IRS summons to the Delaware Department of  Insurance (“DDOI”) be enforced to compel production of documents related to “Artex Risk Solutions, Inc. (“Artex”), Tribeca Strategic Advisors, LLC (“Tribeca”) (which is owned by Artex) and others, in transactions involving micro-captive insurance plans.”  The summons “seeks information pertaining to approximately 200 insurance certificates of authority that DDOI issued to micro-captive insurance companies associated with Artex and Tribeca.”

Readers will recall that the routine for such petitions to enforce summons requires a rather minimal showing of need, called the Powell factors (United States v. Powell, 379 U.S. 48, 57-58 (1964)) as stated by the Court:

(1)  “that the investigation will be conducted pursuant to a legitimate purpose”; (2) “that the inquiry may be relevant to the purpose”; (3) “that the information sought is not already within the [IRS’] possession”; and (4) “that the administrative steps required by the Code have been followed.”

The Government handily met that Powell showing and DDOI failed to rebut it (as is usually the case for persons opposing IRS summonses).

The material dispute the Court resolved related to so-called reverse pre-emption.  The State insurance code provided secrecy protections to micro-captive insurance companies submitting documents and information to the DDOI.  Normally, the federal law permitting IRS summonses would pre-empt such a state law.  However, the McCarran-Ferguson Act (“MFA”) permits state statutes to trump federal law in certain circumstances.  The MFA reserves to the states the “regulation and taxation by the several States of the business of insurance.”  The statute, 15 U.S.C. §§ 1012(b), provides that

 (b) Federal regulation
No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance: Provided, [t]hat . . . the Sherman Act, . . . the Clayton Act[] and . . . the Federal Trade Commission Act . . . shall be applicable to the business of insurance to the extent that such business is not regulated by State law.

The Court says (cleaned up):

Saturday, July 17, 2021

Does Treasury Comply with Administrative Law, Including the APA? I Say Yes. Others Say No. (7/17/21)

In United States v. Kahn, ___ F.3d ___, 2021 U.S. App. LEXIS 20622 (2d Cir. 7/13/21), here, the Court held that the FBAR willful penalty in 31 USC § 5321(a)(5), as amended in 2004 to increase the maximum amount of the penalty to 50% in the account(s), is not limited by the FINCen’s failure to update the underlying regulations (adopted in 1987) which, consistent with pre-2004 law, capped the willful penalty at $100,000.  This holding is currently the strong consensus.  I doubt there will be further aberrations on that issue. 

I generally discuss FBAR willful civil penalty issues principally on my Federal Tax Crimes Blog and did so in this case.  See Second Circuit Continues the Strong Consensus Rejecting the Argument that FINCen Regulations Under Pre-2004 Law Limit the Maximum Willful Penalty Prescribed under the 2004 Statutory Amendment (Federal Tax Crimes Blog 7/14/21), here.

I said in the Tax Crimes Blog posting that I might address Judge Menashi’s dissenting opinion which, in my view, is ideologically tinged repeating mantras in legal jargon that serve as proxies against the evils of the administrative state that play so well to the right.  Chevron is a chief bogeyman that Judge Menashi and other judges of similar bent use for the purpose.  Judge Menashi’s Wikipedia entry is here.

Judge Menashi’s analysis, in summary, is that an administrative agency, here FINCen with administration authority delegated to the IRS, should abide by its own regulations regardless of intervening changes in the statute.  Judge Menashi cites a rule called the Accardi principle (sometimes called a doctrine) after United States ex rel. Accardi v. Shaughnessy, 347 U.S. 260 (1954).  FINCen is part of Treasury, but a different part than the IRS.  That issue then permits Judge Menashi to launch into administrative law.

What set me off particularly about Judge Menashi’s dissent is that, although not relevant to his analysis, he repeats Professor Hickman’s claims about the IRS not following administrative law, including the APA.   Judge Menashi thus asserts (p. 3) “The Treasury Department has sometimes evaded standard administrative law principles when enforcing the tax laws” citing in footnote 3 Kristin E. Hickman, Administering the Tax System We Have, 63 Duke L.J. 1717, 1718 (2014) (describing “tax departures from general administrative-law norms”).  Readers of this Federal Tax Procedure blog will recognize that type of claim by Professor Hickman.  The Court of Appeals in CIC Servs., LLC v. IRS, 925 F.3d 247. 258 (6th Cir. 2019), reh. en banc den. 936 F.3d 501 (6th Cir. 2019), rev’d and remanded 583 U.S. ___, ___ S.Ct. ___, 2021 U.S. LEXIS 2585 (2021) quoted Professor Hickman and a colleague as claiming that Treasury and the IRS “do not have a great history of complying with APA procedures, having claimed for several decades that their rules and regulations are exempt from those requirements.”  The quote is from Kristin E. Hickman & Gerald Kerska, Restoring the Lost Anti-Injunction Act, 103 Va. L. Rev. 1683, 1686 (2017)).  Fortunately, in the Supreme Court in CIC Servs. the parties submitting briefs (including Professor Hickman as amicus curiae) did not repeat that claim, and the Supreme Court did not make the claim.  Perhaps they steered away from the claim prominently made by the Court of Appeals because the claim is irrelevant to the issue presented (just as it was in the Court of Appeals) and, in my view, the claim is not true.  (I synthesize my conclusions on this at the end of this blog.)  And the claim is not relevant to the issue resolved in Kahn, but despite the claim's irrelevance, Judge Menashi makes the claim.

Monday, June 21, 2021

Supreme Court Opinion on Presumptions and Burden of Proof (6/21/21)

Readers will recall that I have written on burden of proof, including its components, the burden of persuasion and the burden of production.  I have posted blogs, but my principal offering burden of proof was in Burden of Proof in Tax Cases: Valuation and Ranges—An Update, 73 Tax Lawyer 389 (2020), available on SSRN here.  Readers of this blog have surely been anxiously awaiting more on burden of proof.  The Supreme Court offered one today in Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System, ___ U.S. ___ (6/21/21), here.  Actually, I would not call it an update, but simply a rehashing of familiar burden of proof concepts in a specific setting in a class action securities fraud case.  The case is also perhaps notable because on the burden of proof issue, the majority opinion was written by Justice Barrett, and the dissent was written by Justice Gorsuch.

The case involved the burdens the parties bore in meeting the requirement that the class action plaintiffs show that the defendant’s false statements affected the market so that the plaintiffs’ reliance on the market price as a measure of value established damage.  The resolution turned on the plaintiffs’ invocation of a presumption in their favor and whether the presumption then shifted to the defendant a burden of production or a burden of persuasion.  The traditional role for a presumption, reflected in FRE 301, here, is to shift the burden of production—meaning a burden to produce some credible evidence without regard to whether that evidence persuades on the issue and without shifting the burden of persuasion.  In classic theory, the presumption does not shift the burden of persuasion, which, in Goldman, would have required that the plaintiffs bear the burden of persuasion on reliance.

The Court majority (Barrett, J.) held that, in this type of market reliance case, its precedents imposed the burden of persuasion on the defendant once the plaintiff met the requirements for creating the presumption.  In other words, the presumption in this case shifted the burden of persuasion, which is not the normal function of presumptions.

Once the majority found that its precedents imposed the burden of persuasion upon the presumption, the game was over.  Justice Gorsuch in dissent wanted to apply the general rule that the presumption only shifted the burden of production to Goldman and, once that limited production burden is met, the burden of persuasion remains with the plaintiffs.

That’s what the fight is all about.

Some interesting points from the opinions.

1. The shifting of the burden of persuasion (or, in a broader sense, the allocation of the burden of persuasion) only rarely would be outcome determinative.  (Majority Slip Op. 2 & 12-13).  This from pp. 12-13 is particularly good:

            Although the defendant bears the burden of persuasion, [*12] the allocation of the burden is unlikely to make much difference on the ground. In most securities-fraud class actions, as in this one, the plaintiffs and defendants submit competing expert evidence on price impact. The district court’s task is simply to assess all the evidence of price impact—direct and indirect—and determine whether it is more likely than not that the alleged misrepresentations had a price impact. The defendant’s burden of persuasion will have bite only when the court finds the evidence in equipoise—a situation that should rarely arise. Cf. Medina v. California, 505 U. S. 437, 449 (1992) (preponderance of the evidence burden matters “only in a narrow class of cases where the evidence is in equipoise”).

