Thursday, March 23, 2023

Promoters of Abusive Conservation Easement Deductions Enjoined from Similar Conduct (3/23/23)

The Court entered Final Judments of Permanent Injunctions against promoters of abusive conservation easement tax shelters (a genre of bullshit tax shelters). The promoters enjoined are Ecovest Capital,   Ecovest Capital, Inc., Alan N. Solon, Robert M. McCullough, and Ralph R. Teal, Jr and Claud Clark III. The Final Judgments are (i) for Claud Clark III here; and (iii) for the remaining defendants here.  The Courtlistener docket entries with links to the pertinent documents most of the key documents in the proceeding are here. The terms summarized are:

(i)  enjoined from participating in any way in a plan or arrangement that involves a deduction for a qualified conservation contribution under 26 U.S.C. § 170(h)”,

(ii)  provide annual statements under penalty of perjury to the IRS and DOJ Tax for the next six years that they have not so participated,

(iii) contact all persons for whom appraisals were provided and all employees or other persons participating in the appraisals, provide them a copy of the Final Judgment of Permanent Injunction, and provide a list of such persons to DOJ Tax;

(iv)  prominently display on the website a copy of the Final Judgment of Permanent Injunction and

(v)  allow, through the Court’s retained jurisdiction, DOJ Tax to take civil discovery to monitor compliance.

I have not focused on the relief requested in the amended complaint (Doc 225 in the docket entries), but I did note that DOJ Tax sought disgorgement in Court V and Relief Sought ¶ m.  The Final Judgment of Permanent Injunction does not address disgorgement. Further in the complaint, the request for the injunction was to enjoin conduct subject to certain IRC penalty provisions (§ 6700, § 6695A, § 6694).  Those specific references are not included in the Final Judgment of Permanent Injunction but the description of the enjoined conduct probably covers conduct under the sections. There is no admission of liability for the penalties.

 A similar consent judgment was previously entered for Nancy Zak. (See Doc 271 and Doc 167 Attachment  1.) 

Sunday, March 19, 2023

Petition for Writ of Certiorari in NonTax Case Raising Issue of Continued Viability of Chevron (3/19/23)

On March 24, 2023, the Supreme Court will consider in conference the petition for certiorari in Loper Bright Enterprises, Inc. v. Raimondo, 45 F. 4th 359 (D.C. Cir. 2022), here. The docket entries on the Supreme Court site are here and on the SCOTUSblog site are here. The questions presented by Loper in its petition, here, (with JAT insertions in brackets to help understand them):

          1. Whether, under a proper application of Chevron, the MSA [the statute] implicitly grants NMFS [the agency] the power [by regulation] to force domestic vessels to pay the salaries of the monitors they must carry [to insure compliance with  regulations].

          2. Whether the Court [(i)] should overrule Chevron or, [(ii)] at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency. 

In the Solicitor General’s Brief in Opposition, here, the Questions as stated by the Petitioner are conflated into a single Question Presented with some :

          Whether the court of appeals erred in holding that the National Marine Fisheries Service was acting within the scope of its delegated statutory authority under the [Act] when the agency adopted a rule in 2020 under which certain vessels fishing in the Atlantic herring fishery may be required to hire third-party observers, who are carried on the boats to collect data for fishery conservation and management purposes.

I will not try to plumb the depth  of the nuance the SG introduced with its framing of the Question Presented because it is not necessary for this blog entry.

Although I have no special knowledge about that agency’s rulemaking processes, the agency’s Final Rule went through notice and comment and apparently was a regulation or regulation-equivalent for Chevron purposes. At least the lower courts felt it qualified the for Chevron Framework which generally requires notice and comment regulations.

So the question was whether the alleged silence in the statute permitted the courts to assume a delegation to the agency of interpretive rulemaking authority. Note that I call it interpretive rulemaking authority rather than legislative rulemaking authority. The briefs do not directly raise the question of whether the rule was interpretive or legislative, but the SG’s brief infers interpretive rulemaking authority in arguing the Chevron reasoning of political accountability (p. 27):

Monday, March 13, 2023

Tax Court Sustains IRS WBO Denial of Whistleblower Claim for Award Based on All OVDI Collected Proceeds (3/13/23)

In Shands v. Commissioner, 160 T.C. ___, No. 5 (2023), TN here, the Tax Court sustained the IRS Whistleblower Office ("WBO") denial of a § 7623(b) claim for nondiscretionary minimum of 15% of collected proceeds with discretionary increases to 30%. (Actually, as described by the Tax Court, his claim was for 30%, but the statute requires only 15% as a nondiscretionary award; I guess he could have thought his contribution was so great that the IRS must exercise its full discretion.) As best I understand, Shands claimed that, based on information he gave federal agents related to the arrest and cooperation of one Renzo Gadola, a misbehaving Swiss banker (misbehaving is perhaps redundant), the IRS created the OVDI program and collected proceeds from many taxpayers, most or even all of whom were unknown to Shands. In his claim letter dated 6/6/12, Shands was unable to name those taxpayers but said he was nevertheless entitled to the § 7623(b) award based on collected proceeds from those taxpayers entering OVDI. "Neither the [Shands] OVDI claim letter nor petitioner's Motion papers claim a share of collections from associated enforcement actions, such as seizures of taxpayer assets or follow-up audits of OVDI participants, taxpayers who opted out of OVDI, or taxpayers not in compliance that the IRS discovered through OVDI disclosures."

