Tuesday, August 31, 2021

Draft Article on Interpretive Regulations and Chevron Deference (8/31/21)

About two years ago, I posted on SSRN here an article titled The Report of the Death of the Interpretive Regulation Is an Exaggeration.  I posted one revision in August 2020.  I am now on my second and last revision.  I have substantially revised the content, for, I think, the better.  Before posting that new revision, however, I solicit and would welcome comments on the article from those willing to undertake the adventure.  Any reader willing to do so should please email me at jack@tjtaxlaw.com for a pdf version of the draft article.  (The pdf version has links to help get around the pdf document (cross-references, etc.) and even to certain key documents on the web (such as the Attorney General’s Manual on the APA in 1947)).

The subject matter generally is Professor Kristin Hickman’s claim that APA category of interpretive tax regulations no longer exists.  The relevant APA categories are legislative or interpretive.  Professor Hickman's claim is that all tax notice and comment regulations are legislative rather than interpretive.  Since tax is not exceptional, that claim means that interpretive regulations no longer exist in the APA universe outside tax.  The article contests Professor Hickman’s claim.  The article deals with general administrative law and APA concepts but focuses on the tax setting for regulations that have traditionally been considered interpretive.  The article deals also with Chevron deference.

The article is 113 pages (excluding opening pages and table of contents) with 457 footnotes.  (The devil is in the footnotes, so to speak.)  I attach a copy of the cover page and table of contents here to offer an idea of the scope of the article.

Of course, any help that is offered will be acknowledged with the permission of the commenter.

Finally, for what it is worth, I did the MS Word reading ease check to test my draft article against some others (arbitrarily chosen).  Here are the results I got:

Saturday, August 28, 2021

Chevron and Interpreting Through Agency Adjudications (8/28/21; 9/3/21)

I am updating an article I wrote earlier and realize that the working draft has some digressions in the footnotes are best eliminated from that article.  However, some of those digressions are, I think, worthy of being recorded somewhere, so I will post them as blog entries.

 The context for the digression was the statement in the body of the draft update to the article that, beyond interpreting in rulemaking, agencies interpret in adjudicatory proceedings.  The interpretation process in agency rulemaking is much the same as for adjudicatory proceedings.  They both can involve interpretation of ambiguous statutory text within the scope of the ambiguity.  Courts test those interpretations in either context for reasonableness and overturn them if the interpretations are not reasonable.  In the agency rulemaking process, that review is under the Chevron Framework.  So too, courts test reasonableness in agency adjudicatory proceedings under the Chevron framework.  Thus, in both types of interpretation—rulemaking and adjudication—the same test applies as Chevron is currently applied.

In Kristin E. Hickman and Aaron Nielson, Narrowing Chevron's Domain, 70 Duke L. J. 931 (2021), the authors argue for constricting Chevron to apply only in rulemaking and not in adjudication.  A key component of the argument is that through agency adjudicatory interpretations, agencies are legislating rather than interpreting.  Professor Hickman makes the same argument for interpretations in regulations (such as Temporary and Final Treasury Regulations) which may have an effective date before the Final Regulations after Notice and Comment are issued.  My article critiques the latter claim.  But I want to address the claim in the adjudication context because, in my opinion, agencies do not engage in legislative rulemaking in adjudications.  That is a point I address in text and footnotes that I have deleted from the article.

So here is my digression now deleted from the article.  I attach a pdf of the article with the footnotes here.

            One other predicate matter.  Besides interpreting ambiguous statutory text by rulemaking, agencies can interpret ambiguous statutory text in adjudicatory proceedings.n1  For example, the Board of Immigration Appeals ("BIA"), a Department of Justice adjudicatory body, is "the highest administrative body for interpreting and applying immigration laws." n2  By delegation from the Attorney General, n3 the BIA resolves "appeals from certain decisions rendered by Immigration Judges and by district directors of the Department of Homeland Security (DHS) in a wide variety of proceedings in which the Government of the United States is one party and the other party is an alien, a citizen, or a business firm." n4

             This adjudicatory administrative process functions like a court proceeding, resolving disputes between parties by interpreting and applying the law.n5 Although not rulemaking, adjudicating presents the legislative/interpretive distinction; if, in adjudications, agencies were to attempt to create law outside the interpretive space allowed by the ambiguous text, the agency would be improperly legislating which requires legislative rulemaking with Notice and Comment and Prospectivity.n6  I recognize that some authorities assert that adjudications interpretations can be legislative in character and on that basis question retroactive effect.n7 I disagree, but need not address the issue because this article deals with legislative rulemaking via the Notice and Comment process as to which the law is relatively clear.