Monday, May 31, 2021

Judge Halpern Synthesizes Taxpayer and IRS Burdens when Seeking a Tax Result Based on Substance Rather than Form (5/31/21)

In Complex Media Inc. v. Commissioner, T.C. Memo. 2021-14 (as revised 3/31/21), TN here and TC Dkt entry 87 here, in a 103 page opinion, Judge Halpern had some interesting discussion on issues important to tax procedure fans.  I won’t try to slice and dice the entire opinion but will just point out the discrete parts that caught my attention.

1. “This Court has never accepted the Danielson rule. And, because the cases before us are not appealable to the Third Circuit (or to any other appellate court that has accepted the Danielson rule), the Golsen doctrine does not require us to apply that rule here.”  (Slip Op. 53-54.)

2. More interesting is the Court’s discussion as to the different burdens when the IRS and the taxpayer seeks to avoid the form of the transaction.  The key excerpt is (Slip Op. 63-64):

In sum, as our caselaw has evolved, it has become more hospitable to taxpayers seeking to disavow the form of their transactions. While we no longer reject those arguments out of hand, as we did in Swiss Oil Corp., J.M. Turner & Co., and Television Indus., we have repeatedly indicated that taxpayers may face a higher burden than the Commissioner does in challenging transactional form. On occasion, as in Glacier State Elec. Supply, we have suggested that the taxpayer's higher burden might be an evidentiary one. But we have not identified specific factual questions that should be subject to a higher burden than that imposed by Rule 142(a) or articulated the quantum of evidence necessary to meet that burden. [*64] Nor have we offered a clear justification for imposing on the taxpayer a higher burden to prove facts relevant to the disavowal of form than the generally applicable preponderance of the evidence standard.

Therefore, we now conclude that the additional burden the taxpayer has to meet in disavowing transactional form relates not to the quantum of evidence but instead to its content--not how much evidence but what that evidence must show by the usual preponderance. The Commissioner can succeed in disregarding the form of a transaction by showing that the form in which the taxpayer cast the transaction does not reflect its economic substance. For the taxpayer to disavow the form it chose (or at least acquiesced to), it must make that showing and more. In particular, the taxpayer must establish that the form of the transaction was not chosen for the purpose of obtaining tax benefits (to either the taxpayer itself, as in Estate of Durkin, or to a counterparty, as in Coleman) that are inconsistent with those the taxpayer seeks through disregarding that form. When the form that the taxpayer seeks to disavow was chosen for reasons other than providing tax benefits inconsistent with those the taxpayer seeks, the policy concerns articulated in Danielson will not be present.

I have revised the relevant discussion in my Federal Tax Procedure book working draft to be published in August.  I link here a pdf of the discussion with the changes redlined.  Note that the page numbers and footnote numbers will be different in the final version published in August.

JAT comments:

Monday, May 17, 2021

Supreme Court Holds in CIC Services that IRS Micro-Captive Notice May Be Contested Pre-Enforcement (5/17/21; 5/18/21)

This morning, the Supreme Court released its opinions in CIC Services, LLC v. IRS, 583 U.S. ___ (2021), here.  The main opinion is a unanimous opinion authored by Justice Kagan.  Justices Sotomayor and Kavanaugh joined the main opinion but also filed concurrences.

I have not studied the opinion, so offer at this time only the syllabus and a couple of quick comments:

Internal Revenue Service (IRS) Notice 2016–66 requires taxpayers and “material advisors” like petitioner CIC to report information about certain insurance agreements called micro-captive transactions. The consequences for noncompliance include both civil tax penalties and criminal prosecution. Prior to the Notice’s first reporting deadline, CIC filed a complaint challenging the Notice as invalid under the Administrative Procedure Act and asking the District Court to grant injunctive relief setting the Notice aside. The District Court dismissed the action as barred by the Anti-Injunction Act, which generally requires those contesting a tax’s validity to pay the tax prior to filing a legal challenge. A divided panel of the Sixth Circuit affirmed.

Held: A suit to enjoin Notice 2016–66 does not trigger the Anti-Injunction Act even though a violation of the Notice may result in a tax penalty. Pp. 5–16.

(a) The Anti-Injunction Act, 26 U. S. C. §7421(a), provides that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person.” Absent the tax penalty, this case would be easy: the Anti-Injunction Act would pose no barrier. A suit to enjoin a requirement to report information is not an action to restrain the “assessment or collection” of a tax, even if the information will help the IRS collect future tax revenue. See Direct Marketing Assn. v. Brohl, 575 U. S. 1, 9–10. The addition of a tax penalty complicates matters, but it does not ultimately change the answer. Under the Anti-Injunction Act, a “suit[’s] purpose” depends on the action’s objective purpose, i.e., the relief the suit requests. Alexander v. “Americans United” Inc., 416 U. S. 752, 761. And CIC’s complaint seeks to set aside the Notice itself, not the tax penalty that may follow  [*2] the Notice’s breach. The Government insists that no real difference exists between a suit to invalidate the Notice and one to preclude the tax penalty. But three aspects of the regulatory scheme here refute the idea that this is a tax action in disguise. First, the Notice imposes affirmative reporting obligations, inflicting costs separate and apart from the statutory tax penalty. Second, it is hard to characterize CIC’s suit as one to enjoin a tax when CIC stands nowhere near the cusp of tax liability; to owe any tax, CIC would have to first violate the Notice, the IRS would then have to find noncompliance, and the IRS would then have to exercise its discretion to levy a tax penalty. Third, the presence of criminal penalties forces CIC to bring an action in just this form, with the requested relief framed in just this manner. The Government’s proposed alternative procedure—having a party like CIC disobey the Notice and pay the resulting tax penalty before bringing a suit for a refund—would risk criminal punishment. All of these facts, taken together, show that CIC’s suit targets the Notice, not the downstream tax penalty. Thus, the Anti-Injunction Act imposes no bar. Pp. 5–13.

(b) Allowing CIC’s suit to proceed will not open the floodgates to pre-enforcement tax litigation. When taxpayers challenge ordinary taxes, assessed on earning income, or selling stock, or entering into a business transaction, the underlying activity is legal, and the sole target for an injunction is the command to pay a tax. In that scenario, the Anti-Injunction Act will always bar pre-enforcement review. And the analysis is the same for a challenge to a so-called regulatory tax—that is, a tax designed mainly to influence private conduct, rather than to raise revenue. The Anti-Injunction Act draws no distinction between regulatory and revenue-raising tax laws, Bob Jones Univ. v. Simon, 416 U. S. 725, 743, and the Anti-Injunction Act kicks in even if a plaintiff’s true objection is to a regulatory tax’s regulatory effect. By contrast, CIC’s suit targets neither a regulatory tax nor a revenue-raising one; CIC’s action challenges a reporting mandate separate from any tax. Because the IRS chose to address its concern about micro-captive agreements by imposing a reporting requirement rather than a tax, suits to enjoin that requirement fall outside the Anti-Injunction Act’s domain. Pp. 13–15.

JAT Comments:

Thursday, May 13, 2021

Mayo -- the other Mayo -- reversed by CA8, Sustaining Regulations Interpretation (5/13/21)

In Mayo Clinic v. United States, 2021 U.S. App. LEXIS 14143 (8th Cir. 5/13/21), here, the Eighth Circuit reversed the district court’s invalidation of a regulation’s test for meeting the “qualified organization” requirement that turned upon being an educational organization under § 170(b)(1)(A)(ii).  Reg. § 1.170A-9(c)(1) defined a charitable organization as one whose “primary function is the presentation of formal instruction” and whose noneducational activities “are merely incidental to the educational activities.”  As stated by the Court, the district court “held that the Treasury Regulation is invalid ‘because it adds requirements — the primary-function and merely-incidental tests — Congress intended not to include in the statute.’”

A quick digression, I wrote on the district court opinion:  District Court Invalidates Interpretive Regulation at Chevron Step One (Federal Tax Crimes Blog 8/8/19; 3/11/19), here.  I concluded as follows:

I don't think the Court's reasoning is compelling.  The conclusion may be right.  I just don't think the reasoning articulated by the Court compels the conclusion that the statutory text does not offer sufficient ambiguity to permit the interpretation adopted by the IRS.

In reversing the district court, the Eighth Circuit panel did not adopt my implicit reasoning—that there was sufficient ambiguity in the statute to permit Chevron space for reasonable interpretations at Chevron Step Two.  (Although, if Chevron is conceptualized as a single step, all the work really could be done at Chevron Step One but I won’t go down that detour here.)  Rather, the Eighth Circuit panel stops at Step One because it found that the regulation was permitted by the unambiguous text of the statute, at least the unambiguous text as the Eighth Circuit panel interpreted the text.  (Because the regulations test is  not compelled by the statutory text and requires interpretation for it to be compelled, that means, in  my mind, that there is interpretive space in the statute; if there is interpretive space, then the court or the agency may fill that interpretive space, but if the agency has done it, the interpretation, is usually tested at Step Two)

Of course, at Chevron Step One, the usual tools of statutory interpretation apply to determine whether the statute is ambiguous and whether the interpretive regulation is within the scope of the ambiguity.  I gather what the Court did was to apply those interpretive tools to determine that there was no ambiguity and thus no remaining interpretive space under the Chevron Framework because the regulation was consistent with that unambiguous interpretation.  If that is true, then it seems to me that it is the statute that is the law and not the regulation, consistent with traditional distinctions between legislative and interpretive regulations.  Hence the interpretive regulation which is then consistent with the unambiguous statutory text (as interpreted) becomes the law and per se the regulation interpretation a is valid interpretation of the statute.  (Compare the Treasury’s adoption in some interpretive regulations of language mimicking the statute; what work and what validity do the regulations have in that context?)

 Two things further on Chevron:

Monday, May 10, 2021

Follow by Email Feedburner Email Notice Service Being Discontinued (5/10/21)

Some readers of the Federal Tax Procedure Blog have signed up for and have been receiving email notifications of new blog entries via a service called Feedburner through the “Follow by Email” widget that formerly was in the right hand column on this blog.  The Feedburner service is being discontinued in July 2021.  I am therefore eliminating that widget so that Follow by Email will not longer be available for new subscribers to that service and,  I gather, the Follow by Email service will stop working in July 2021 for persons who were already registered.

There are other services that, I understand, can provide that functionality, but I just have not spent the time to try to figure out how they work and how to implement them on the blog site.  If and when I figure that out, I will try to get a replacement Follow by Email.

I have downloaded the email addresses of those who were registered as of today.  So, if I get a substitute service for this functionality, I will email those persons with notice so that they can register.  I will also post a blog entry notifying of the replacement service (if I set up one).

Thursday, April 29, 2021

When Does the Statute of Limitations Start on the Erroneous Refund Suit? (4/29/21)

I recently read and posted a comment to the following blog discussion:  Keith Fogg, Late Filed Erroneous Refund Suit (Procedurally Taxing Blog 4/22/21), here.  I wanted to explore further the issue of the starting date for the statute of limitations for erroneous refund suits.  Readers will recall that § 7405 permits an erroneous suit for refund which is "erroneously made.”  Section 6532(b) says that the statute of limitations to initiate the erroneous refund suit is “2 years after the making of such refund, except that such suit may be brought at any time within 5 years from the making of the refund if it appears that any part of the refund was induced by fraud or misrepresentation of a material fact.”  (The Regulation, § 301.6532-2, merely repeats the statute.)  Both the 2- and 5-year statutes of limitations require a starting date.

The Procedurally Taxing Blog linked above discusses a case, United States v. Page, No. 3:20-cv-08072 (D. Ariz. April 16, 2021),  here, involving the following facts:

  • 5/5/17 – IRS mails taxpayer an erroneous refund check for $491,104. 
  • ??/??/?? – Taxpayer receives the erroneous refund check
  • 4/5/18 – Taxpayer cashes the erroneous refund check.
  • ??/??/?? – IRS writes to request return of the erroneous refund
  • 12/19/19 – Taxpayer responds by returning $210,000.
  • 331/20 – IRS sues for erroneous refund.

The Government moved for default judgment.  Taking seriously its obligation to test the validity of the Government’s claims even on default judgment, the Court held (Slip Op. 3):

Under Ninth Circuit law, “[t]he refund is considered to have been made on the date the taxpayer received the refund check.” United States v. Carter, 906 F.2d 1375, 1377 (9th Cir. 1990); see also O’Gilvie v. United States, 519 U.S. 79, 91 (1996) (“[T]he law ordinarily provides that an action to recover mistaken payments of money accrues upon the receipt of payment.” (internal quotation marks and citation omitted)).

Under the facts outlined above, that meant that the statute of limitations foreclosed the erroneous refund suit absent fraud (which the Government did not allege).

There are two problems with the holding.  First, I think it makes no sense (as I noted in my then off-the-cuff comment to the Procedurally Taxing Blog entry because I don’t think the Government could have brought an erroneous refund suit until (i) at the earliest the refund check was cashed and perhaps (ii) until the refund check cleared.  I address that below.  Second, on a more procedural issue, I think the language of the Ninth Circuit precedent was dicta and not persuasive dicta, so the Page Court was not bound by it.  I address that issue below.

Accrual of the Erroneous Refund suit

Tuesday, April 27, 2021

Is the JCT Blue Book More Persuasive than a Law Review Article? (4/27/21)

Tax procedure fans will know the key role played by the Joint Committee on Taxation, here and Wikipedia here.  It is a nonpartisan committee with deep staff to serve the important role of advising Congress, principally through its tax writing committees (House Ways and Means and Senate Finance) on tax legislation.  It is fair to say that the JCT is deeply involved in the nooks and crannies of major tax legislation.  After major tax legislation, the JCT will often prepare a report, referred to as the Blue Book, summarizing the tax legislation, often adding some nuance not addressed directly in the text of the legislation.  In the past, the Blue Book was frequently used by the IRS, the public and the courts as a guide for interpretation of the legislation.  Although the Blue Book is not legislative history because published after the legislation, it is about as close as it gets to legislative history.  Nevertheless, Justice Scalia claimed the Blue Book was no more relevant and persuasive than a law review article.  United States v. Woods, 571 U.S. 31,47-48 (2013).  The Tax Court adopted the key language from this quote.  Rafizadeh v. Commissioner, 150 T.C. 1, 6. n4 (2018) (“the Blue Book is not legislative history but, ‘like a law review article, may be relevant to the extent it is persuasive, ’"quoting United States v. Woods, 571 U.S. 31, 47 2013)).  Deference fans will note that, as Justice Scalia explained it, that sounds like Skidmore deference.  Skidmore v. Swift & Co., 323 U.S. 134 (1944).  Skidmore may be no deference at all.  See Really, Skidmore "Deference?" (Federal Tax Procedure Blog 5/31/20; 6/3/20), here.

Yesterday, I was rooting around in the Attorney General’s Manual on the Administrative Procedure Act (1947), web format here and pdf format here.  The APA was enacted in 1946.  On further research, I found that the Supreme Court had often “deferred” to the Manual.  E.g., Kisor v. Willkie, 588 U.S. ___, 139 S.Ct. 2400, 2420 (2019) (plurality opinion, “some deference because of the role played by the Department of Justice in drafting the legislation.”; citing Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 435 U. S. 519, 546 (1978)); Steadman v. SEC, 450 U.S. 91, 102 n. 22 (1981) (also citing Vermont Yankee); and see also Robin J. Arzt, Recommendations for a New Independent Adjudication Agency to Make the Final Administrative Adjudications of Social Security Act Benefits Claims, 23 J. Nat'l Ass'n  Admin. L. Judges 267, 330-31 (2003) (citing Vermont Yankee and Steadman and stating that the Manual is part of the legislative history of the APA;” the statement of its status as legislative history is perhaps hyperbole in today’s refined notions of legislative history, but it does come close).

So here are my questions:

Friday, April 23, 2021

Chevron In Oral Argument in Sanchez v. Mayorkas (4/23/21)

On April 19, oral argument was held in Sanchez v. Mayorkas (Sup Ct No. 20-315), see transcript here.  The case was not a tax procedure case; nor was it even a tax case.  But the discussion was interesting and indicates some some confusion about Chevron.  I just make several comments about the discussion.  

First, the Government attorney (Tr. 32, 38, 40, 41, 54) that the Government's reading of the statute at Step Two was the “better reading” so that Chevron deference is  inapplicable.  For that reason, the Government attorney asks that the Court say the Government reading is better and “say no more.”  That is true.  If the Court finds that the Government’s interpretation is the better interpretation, Chevron does not apply.  Chevron applies in an outcome determinative sense only if the Court thinks another interpretation is “better” but the Government’s interpretation of the statute is reasonable.  Some of the Justices’ questions indicate confusion about that correct proposition.

Second, Justice Breyer said (Tr. 37): “aren't we in the world where there is  ambiguity in the statute and we have to get into the Chevron issue”?  The answer is no for the reason noted above.  If the agency interpretation is the better interpretation of the ambiguous statutory text, Chevron deference is not needed and does not apply.  Some of the Justices' discussion indicates confusion on that point.