Tuesday, August 24, 2021

Musing on Citation of Obvious Propositions and Footnotes (8/24/21)

I am working on a legal article tonight.  The issue I am concerned with is whether I need to support everything I say with some citation, usually in a footnote.

In the conventions of legal scholarship, almost every point we make in a brief must have a citation, often in footnotes.  Really?

When I was at DOJ Tax Appellate, I suggested (probably in a bullshit session) that we have a convention to use a citation which I call “O.P.” which stood for obvious proposition.  Why should we have to cite something for the observations that are obvious? For example, if we have to say that the sun rises in the East, do we really have to cite something for the proposition?  Could we not just say:  "The sun rises in the East.  O.P."?

My suggestion was not formally presented or formally rejected by the powers that be in the Appellate Section.  

In some sense, the concept may be implemented by some scholars and judges in writing.  They just state the proposition and move on.  Nevertheless, in my writings, I continue to struggle with the issue of whether I need to cite authority for such obvious propositions.

My problem, since I am a prolific footnote writer (aka abuser), is that, if I have to cite such authority, I would do so in a footnote.  As we all know from reading footnotes (particularly my footnotes), footnotes are terrible temptations to wander and distract.

Now, what does this have to do with Federal Tax Procedure?  Not much except to say that I have some 4600 footnotes in my Federal Tax Procedure (2021 Practitioner Ed.).  Some of those footnotes, perhaps many, deal with obvious propositions that just logically extend from the information in the text.  I do that because I think that more specific citation than O.P. might be helpful to practitioners even though, in many cases, the proposition is obvious from the discussion in the text.  (I don't have a citation for that last statement.)

Other Resources for Tax Procedure (8/24/21)

I recently advised that I have made available on SSRN, the 2021 editions of my Federal Tax Procedure Book.  2021 Federal Tax Procedure Editions Now Available for Download on SSRN (Federal Tax Procedure Blog 8/8/21), here.  I post here some other resources that are available for persons interested in federal tax procedure.

The definitive work is Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters), here (Disclosure, I am the principal author of Chapter 12, titled Criminal Penalties and the Investigation Function).  I assume that most persons interested in tax procedure are aware of this resource, often referred to as just Saltzman (with no disrespect for Les Book who now manages and contributes to the resource).

The American Bar Association Tax Section offers two books that readers may find useful, one a general book on tax procedure and the other a specialized book on Tax Court litigation.

  • Effectively Representing Your Client Before the IRS, 8th Edition, Edited by Christine S Speidel and Patrick W Thomas, here.  The Table of Contents is here.
  • Litigating a Case in Tax Court, By Sean Murphy Akins, Kandyce Lyndsey Korotky, and David M Sams, here.  This book is Chapter 7 of Effectively Representing Your Client Before the IRS.  The book is accompanied by a routinely updated website that provides many sample pleadings and related documents. The Table of Contents for the book is here; an excerpt from the book is here. 

I have added the two ABA Books to the Federal Tax Procedure Links in the right-hand column of the blog.

Thursday, August 19, 2021

The Impact of Chevron Deference is Exaggerated (8/19/21; 8/21/21)

I recently wrote on Judge Lauber’s Opinion in Lissack v. United States, 157 T.C. ___, No. 7 (2021), here.  See Tax Court Holds that Collected Proceeds for Whistleblower Awards under § 7623(b) Do Not Include Unrelated Collections (8/18/21; 8/19/21), here. I discussed the Court’s discussion regarding Chevron deference.  Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).  Chevron established what is now referred to as Chevron deference (although deference had been in the law for a long time, with Chevron provided only a regular structure to apply deference).  I believe that Chevron is much cited and much misunderstood.  I pointed out in the blog that Judge Lauber stumbled into Chevron but finally got the analysis correct by testing the interpretive regulation for reasonableness of the interpretation within the scope of the ambiguous statutory text.  I also said in the blog (comment 5) that I would be writing another separate blog about a key aspect of the Chevron jurisprudence that is also misunderstood – when does a court really defer under Chevron?  As I said, by not clearly stating what they are doing, courts overstate the outcome-determinative effect of Chevron deference.  I write now to further explain.  (I attach here a pdf of the current state of the working draft for my article to be published on SSRN later this month (hopefully).)

First, here is my crisp statement of outcome-determinative deference:

Deference is a court applying a reasonable agency interpretation of ambiguous statutory text despite the court’s belief that there is a more reasonable interpretation of the ambiguous statutory text.  That’s it.