Third, this confusion led to Brand X issue confusion.  Justice Alito asked (Tr. 40) “Well, but, if we say -- if we say the government's -- the government has the better interpretation, won't that foreclose you from later changing your position?”  Under Brand X, the Government can change an interpretation to an interpretation that is reasonable, thus attracting Chevron deference even if not the better interpretation.  The Government answer nails it, saying that under Brand X: “the agency could theoretically decide that, although it's taken a position, it has had this position since 1991, it -- it studied the question further and concluded that the statute was ambiguous and that it should resolve that ambiguity by taking a different interpretation.”  I think in context he meant a different reasonable interpretation since an unreasonable interpretation flunks Chevron Step Two.

Thursday, April 8, 2021

More Thoughts on APA and Legislative and Interpretive Regulations Inspired by Recent Cases (4/8/21; 4/11/21)

As readers of this blog know, I have recently been considering and even obsessing over the distinction between legislative and interpretive regulations for purposes of the APA and Chevron deference.  Just in the past few days, I have focused on four opinions that I think highlight the confusions in this area.  The first three are decisions by three different Circuits on the issue of the validity of a recently adopted regulation including bump stocks within the statutory definition of “machineguns,” thus prohibiting their possession with potential criminal penalty consequences.  Those decisions are:

  • Guedes v. BATFE, 920 F.3d 1 (D.C. Cir. 2019), cert. denied, 140 S. Ct. 789 (2020), D.C. Cir. here and GS here
  • Aposhian v. Barr, 958 F.3d 969 (10th Cir. 2020), 10th Cir. here and GS here; and
  • Gun Owners of Am., Inc. v. Garland, ___ F.3d ___, 2021 U.S. App. LEXIS 8713 (6th Cir. 3/25/21), 6th Cir. here; GS [not available].  [Note that the lengthy decision was published on the same day as oral argument.]

The regulation was sustained in Guedes and Aposhian as a Chevron-entitled interpretation of the ambiguous statutory text; the regulation was invalidated in Gun Owners as (i) violating separation of powers and the rule of lenity and (ii) in any event not passing Chevron analysis as a reasonable interpretation of ambiguous statutory text.

The Fourth Opinion, a truly monster opinion, was an en banc opinion in Brackeen v. Haaland, ___ F.3d ___, 2021 U.S. App. LEXIS 9957 (5th Cir. 4/6/21), 5th Cir. here; GS here.  The opinions are, in the aggregate, 325 pages long and the portions of the opinions that represent the en banc opinion are scattered in two separate opinions – that of Judge Dennis and that of Judge Duncan.  Here is the Court’s description:

Dennis, J., delivered the opinion of the en banc court with respect to Parts II(B), II(C), and II(D)(2) of his opinion (except as otherwise noted in the Per Curiam opinion, supra). 

Duncan, J., delivered the opinion of the en banc court with respect to Parts III(B)(1)(a)(i)–(ii), III(B)(1)(a)(iv), III(B)(2)(a)–(c), III(D)(1), and III(D)(3) of his opinion (except as otherwise noted in the Per Curiam opinion, supra).

The exercise of working through that stuff to figure out what the en banc holdings were would be daunting indeed.  So, the Fifth Circuit helpfully offers the first opinion, a per curiam opinion, to provide a guide to the en banc opinions embodied in the opinions with the named authors.  Fortunately, for purposes of this blog entry, I and readers interested in the legislative – interpretive distinction do not have to dig through all of that morass.  In relevant part, Judge Dennis’ opinion has the en banc opinion at outline paragraph II.D.2., titled The Scope of the BIA’s Authority, on pages 138-147, beginning here.

I offer this high level summary with limited citations (I am revising my article on the subject for posting to SSRN later).  I begin with what I think should be the starting point for discussing the issue—the original meaning of the APA distinction between legislative and interpretive regulations and how that original meaning played out in deference.  I will then address the cases which evidence the distortions and distractions that have obscured the original meaning.

Original Meaning of the APA

Monday, April 5, 2021

On U.S.C. Titles, Positive Law and NonPositive Law (4/5/21)

In today’s weekly offering of Bryan Camp’s series on Lessons from the Tax Court, Passport Revocation Act Differs From Codification (Tax Prof Blog 4/5/21), here, Bryan gets into the difference between laws and codifications.  The Fast Act of 2015 imposed a regime for encouraging taxpayers to deal with delinquent taxes by imposing potential passport revocation or denial consequences for tax debt that the Treasury certifies to the State Department as being seriously delinquent.  The regime consists of  two key separate acts:

(i) an act by the IRS (the certification to the State Department of seriously delinquent tax debt, which Bryan says is “the Act is codified in title 26”) and 

(ii) an act by the State Department after receiving the IRS certification (action to revoke or deny a passport, which Bryan says "is codified in title 22").

For those not steeped in some of the arcania of legislation, there is a key difference between U.S.C. titles that have been enacted into positive law and those that have not been enacted into positive law.  Those titles that have been enacted as positive law are the law; those  that have not been enacted into positive law are not the law but the codification is “prima facie” evidence of the law.  See U.S.C. § 204(a) (Title 26 compilations “establish prima facie the laws of the United States,” but “whenever titles of such Code shall have been enacted into positive law the text thereof shall be legal evidence of the laws therein contained.”).

Titles 26 and 22 have not been enacted as positive law.  See Office of Law Revision United States Code page identifying the Titles enacted as positive law with an asterisk, here.  In the case of Title 26, the law is the Internal Revenue Code of 1986 and is not its compilation into Title 26.  See 1 U.S.C. § 204, Notes (“The sections of Title 26, United States Code, are identical to the sections of the Internal Revenue Code.”)

What does all this mean in the real world?  Perhaps not much, but focusing on Bryan’s statement that the tax provision of the FAST Act was codified into Title 26, the statement is true but a more accurate statement is that the FAST Act enacted the provision into the IRC 1986 which is then codified into Title 26.

Readers wanting to chase down more on this might review Will Baude’s piece, Reminder: The United States Code is not the law (Volokh Conspiracy in WAPO 5/15/17), here.  Baude cites an article that “rocked my world when I was in law school:” Tobias Dorsey, Some Reflections on Not Reading the Statutes, 10 Green Bag 282 (2007), here.  (Readers of this blog can determine for themselves whether the article rocks, or Baude's susequent one, rocks their worlds; I have to say that I got onto this by reading Baude's and then Tobias's article and, while it did not rock my world, it sent a slight tremor through it.)

I discuss this issue in my book, Federal Tax Procedure (Practitioner Ed. 2020), beginning on page 28, here.

In the 2021 edition, I plan to replace the paragraph on p. 29 beginning “One question”  with the following two paragraphs (footnotes omitted and subject to revision by time of publication in August 2020):

Saturday, April 3, 2021

My Distillation of the Legislative - Interpretive Regulation Distinction (4/3/21)

In further considering the legislative-interpretive distinction, it occurred to me that one way to distill the essence of the distinction is as follows (when I cite Chevron, I refer to the Chevron framework):

For a valid legislative regulation, two things are required:  (i) Congress must have enacted express and specific authority to the agency to make the law (with an appropriate intelligible principle limiting the delegation); and (ii) the agency must have promulgated the legislative regulation pursuant to that authority.  Accordingly, if the agency says it is invoking its express and specific authority in the statute to make law, court review of the regulation tests only whether the regulation is within the scope of the delegated authority.  If so, the regulation is the law, just as if it were a statute.

For a valid interpretive regulation, Congress must have conferred upon the agency express or implied authority to interpret ambiguities within statutory text.  If the agency is invoking its express or implied interpretive authority, then, under Chevron, court review tests only whether the interpretation in the regulation is reasonable within the scope of the ambiguity in the statutory text. 

These tests turn upon  what the agency has done – (i) exercise its legislative regulation authority (for which it must cite an express delegation of legislative authority, such as § 1502 for consolidated returns); or (ii) exercise its express or implied authority to interpret statutory text.  If Congress has delegated the agency legislative authority, the agency would want to specifically invoke its legislative authority because, by invoking legislative authority, the regulation is the law and has the force of law just as if it were a statute.  If the agency has no such legislative authority or doesn’t invoke legislative authority in promulgating the regulation and the regulation only interprets ambiguous statutory text, the regulation is an interpretive regulation which, under Chevron, controls (note the conjunctive) (i) if the interpretation is reasonable within the scope of ambiguity in the text of the statute and (ii) the court defers to the agency interpretation even though the court believes there is a better reasonable interpretation.  (It the court interprets the same as the agency, there is no deference to the agency interpretation, there is no deference; if the court is in a state of equipoise as to the better interpretation and defaults to the agency reasonable interpretation, that too is not deference because the court is not substituting the agency interpretation for its own better interpretation.)