Second, inherent in that definition of deference is a very limited domain for outcome-determinative Chevron deference, far more limited than the commotion, particularly among conservatives and libertarians, support.  Consider these categories of judicial interpretation related to agency interpretations (note that I develop this in the context of agency interpretive regulations doing no more than interpreting statutory text):

            1.        If the statute is unambiguous, the statute controls without either the court or the agency interpreting it further.  No deference there.  

All further Categories assume that the statute is ambiguous:

Wednesday, August 18, 2021

Tax Court Holds that Collected Proceeds for Whistleblower Awards under § 7623(b) Do Not Include Unrelated Collections (8/18/21; 8/19/21)

In Lissack v. United States, 157 T.C. ___, No. 7 (2021), here, the Tax Court (Judge Lauber) held (quoted from the Syllabus):

P filed Form 211, Application for Award for Original Information, claiming that T had failed to report membership fees as gross income. R initiated an examination on the basis of P’s claim. During the examination R determined that T had properly treated the membership fees as nontaxable deposits but also discovered an unrelated issue--that T may have claimed an erroneous deduction. R expanded the scope of the examination to include the latter issue and ultimately disallowed the deduction, yielding a $60 million adjustment. R subsequently denied P’s whistleblower claim on the ground that he had not supplied any information about the erroneous deduction.

A whistleblower is eligible for an award only if R “proceeds with an[] administrative or judicial action * * * based on information” supplied by the whistleblower and collects proceeds “as a result of the action.” I.R.C. sec. 7623(b)(1). The parties have filed cross-motions for summary judgment addressed to the question whether P is entitled to an award under this standard.

Held: Although R proceeded with an administrative action, P is not eligible for a whistleblower award because R did not collect any proceeds “as a result of the action.” See I.R.C. sec. 7623(b)(1). The examination of the erroneous deduction issue constitutes a separate administrative action that was not initiated on the basis of P’s claim. See sec. 301.7623-2(a)(2), (b)(1) and (2), Example (2), Proced. & Admin. Regs. 

Held, further, the construction of I.R.C. sec. 7623(b)(1), as set forth in these regulations, is valid under Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984).

Tuesday, August 17, 2021

Does the Form 872 Statute Extension to Date Certain Control If Normal 3-Year from Return Date Is Later? (8/17/21)

In United States v. Davitian (D. D.C. 8/13/21), here, the Court identified but did not decide an interesting tax procedure issue.

The issue is whether, if a taxpayer provides a Form 872, Consent to Extend the Time to Assess Tax, here (authorized under § 6501(c)(4)), to a date certain and thereafter filed a delinquent return after the stated end-time in Form 872, does the § 6501(a) three-year statute after return filing apply or the statute expiration date in the Form 872.

The relevant facts highly summarized are:

  • Tax year 2003.
  • Taxpayer signed Form 872 extending assessment date to April 15, 2009.
  • Taxpayers filed 2003 return on September 26, 2007.
  • The IRS then assessed tax (presumably the tax reported on the return which would not require the notice of deficiency or SFR procedures).

The district court said (p. 5 n.1):

   n1 The court notes that Defendants have not argued that, even if they had filed a return in September 2007 as Plaintiff claims, such filing as a matter of law would not have restarted the assessment period under 26 U.S.C. § 6501(a) because Defendants previously had agreed to extend the period to a date certain and had not agreed to a further extension of time. See 26 U.S.C. § 6501(c)(4)(A) (“Where, before the expiration of the time prescribed for the assessment of any tax imposed by this title, . . . 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 court takes no position on this legal question.

District Court Offers Good Discussion of Claim for Refund Time Requirements in § 6511(a) & (b) (8/17/21)

In Libitzky v. United States, 2021 U.S. Dist. LEXIS 148037 (N.D. Cal. 8/6/21), CL here, the Court offers a good discussion of the dual statutes of limitations for refunds in § 6511.  The opinion is well written, so I recommend it and merely offer the highlights in bullet points:

  • The return must be filed within three years from the date the return was filed or two years from the date the tax was paid, whichever is later, and, if no return is filed, within two years from the date of payment.  § 6511(a).  Also, if read literally, the statute means that a taxpayer can file a return 40 years late and qualify under this first rule.  The Libitzkys met this requirement.
  • If the first period is met so that the refund claim is timely, the IRS may only refund the amount of tax paid either (i) within three years plus the period of any extension, or (ii) within two years immediately preceding the date of the claim.  § 6511(b)(2).  The Libitzkys did not meet this requirement.
  • Informal claim for refund may fix the problem.  The Libitzkys may prevail if they can invoke the informal claim for refund doctrine to make the claim timely under the second rule.  The Court said that it could not decide that issue on summary judgment, so it was to be tried.