Tuesday, March 30, 2021

Circuit Conflict in Important Cases that Allow the Supreme Court to Take Cert and Pronounce on the Difference between Legislative and Interpretive Regulations (3/30/21)

I have thrashed around on this blog about the APA distinction between legislative and interpretive rules, focusing principally on regulations.  Briefly, the key points I have asserted in the blogs and elsewhere are:

The APA distinction between legislative and interpretive regulations continues to be viable despite claims from some scholarly quarters that they are not.

The distinction between the two categories is:  Legislative rules (must be by regulation) are like statutes; they are the law; they do not interpret the law.  Interpretive rules (can be by regulation) are not the law but are interpretations of the law (here the statute).

A legislative regulation like the consolidated return regulations authorized by specific delegation under § 1502 is the law just as if it were a statute.  A legislative regulation does not interpret the statute.

An interpretive regulation does interpret the statute.  Interpretations of statute can be tested for the reasonableness of the interpretation.  That is what Chevron does in the context  of agency interpretations in interpretive regulations.

An agency may adopt interpretive rules, at its choice in the form of notice and comment regulations, pursuant to the authority in “general authority” statutes (such as § 7805 of the IRC) or implied authority in the agency’s formative legislation.  

For example, § 482 which shares a provenance with § 1502 under the Revenue Act of 1928 when the prior version of the two statutes were split, with the 1928 predecessor of § 1502 conferring express delegated authority to Treasury to make the law in statute-like legislative regulations and the 1928 predecessor of § 482 not having that authority.  Can you imagine the howls from scholars, the practitioner community and the courts if the IRS asserted the authority to make legislative rules like the consolidated return rules under § 482 via its general authority in § 7805?

Adopting interpretive rules in notice and comment format does not make the interpretive rule legislative for purposes of the APA distinction.

Legislative rules (must be by regulation) are not entitled to Chevron deference because legislative rules are the law and are not interpretations of the law.  Chevron only tests reasonableness of interpretation against the text of a statute.  Chevron cannot test the reasonableness of either a statute or a legislative regulation (said to be statute-like).  Chevron can and does test interpretations in interpretive regulations to determine if the interpretations are reasonable within the scope of the statutory ambiguity.

Some, perhaps many, of these claims are not mainstream.  For example, some claim that Chevron applies only to legislative regulations.  This claim could be partially truth if their further claim that the legislative regulations category has taken over the interpretive regulation category, so that all notice and comment regulations are legislative even if all they do is to reasonably interpret ambiguous statutory text.  It is my claim that the interpretive regulation category continues viable (has not been taken over by the legislative regulation category) and that Chevron deference applies to interpretive regulations and does not apply to legislative regulations.

Friday, March 19, 2021

Nondelegation Debunked and Relationship to APA and Deference (3/19/21)

I write today again on administrative law issues that have occupied some scholarly interest starting with my teaching of Federal Tax Procedure starting in the 1990s.  The impetus for this blog entry is a fresh article on the nondelegation doctrine – fresh meaning recently published and a fresh accounting of the history related to the so-called nondelegation doctrine.  The article is Julian Davis Mortenson & Nicholas Bagley, Delegation at the Founding, 121 Colum. L. Rev. 277 (2021), here.  See also a Slate interview of the authors, Mark Joseph Stern, Neil Gorsuch Supports an Originalist Theory That Would Destroy Modern Governance (Slate 3/19/21), here.  I recommend both reads.

The full bore nondelegation doctrine on which the article is that Congress cannot delegate legislative powers to the Executive Branch.  The doctrine has no current sway in the decided cases.  Rather, as interpreted for some time now, Congress may delegate legislative powers when “an intelligible principle” which “clearly delineates the general policy, the public agency which is to apply it, and the boundaries of this delegated authority.” United States v. Henry, 888 F.3d 589, 596 (2d Cir. 2018);   The Supreme Court echoed this holding in the plurality opinion in Gundy v. United States, 583 U.S. ___, ___, 139 S.Ct. 2116, 2123 & 2129 (2019)

The authors claim that the so-called nondelegation doctrine has no basis in the history relevant to the original understanding of the Constitution.  As they point out, its use in the 1930s was to rein in the New Deal and that failed miserably as the nondelegation doctrine faded into a well-deserved obscurity.  But as the Law Review article and the Slate article note, it has roared back, fueled first by the ideology of the most ideological Supreme Court Justice, Justice Thomas.

From the Law Review article (p.285, footnote omitted):

In American Trucking, Justice Thomas wrote separately to say that “[o]n a future day . . . I would be willing to address the question whether our delegation jurisprudence has strayed too far from our Founders’ understanding of separation of powers.”  Scholars immediately took up his call to build an originalist case for the nondelegation doctrine.

 The Law Review article then covers the supposed scholarly thrashing at Justice Thomas’ invitation.  As explained in the Slate Article, scholars then “write long law review articles and books that give the theory a patina of historical credentials.” 

Professors Mortenson and Thomas argue that the patina of credibility for nondelegation is illusory.

Thursday, March 18, 2021

More on Delegations of Authority, Notices of Deficiency and Consents to Extend (3/18/21)

Yesterday, I posted on a case, Harriss v. Commissioner, T.C. Memo. 2021-31, that led me into a discussion of delegated authority to make deficiency determinations from the Secretary of the Treasury down to employees (by function) in the IRS and related issues, including consents to extend the statute of limitations.  Burden of Persuasion As to Proper Delegated Authority for Statutorily Required IRS Action (Here Notice of Deficiency) (Federal Tax Procedure Blog 3/17/21), here.  A colleague engaged me on a couple of issues from the blog.  I thought I would present the issues here and my cut on the issues.  I have reformulated the issues to better present them here:

Issue 1:  The courts treat the Forms 872 (Consent to Extend the Time to Assess Tax) and its various iterations, such as Form 872-A (Special Consent to Extend the Time to Assess Tax) used for the statute extension authorized by than § 6501(c)(4)(A), here, as unilateral waivers rather than as contracts.

JAT Response to Issue 1:  I again direct readers to the article:  John A. Townsend & Lawrence R. Jones, Jr., Interpreting Consents to Extend the Statute of Limitations, 78 Tax Notes 459 (1998), here.  But the shorter answer is in the statute itself, § 6501(c)(4)(A) (bold-face supplied by JAT):

Where, before the expiration of the time prescribed for the assessment of any tax imposed by this title, except the estate tax provided in chapter 11, both the Secretary and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.

 The emphasized language requires:

1.        Both the IRS and the taxpayer must sign a consent to reflect the agreement.

2.        Both must sign be before the expiration of the period of limitation (even the aborted writing was after the period of limitation in Stearns, so that the facts of would give the victory to the IRS under the statute as written now)..

3.        The consent is an agreement (see “so agreed” in the statute) which certainly connotes something bilateral rather than just a unilateral waiver.  In the law of waiver, waiver is a unilateral not requiring any agreement by the other party.  (Of course, if the other party asserts waiver as a defense, the party may be said to be agreeing with the waiver but agreement is not thought of as an agreement in the way § 6501(c)(4)(A) written.)  In other words, a waiver is truly unilateral and  in the law of waiver there is no requirement that the other party sign or otherwise agree to a waiver for the waiver  to be effective.  All that is required is that the party waiving do the act necessary to constitute a waiver.

Issue 2: How can a Form 872 be a contract when the benefits flow only one-way – i.e., the IRS gets the benefit but the taxpayer gets nothing of benefit? 

Wednesday, March 17, 2021

Burden of Persuasion As to Proper Delegated Authority for Statutorily Required IRS Action (Here Notice of Deficiency) (3/17/21; 3/19/21)

In Harriss v. Commissioner, T.C. Memo. 2021-31, TN here and TN pdf here, the Tax Court addressed IRS employee authority and the burden on the taxpayer  to prove that the IRS employee taking the critical action, suggesting that the presumption of regularity applies to the authority to issue notices of deficiency.  Professor Bryan Camp has a good blog on this case and the presumption.   Bryan Camp, Lesson From The Tax Court: The Presumption Of Regularity For NODs (Tax Prof Blog 3/15/21), here.  (Professor Camp and I engage on some of the issues in the comments to his blog.)

I was particularly concerned about imposing upon the taxpayer the burden of proof on the taxpayer.  The Court called the burden the burden of proof without distinguishing between burden of persuasion and burden of production, but it is clear that the court is referring to the burden of persuasion.  The Court then thrashes around and ultimately concludes, in effect, that, while the IRS did not show that its own employee issuing the NOD had the properly delegated authority, the taxpayer did not show that she did not and therefore, as with burdens of persuasion in a state where the fact is not proved, the taxpayer loses.  (See more below as to whether the Tax Court was in equipoise as authority or could find that the employee had the delegated authority.)

It just doesn’t sound right to me that the IRS should not be required to prove its employee’s authority to take statutorily required action.

At p. 10 n. 6, the Tax Court distinguished Muncy v. Commissioner, 637 F. App'x 276 (8th Cir. 2016) which reversed a case where the Tax Court record did not indicate the IRS employee’s authority to issue an NOD and remanded for the Tax Court “to determine whether Miller had authority to issue the NOD that is the subject of this  case, and for further proceedings consistent with that determination.”  The implication, not expressly stated, was that the IRS should lose if the record does not show the authority.  Yet, in Harris, the Court seemed to hold that the taxpayer loses if the record does not show that the employee lacked the authority, distinguishing Muncy on the Golsen dodge.

As a matter of what I think is sound procedural practice in allocating burdens in litigation, it seems to me that the burden should be on the IRS.  The IRS is uniquely situated to show its employees’ authorities to undertake action.  The IRS has that evidence; the taxpayer does not have that evidence without substantial effort and perhaps obligatory discovery against the IRS.  (Practice Note: by way of discovery, I suggest request for admission and related interrogatory to force the IRS to show its hand; alternatively, I suggest that the taxpayer requested a stipulation that the IRS has no evidence to show proper authority.)

Here are some key components of the Court’s exegesis:

1. The general overview of delegations (pp. 8-9):

Section 6212(a) provides: “If the Secretary determines that there is a deficiency in respect of any tax imposed by subtitles A or B or chapter 41, 42, 43, or 44 he is authorized to send notice of such deficiency to the taxpayer by certified [*8] mail or registered mail.” Section 7701(a)(11)(B) defines “Secretary” to mean “the Secretary of the Treasury or his delegate.” In this context “delegate” means “any officer, employee, or agency of the Treasury Department duly authorized by the Secretary of the Treasury directly, or indirectly by one or more redelegations of authority, to perform the function mentioned or described in the context”. Sec. 7701(a)(12)(A)(i).

By regulations the Secretary has extended the authority to determine deficiencies and to issue notices of deficiency to the Commissioner of Internal Revenue and to district directors, directors of service centers, and regional directors of appeals. See secs. 301.6212-1(a), 301.7701-9, Proced. & Admin. Regs. These regulations authorize the Commissioner to redelegate the performance of such functions to other officers or employees under his supervision and control; the Commissioner may also authorize further delegation of such authority by his delegates. See sec. 301.7701-9(c), Proced. & Admin. Regs. As permitted by these regulations, the authority to sign and issue notices of deficiency has been redelegated under Delegation Order 4-8, Internal Revenue Manual (IRM) pt., (2), and (3) (Sept. 4, 2012). The list of positions authorized under Delegation Order 4-8 includes “Department Managers, Campus [*9] Compliance Services (Small Business/Self-Employed)” and “Director, Return, Integrity and Compliance Services (Wage & Investment).”Id.

The Court cites IRM, (2), and (3) (Sept. 4, 2012) which provides redelegations or recognizes redelegations made elsewhere.

Tuesday, March 16, 2021

Court Denies APA Attack on SDP Transition Denial Allegedly Forcing Taxpayers to Accept OVDP Penalty Structure (3/16/21)

 In Harrison v. IRS, 2021 U.S. Dist. LEXIS 45582 (D. D.C. 3/11/21),* here, the taxpayers entered the OVDP program prior to the IRS offering the Streamlined Domestic Procedures (“SDP” program in 2014.  The SDP penalty requirements were less than the OVDP’s penalty requirements and required taxpayers to certify nonwillfulness and provide support for that certification.  Incident to the SDP, the IRS permitted taxpayers then in OVDP to “transition” to SDP.  The transition required (just as the SDP required) that taxpayers certify nonwillfulness and support the certification.  The IRS (through its Central Review Committee, determined that the taxpayers had not established their nonwillfulness and therefore left them in OVDP where the options were (i) accept the OVDP penalty structure which was more than SDP but less than the law could impose outside OVDP or (ii) opt out of OVDP and take their chances on audit.  Rather than take the risk of higher penalties on audit, the taxpayers chose to accept the OVDP penalty structure.  Accepting OVDP required that the taxpayers enter a closing agreement which provided, in part, that the taxpayers would not file a claim for refund of any amounts paid pursuant to the closing agreement.  They did and paid the resulting tax, penalties and interest, including the miscellaneous offshore penalty in lieu of an FBAR penalty in the amount of $519,943.44.

Two years after entering the closing agreement, the taxpayers brought what was in effect a refund suit but, apparently realizing that the closing agreement might be a bar, couched the suit under a mélange of legal theories:  (i) APA claims that the transition rules were adopted without notice and comment and, in any event, were arbitrary and capricious under APA section 706(2)(A); (ii) Due Process claim based on the alleged purported absence of procedural protections; and (iii) duress claim that the Closing Agreement was invalid.

The Court rejected their claims.  The Procedurally Taxing Blog has a good discussion of the APA aspect of the case.  Leslie Book, APA Offers No Avenue For Relief For Challenge to Offshore Transition Rules Penalty Regime (Procedurally Taxing Blog 3/15/21), here.  Basically, the Court held that a refund suit would be an adequate remedy thus precluding subject matter jurisdiction of the APA claims.  I encourage readers to read that blog and will only address here some nuances on the APA claims.  

 In the blog, Professor Book states:  “The needle can still be thread: if someone else  has fully paid and is not subject to a closing agreement they could bring a refund suit in federal court and get a court to consider the merits of the APA challenge.”  That is the part I want to thrash upon further.

Let’s posit that a taxpayer in the situation in the case did not accept the OVDP settlement but instead took their chances on audit and the general maximum 50% penalty was imposed.  No closing agreement is required.  So, in that case, I suppose Professor Book’s statement is that the taxpayers could then pursue their APA claims in the refund suit; alternatively, and more likely, the government would have pursued a collection suit and the taxpayer’s APA arguments could be pursued there (recall that the government must bring that suit within two years of the assessment of the FBAR penalty).  (In considering a refund suit possibility, recall also that full pre-litigation payment may not be required (James R. Malone, Half a Loaf Might Suffice: FBARS, Flora and Federal Jurisdiction (Post & Schell Tax Controversy Posts 2/13/17), here.) and in the collection suit, no pre-litigation payment is required.)  I suppose both of those potential options to present the APA claims might be deemed sufficiently adequate to preclude stand alone jurisdiction to present the APA claims.

 What exactly are those APA claims?

 Failure to adopt with notice and comment rulemaking

Wednesday, March 3, 2021

Supreme Court Opinion Uses “Cleaned Up” Technique for First Time (3/3/21)

This morning’s NLJ Supreme Court Brief Email had this item (authored by Tony Mauro):  How SCOTUS Finally Got 'Cleaned Up.'  Mauro's article points to this quote from Justice Thomas' unanimous opinion in Brownback v. King, ___ U.S. ___, ___ S.Ct. ___, 2021 U.S. LEXIS 1198 (2021), here (emphasis supplied):

To “trigge[r] the doctrine of res judicata or claim preclusion” a judgment must be “‘on the merits.’” Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U. S. 497, 502 (2001). Under that doctrine as it existed in 1946, a judgment is “on the merits” if the underlying decision “actually passes directly on the substance of a particular claim before the court.” Id., at 501–502 (cleaned up).

Focusing just on the bold-face sentence, here is the sentence from the Semtek opinion:  

The original connotation of an "on the merits" adjudication is one that actually "pass[es] directly on the substance of [a particular] claim" before the court.

The cleaned up quote looks much tidier and accessible to the reader than does the original in the Semtek opinion.  That is the point.

As explained in Mauro's article:

"The court's holding is the words that are used, not the punctuation," said Metzler, who promoted the phrase persistently on his widely-read Twitter feed Supreme Court Places and in an article published in the Journal of Appellate Practice and Process. In that article, Metzler complained that with the traditional clutter, citations "become an unwieldy mess packed with case cites and parenthetical information that tests the reader's ability to remember the point that the author was trying to make by using the quotation in the first place." Metzler is also the editor of previously unshared style guides of the Supreme Court and Solicitor General.