I have revised a footnote in the Federal Tax Procedure (Practitioner Edition 2021) for the second limitation (p. 217 n. 1008:

It is said that the limitations period is jurisdictional.  Zeier v. United States Internal Revenue Service, 80 F.3d 1360, 1364 (9th Cir. 1996).  In a practical sense, I think this may mean that the statute is not subject to equitable tolling and that compliance with the limitations period may not be waived.  In cases where the limitations period has arguably expired, taxpayers may want to see if there is some basis for urging that a timely informal claim was filed.  Libitzky v. United States, 2021 U.S. Dist. LEXIS 148037 (N.D. Cal. 2021) (citing and quoting Stevens v. United States, No. 05-03967 SC, 2006 WL 1766794, at *3 n.3 (N.D. Cal. June 26, 2006) (“accepting that Section 6511(b)(2)(A) creates a jurisdictional bar to Plaintiff’s case, Plaintiff may clear that bar with proof that the estate submitted an adequate informal claim, the same thing it will need to prevail on the merits.”).

Sunday, August 8, 2021

2021 Federal Tax Procedure Editions Now Available for Download on SSRN (8/8/21)

I have posted to SSRN the 2021 editions of my Federal Tax Procedure Book.  I have not been formally notified by SSRN that they have been accepted (whatever that means; the author paper page shows them as “Submitted;” when accepted the status will change to “Distributed.”).  Nevertheless, it appears that they are available for the community to download.

 The links to download are here:

  • Federal Tax Procedure (2021 Student Ed.), SSRN here.
  • Federal Tax Procedure (2021 Practitioner Ed.), SSRN here.

Looking toward the next editions in August 2022, I am constantly revising the 2021 edition which became the working draft for the 2022 editions.  I make hundreds of changes during the year, some to add new "stuff," others to correct or better state the old "stuff," and still others for reasons that feel right at the time.  For the significant changes, I post the changes on the Federal Tax Procedure Blog page to the right titled "Federal Tax Procedure Book 2021 Editions Updates (8/9/21)", here.  Each time I make post a significant change, I reset the date in parentheses.

I ask that those desiring a copy of either or both editions download from the SSRN web site.  SSRN maintains statistics on downloads that are useful for scholars.  So, please, rather than sharing a copy of the pdf in each case, direct anyone you think may be interested to the SSRN site page for the publication so that the download metric can be useful.

Also, I urge those using the book to advise me when they think the book can be improved.  Most importantly I would like to know where I have misstated or omitted something of importance.  Also, even for more mundane matters such as wording or syntax that can be improved.  Your input will permit me to make updates on the Federal Tax Procedure Blog and then make the 2022 version better.

Thank you.

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

Saturday, August 7, 2021

On the History of the Chevron / National Muffler Deference Kerfuffle (8/7/21)

Professor Jonathan Choi, here, of Minnesota Law School has published several articles on tax statutory interpretation.  He recently published Legal Analysis, Policy Analysis, and the Price of Deference: An Empirical Study of Mayo and Chevron, 48 Yale J. Reg. 818 (2021), here.

I post a couple of comments that I have corresponded with Professor Choi about.  

1.  Professor Choi says that National Muffler was a less deferential analysis than Chevron.  (See pp.  823 & 828.)

JAT response:  