His campaign to propagate the phrase eventually caught on, and it found its way into all federal circuit courts. "We should welcome any effort to make judicial opinions more readable and accessible to every American citizen," said Judge James Ho of the U.S. Court of Appeals for the Fifth Circuit, who has used the phrase. "To paraphrase my friends at the Green Bag, Citations should not look like goulash." Metzler's latest tally found that the phrase was used more than 5,000 times by lawyers and judges alike. But until last week, it never made it to the holy grail of the Supreme Court.

Recently, there had been hints that the high court was paying attention, Metzler said. Phrases like "quotation modified" or "quotation altered" were being used in Supreme Court decisions with the same purpose. Metzler wouldn't speculate on why "(cleaned up)" finally made it to the court and to Justice Clarence Thomas, who wrote the Brownback opinion.

But here is a guess: as of January 13, the Supreme Court has a new Reporter of Decisions named Rebecca Womeldorf. Part of her job is editing-or perhaps cleaning up-the court's opinions.

I have been using the cleaned up technique since I first learned of it from Bryan Garner’s Blog entry titled Law Prose Lesson 303: Cleaned Up Quotations and Citations (Bryan Garner Law Prose Blog June 2018), here.  Readers will recall that, for some time now, I explain the technique in a page link in the right hand column, titled Cleaning Up Quotes and Cites for Readability -- The "Cleaned Up" Technique, here.

Thanks Jack Metzler and thanks Justice Thomas.

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

Thursday, February 11, 2021

Taxpayer First Act Report to Congress (2/11/21)

The IRS released the Taxpayer First Act Report to Congress (January 2021), here.  The Report covers considerable ground and, I confess, I have not studied the Report in detail.  Much of it seems on quick overview to be aspirational generalities, sprinkled with some specific recommendations.  I don’t know if I will really give it a detailed study in the future. 

I was pointed to the Report by this practitioner summary of the report:  Steve Toscher and Robert S. Horwitz, Time for Another IRS Reorganization (Tax Litigator Blog 1/24/21), here.  Here is an excerpt from that article that caught my attention (bold face supplied by JAT):

The Compliance Division will be reorganized.  LB&I, SB/SE, Wage & Investment, Exempt Organization will all be gone.  Instead, there will be Criminal Investigation, Whistleblower, Exam and Collection.   Exam will consolidate all exam operations that are currently spread among several units and Collection will be responsible for collection activities from all types of taxpayers (or as the report puts it, “all taxpayer segments”).  This is a similar structure to the one that existed for over 40 years before the 1998 restructuring act, i.e., an Examination Division, a Collection Division and a Criminal Investigation Division. 

The new “org chart” is here.

I suppose this is like “déjà vu all over again.”  (Attributed to Yogi Berra per Wikipedia, here.)

So, one might fairly ask why did the IRS restructure 20 years ago?  The answer is politics.  Readers wanting that history (or at least my version of that history) can see it in my book, Federal Tax Procedure 2020 (Practitioner Ed.), beginning on p. 34, here.

Monday, February 8, 2021

Supreme Court Opinion Syllabus as Persuasive Authority? (2/8/21)

I was working on an article Sunday on the APA and interpretive regulations (on which I have posted before).  In the article, I refer to the "Traditional Understanding" under the APA.  I used the term in   this and an earlier version to describe the understanding of the difference between legislative and interpretive regulations.  One facet of that Traditional Understanding is that legislative regulations and only legislative regulations are said in APA discourse to have the “force of law” or “force and effect of law.”  Interpretive regulations do not have the force of law; the statute is the law, not the interpretation. I was fairly certain that my use of the concept of a “Traditional Understanding” in this respect was appropriate.

Today, I was reviewing the opinion in Chrysler Corp. v. Brown, 441 U.S. 281 (1979).  The opinion uses the term “traditional understanding” but states the traditional understanding most clearly in the Syllabus to the opinion.  So, of course, I had to footnote something on the use of Supreme Court Syllabi because most lawyers of my generation would say that’s a no-no.  (Sort of like lawyers, scholars and courts used to look down on the use of Wikipedia.)  Here is what I say about that (from a footnote):

The Supreme Court called a key component of the Traditional Understanding as I call it–that legislative regulations have force and effect of law–as the “traditional understanding.” Chrysler Corp. v. Brown, 441 U.S. 281, 295-296 (1979) (this may not be as to persons who are not experts in reading Supreme Court opinions, but I think that the clarity is supplied by the Syllabus to the opinion which states the “traditional understanding” (p.  285)): 

properly promulgated, substantive [legislative] agency regulations have the “force and effect of law.” In order for a regulation to have the “force and effect of law,” it must be a “substantive” or “legislative-type" rule affecting individual rights and obligations (as do the regulations in the case at bar), and it must be the product of a congressional grant of legislative authority, promulgated in conformity with any procedural requirements imposed by Congress.

The part of the Chrysler opinion this portion of the Syllabus refers to (pp. 295-303) is not as crisp, but I think it incorporates the same concept.  I recognize that the Supreme Court Syllabi caveat that the Syllabus is not part of the opinion (see also United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337 (1906)) but it is reported that, in modern Supreme practice, the author of the majority opinion or his or her law clerk reads the Syllabus for accuracy.  Carolyn Shapiro, Coding Complexity: Bringing Law to the Empirical Analysis of the Supreme Court, 60 Hastings L.J. 477, 498 (2009).  For an argument that the Syllabus stands for something if not the holding in the case, see Gil Grantmore, The Headnote, 5 Green Bag 2d 157, 161 (2002) noting (emphasis supplied):

As Justice Ginsburg explains, “the justice who wrote the opinion may edit [the syllabus] and sometimes rewrite passages, as I more than occasionally do, mindful that busy lawyers and judges may not read more.” Thus, the syllabus of Detroit Timber days is not the syllabus of today - today's is more widely available and more reliable. The argument for giving the syllabus at least persuasive effect - which is not foreclosed by Detroit Timber anyway - is even stronger today.

Sunday, February 7, 2021

Lenity and Chevron Deference - Some Thoughts in a Tax Context (2/7/21)

 I am now working on a larger article that incorporates a discussion of the interface of lenity and Chevron deference, both of which supply rules of interpretation to ambiguous statutory text at least where Chevron can apply (i.e., where the agency has adopted a Chevron-entitled reasonable interpretation that is different than the interpretation the court thinks is the best interpretation).  Basically, I think the law is as of now ambiguous as to how Chevron interfaces with lenity where both may be truly applicable.  I emphasize truly applicable for Chevron because I think much of the commotion about Chevron really does not involve situations where Chevron is truly applicable.  In my analysis earlier in the paper I say Chevron is truly applicable only in what I call Category 5 – where the court believes its own interpretation (after perhaps giving Skidmore deference to the agency interpretation) is still better than the agency reasonable interpretation.

I post below the text (but not the footnotes) to my discussion in the hope that readers may (i) be interested and (ii) can offer constructive comment.  Thanks in advance.

I discussed above the claim that an interpretation which affects penalties is transformed into a legislative rule.  The underlying concern is that Congress alone can enact criminal penalties and the text of criminal statutes (at least as interpreted by the courts) must clearly set the standard of conduct being penalized.  Further, there is the rule of lenity, often described as a canon of construction, that requires that courts interpret ambiguity in criminal statutes in favor of the defendant. The rule of lenity and true Chevron deference (the Category 5 deference) would thus conflict if both were to apply to a criminal statute.  One author has described the conflict as between a “government always loses” standard (lenity) and a “government always wins” standard (Chevron deference).  The answer is less than clear (at least to me) because of the distractive rhetoric that attends discussion of the issue.

Rather than trying to resolve all that rhetoric to some form of black letter law (I think an impossible task on the state of the discussion), I will just try to analyze how the discussion might play out in my area of expertise–tax with a subspecialty in criminal tax. 