The background for this comment is that in Mayo Foundation v. United States, 562 U.S. 44 (2011), the Supreme Court held that the Chevron Framework regime for deference applied to tax regulations.  Prior to Mayo and after Chevron was decided in 1984, the Supreme Court analyzed tax regulations under the National Muffler rather than Chevron.  The question in Mayo was which regime applied – the Court held Chevron applied.  A deeper question not resolved in Mayo was whether a different result would have obtained under National Muffler.  Professor Choi assumes that it would have.  Further, he assumes that, until the Court decreed that Chevron controlled, the deference regime for tax regulations was National Muffler, which he believes is a less deferential standard.  I disagree.  I am not convinced that the standards were materially different, although certainly worded differently.  At the end of the day, both standards would sustain reasonable agency interpretations.  As the Seventh Circuit noted in Bankers Life & Cas. Co. v. United States, 142 F.3d 973, 981-982 (7th Cir. 1998) both Chevron and the “traditional rule [National Muffler] * * * both come down to one operative concept--reasonableness” and are “two different formulations of a reasonableness test;” although there may be a “subtle difference”;  “we should be wary of attempts to discern too many gradations of reasonableness,” so that “viewed from this perspective at least, the supposed gap between Chevron and the traditional rule is a distinction without a difference.” 
To be sure, the Mayo Court said that the two standards were different and factors relevant to one standard might not be relevant to another; the Court further rejected adopting a “less deferential” (p. 55) standard for tax regulations with the implication, but implication only, that National Muffler was a less deferential standard. Still, the Mayo Court did not say that a different outcome would have been reached if the National Muffler standard applied.  The district court in Mayo, although rejecting the agency interpretation, found that its result was reached under both standards.  See Mayo Found. for Med. Educ. & Research  v. United States, 503 F. Supp. 2d 1164, 1171 (D. Minn. 2007).  Other courts have found little or no difference between the standards.  Bankers Life & Cas. Co. v. United States, 142 F.3d 973, 981-82 (7th Cir. 1998) (quoting Bell Federal Savings & Loan Association v. Commissioner, 40 F.3d 224, 227 (7th Cir. 1994) (both “approaches apply essentially the same test” and the “difference between the two approaches is negligible at best”); Hefti v. Commissioner, 983 F.2d 868. 872 (8th Cir. 1993) (citing National Muffler (in turn citing Correll) and Chevron as being essentially the same as to the reasonable interpretation holding);  Cent. Pa. Sav. Ass’n v. Commissioner, 104 T.C. 384, 391-392 (1995) (also citing Bell Federal and concluding that, although not necessary to decide, “we are inclined to the view that the impact of the traditional, i.e., National Muffler standard, has not been changed by Chevron, but has merely been restated in a practical two-part test with possibly subtle distinctions as to the role of legislative history and the degree of deference to be accorded to a regulation” (citing cases); Swallows Holding, Ltd. v. Commissioner, 126 T.C. 6, 56 (2006) (reviewed opinion, quoting Cent. Pa. and concluding that result would be the same), vacated, 515 F.3d 162 (3d Cir. 2008); Estate of Gerson v. Commissioner, 127 T.C. 139, 154 (T.C. 2006) (result same under either standard), aff’d 507 F.3d 435 (6th Cir. 2007); and see also and Noel B. Cunningham and James R. Repetti, Textualism and Tax Shelters, 24 Va. Tax Rev. 1, 47 (2004) (“We agree with those who have concluded that there is no significant difference between the standards set forth in Chevron and National Muffler.”).  

Sunday, August 1, 2021

DOJ Office of Legal Counsel Advises Treasury that It Should Comply with Ways and Means Chair's Request for Trump Return and Return Information (8/1/21)

DOJ’s Office of Legal Counsel (“OLC”) has released a legal opinion that Treasury must disclose President Trump’s return and return information (including audit histories and work papers) at the request of the Chair of the House Ways and Means Committee.  See Ways and Means Committee’s Request for the Former President’s Tax Returns and Related Tax Information Pursuant to 26 U.S.C. § 6103(f)(1), 45 Op. O.L.C. __ (July 30, 2021), here, referred to as the 2021 OLC Opinion.  Bottom line, OLC concludes that such requests specifically authorized by § 6103(f)(1) without stated conditions has an implicit condition that the request serve a legitimate legislative purpose, that a request for return and return information that facially serves a legitimate purpose should be presumed to be made in good faith, and the presumption may be overcome only in exceptional circumstances not present in this case.  Technically, the OLC opinion relates to a 2021 request that renewed the earlier 2019 request that the Trump Administration Treasury and OLC conclude was pretextual and did not serve a legitimate legislative purpose.  This 2021 OLC Opinion concludes that the 2019 request erred in its analysis and conclusion.

The OLC Opinion is long, so I copy and paste here only the opening summary:

Section 6103(f)(1) of title 26, U.S. Code, vests the congressional tax committees with a broad right to receive tax information from the Department of the Treasury. It embodies a long-standing judgment of the political branches that the tax committees are uniquely suited to receive such information. The committees, however, cannot compel the Executive Branch to disclose such information without satisfying the constitutional requirement that the information could serve a legitimate legislative purpose. 

In assessing whether requested information could serve a legitimate legislative purpose, the Executive Branch must give due weight to Congress’s status as a co-equal branch of government. Like courts, therefore, Executive Branch officials must apply a presumption that Legislative Branch officials act in good faith and in furtherance of legitimate objectives. 

When one of the congressional tax committees requests tax information pursuant to section 6103(f)(1), and has invoked facially valid reasons for its request, the Executive Branch should conclude that the request lacks a legitimate legislative purpose only in exceptional circumstances. The Chairman of the House Ways and Means Committee has invoked sufficient reasons for requesting the former President’s tax information. Under section 6103(f)(1), Treasury must furnish the information to the Committee.