Many criminal statutes impose an express element that the defendant have acted “willfully.”  The criminal statutes do not define “willfully,” As authoritatively interpreted by courts, willfully can mean different things in different criminal statutes.  In Bryan v. United States, 524 U.S. 184, 191 (1998), the Court famously noted that noting that the word is a chameleon, “a word of many meanings whose construction is often dependent on the context in which it appears.”  I think that, in Chevron analysis, this is simply to say that when, in a criminal statute, Congress makes willfully an element, there is interpretive space that must be filled to give meaning to the statute as to which of the possible meanings of willfully applies.  Traditionally, that interpretive space in a criminal statute is filled by the courts.  Key Title 26 tax crimes have the requirement that the defendant act “willfully,” interpreted as the highest level of mens rea–that the defendant intended to violate a known legal duty, a standard that is not met just by reckless conduct.  Cheek v. United States, 498 U.S. 192, 196 (1991).  In other criminal contexts where the statute imposes a willfully element, the courts impose, through interpretation, a lesser mens rea standard.  The lower level of mens rea is said to be the general rule for interpreting a statutory willfully element.  The higher level of mens rea applies only to a small subset of crimes where willfully is a statutory element and is said to be an exception to that general rule.  Determining whether the general rule or the exception applies can be a bit esoteric but that need not concern us here.  Suffice it to say for present purposes, Treasury could not, by regulation, authoritatively and binding on the courts interpret the term “willfully” in the elements of tax crimes such as tax evasion to include, for example, a general intent to do some unlawful or reckless conduct without specific intent to violate a known legal duty. I think that is a fair statement of the law.

Thursday, January 28, 2021

Tax Court Opinion on Various Aspects of Collection Activity for RBAs and Coordination with DOJ (1/28/21)

 In Reynolds v. Commissioner, T.C. Memo. 2021-10, TC Dkt entry #20 here * and TN here, in a collection due process (“CDP”) case, the Court (Judge Thornton) discussed restitution-based assessment (“RBA”) under § 6201(a)(4).  In the prior criminal case preceding, the sentencing judge (i) imposed tax restitution of $193,812, but waived interest on the restitution based on a finding that the Reynolds could not pay; (ii) ordered payments during imprisonment of $25 per quarter and during supervised release of the greater of $100 or 10% of his monthly income; and (iii) ordered that Reynolds apply income tax refunds and “anticipated or unexpected financial gains.”

The IRS made the RBA in the amount of $193,812 restitution and also assessed interest for the period.  The IRS audited the years 2002 and 2003 and determined deficiencies and civil fraud penalty.  Reynolds petitioned the Tax Court to redetermine the deficiencies.  The decision document reduced the deficiencies and assessed the civil fraud penalty but noted (Slip Op. 5 n. 2) that the civil fraud penalty had been discharged in a bankruptcy proceeding (although there is no further explanation).

In this CDP case, Reynolds complained about the IRS’s collection activity with regard to the RBA.  I will just bullet point some of the key discussion / holdings rather than have a further narrative.

The opinion discusses the IRS Collection Advisory Group’s role in RBAs which interfaces with IRS Collections.  The opinion describes this group (Slip Op. 6 n 2): 

The IRS Collection Advisory Group coordinates and monitors probation and restitution cases; the advisor serves as a liaison for coordinating such cases with IRS field offices and the Department of Justice (DOJ). See Internal Revenue Manual (IRM) pt. (Oct. 6, 2017); IRM pt. (Oct. 27, 2017); IRM pt. (Mar. 24, 2014). 

The opinion discusses the Revenue Officers’ collection activity over a number of years in some detail, mostly after the NFTL.

Reynolds attorneys apparently believed that once an RBA was made, only the IRS could collect.  However, the IRS position was that there were two separate debts:  the restitution debt that DOJ’s financial unit can collect; and the RBA that the IRS can collect.  Of course, to the extent that restitution and RBA are the same, payments against one are credited against the other so that there is not double payment.  But, DOJ and the IRS can proceed on separate tracks to collect, although there must be some coordination.

The IRS and the Reynolds tilted during much of the period over Reynolds’ ability to pay more than he was paying.  In the final analysis, the IRS concluded that "this appeal is being maintained primarily for delay."  (Slip Op. 17.)

The IRS eliminated the restitution interest and failure to pay penalties per Klein v. Commissioner, 149 T.C. 341 (2017 ).

Monday, January 18, 2021

Sunstein Articles Supporting Chevron Deference (1/18/21)

Readers of this blog know that conservative and libertarian judges have noised since around 2000 that the Chevron “Framework” derived from Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) is variously unconstitutional or illegal and should be junked.  The Chevron Framework basically requires, in a two-step format, that courts defer to reasonable agency interpretations of ambiguous statutory text.  The Framework is more nuanced, but I think the description is a sufficient high-level overview of the Framework for purposes of this blog.

 A lot of claims are made about the Chevron Framework being illegal and unconstitutional.  One of the most persistent claims is that Chevron deference violates the APA command that “the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action.”  5 U.S.C. § 706.  Solely on the basis of that statutory text, the anti-Chevronists claim that a court reviewing agency actions based on agency interpretation of ambiguous statutory text must interpret the ambiguous statutory text de novo rather than defer to agency interpretation.

I have argued against this “interpretation” (if you will) of § 706.  See Townsend, John A., The Report of the Death of the Interpretive Regulation Is an Exaggeration (August 23, 2020). Available at SSRN:  In that article, I review the history of deference before enactment of the APA in 1946 and after the enactment of the APA.  See pp. 71-79, beginning here.  I further argue that § 706 is not inconsistent with deference to reasonable agency interpretations.  See pp. 92-95, beginning here(Note that I err in my opening statement that "Here are my reasons for rejecting any notion that deference is consistent with § 706;"  the correct statement (with correction in red will be corrected in the next draft) is "Here are my reasons for rejecting any notion that deference is inconsistent with § 706;" actually my argument is that deference before and after Chevron is consistent with § 706.)

I write today to advise readers of a recent articles regarding Chevron, one of which covers the same ground.  The two articles are by Professor Cass Sunstein. a leading administrative law scholar (Wikipedia here).  In the first article, Professor Sunstein reviews the same trajectory and arguments I make in my article with the same conclusion – that deference to reasonable agency interpretations is consistent with § 706 (whether referring to the intent of Congress or original public meaning of Congress).   Sunstein, Cass R., Is Chevron Inconsistent with the APA? (December 4, 2020). Available at SSRN:  See also my article, p. 94 n. 378, here (citing another Sunstein article, with others, on the basic point that deference is consistent with § 706.

Further, not only is Chevron consistent with § 706, Professor Sunstein also argues in a separate article that even if it arguably were not (or at least could not be conclusively shown to be consistent), rejecting Chevron deference at this date would be imprudent.  Sunstein, Cass R., On Overruling Chevron (November 1, 2020). Available at SSRN:  In the article Sunstein concludes (pp. 14-15, footnote omitted):

Saturday, January 16, 2021

Outstanding Article on Current State of IRS Voluntary Disclosure Practice (1/16/21)

 This brief blog today is to alert readers to an outstanding article on the current state and some uncertainties and risks of the IRS Voluntary Disclosure Practice (“VDP”).  Scott Michel and Mark Matthews, The 2020 Revision to the Internal Revenue Manual’s Voluntary Disclosure Practice: More Consistency with Greater Risk (Bloomberg Daily Tax Report 1/12/21), here.  The article is prompted by recent changes to the IRM provisions on the VDP.  IRM (09-17-2020), Voluntary Disclosure Practice, here.

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

Monday, January 11, 2021

Deloitte and Tax Analysts Open Tax Analysts Library to Public Without Subscription (1/11/21; 1/12/21)

Last week, Deloitte posted this news release:  Deloitte and Tax Analysts Take Great Strides to Increase Tax Policy Transparency:  Professional services leader joins forces with nonprofit to make federal tax law library easily accessible to the public, here.  In pertinent part, the release says:

As part of Deloitte Tax’s sponsorship, visitors to the site can now access details about the federal code, regulations, and other primary source documents, including the Internal Revenue Code of 1986; proposed, final and temporary regulations; rules for lawyers, accountants and others practicing before the IRS; Treasury decisions, IRS guidance, and private rulings; court and legislative documents; public comments on regulations; rate tables; and other correspondence, press releases and miscellaneous tax documents.

The site for access appears to be here:

This is a tremendous service to the public.  Thnks to Tax Notes and Deloitte.

I have not tested the search mechanisms for the various categories of documents.  Some quick simple testing indicates that the search and results are not of the sophisticated type for on the major legal research platforms such as Westlaw and Lexis.  Still, creative use of the search tools might make it very useful.

I generally use the Lexis platform and like it because it permits me to do date limited research -- i.e., pick up all new cases involving a search topic (e.g., FBARs) after a certain date (e.g., the date I last did that date limited search).  That permits me to pick up new materials (cases and articles).  I don't know if that can be done in the Tax Notes databases, although I did see that topics can be selected for search and the results shown in reverse chronological order.

JAT Addition (1/12/21)