The basis for denial was that the creation of OVDI was not an administrative or judicial proceeding as defined in "Treasury Regulation § 301.7623-2(a) [which] defines both terms for claims open as of August 12, 2014. See Treas. Reg. § 301.7623-2(f).” (Emphasis supplied by JAT.) Shands' claim had not been acted on by August 12, 2014, so relying on the regulation seems to be appropriate.

But Shands had another trick up his sleeve. He claimed that the IRS WBO had already decided to deny his claim and in the normal course would have except (he claimed), the IRS improperly delayed issuing the denial until the proposed regulation on August 12, 2014 in order to subject his claim to the Regulation's interpretation of administrative or judicial proceeding. His argument was that the Administrative Procedure Act ("APA" does not permit an agency to effectively make the decision on action (here a denial) and withhold the formal notice of the action pending issuing proposed regulations as a basis for the action.

Sunday, March 12, 2023

Proposed Legislation to Enact "IRS Whistleblower Program Improvement Act of 2023" (3/12/23)

Senator Grassley (for himself and for Senators Wyden, Wicker, and Carden) has introduced a bill titled ‘‘IRS Whistleblower Program Improvement Act of 2023,’’ here. Senator Grassley’s press release about the bill is here. If enacted, which I speculate is likely, the following significant changes to the WB Program will apply (note that Senator Grassley’s press release is light on details):

• amend § 7623(e)(7) to change the standard for review of whistleblower awards to de novo based upon “the administrative record established at the time of the original determination and any additional newly discovered or previously unavailable evidence.’’ Bill § 2. This standard and scope of review are the same as for innocent spouse Tax Court review under § 6015(e)(7), which has recently been interpreted in relevant part as to evidence outside the administrative record. Thomas v. Commissioner, 160 T.C. ___ No. 4  (2023), here. The effective date is for cases "pending on, or filed after, the date of enactment."

• exempt whistleblower awards from sequestration by adding 2 U.S.C. § 905(k). Bill § 3. This provision applies to any sequestration order issued after December 31, 2022. The IRS website for Whistleblower Award Sequestration, here, says that the sequestration rate for 2023 is 5.7% that applies “unless and until a law is enacted that cancels or otherwise affects the sequester, at which time the sequestration reduction rate is subject to change.”

• add § 7623(b)(6)(D) to provide a general rule that the Tax Court is to grant whistleblower requests for anonymity absent “a finding by the Tax Court that a heightened societal interest exists for disclosing the whistleblower’s identity, exceeding the normal interest in knowing a petitioner’s identity.” Bill § 4. The effective date is for “petitions filed with the Tax Court which are pending on, or filed on or after, the date of the enactment of this Act.” I am not sure how this will apply to WB petitions already filed naming the whistleblower.

Saturday, March 11, 2023

9th Circuit En Banc Holds That Filing Tax Returns for Statute of Limitations Purposes Means Proper Filing as Prescribed in Regulations (3/11/23)

In Seaview Trading, LLC v. Commissioner, ___ F.4th ___ (9th Cir. 3/10/23) (en banc), here,  the Ninth Circuit rejected its panel opinion analysis at 34 F.4th 666, here, and held that sending a to an IRS agent a “copy” of a tax return the partnership claimed it previously filed timely CMRRR was not a filing for purposes of starting the partnership period of limitations.

I reported on the previous panel decisions earlier: 9th Circuit Holds That Copy of Unfiled Return Delivered to Examining Agent is Filing of Return for Statute of Limitations Purposes (Federal Tax Procedure Blog 5/12/22; 3/11/23), here. In that blog, I used the Court’s Summary of the panel opinion. I will do so here (at least key excerpts) for the en banc holding, and repeat what I said earlier that, although the Ninth Circuit cautions that the summary, prepared by staff, is not part of the opinion, the summary, like a Supreme Court syllabus, is not a nothingburger. See Supreme Court Opinion Syllabus as Persuasive Authority? (Federal Tax Procedure Blog 2/8/21), here. I include only the core holdings of the majority.


* This summary constitutes no part of the opinion of the court. It has been prepared by court staff for the convenience of the reader.


       Affirming the Tax Court’s decision concluding that the Internal Revenue Service’s notice of final partnership administrative adjustment was timely, the en banc court held that neither Seaview Trading LLC’s faxing a copy of their delinquent 2001 tax return to an IRS revenue agent in 2005, nor mailing a copy to an IRS attorney in 2007, qualified as a “filing” of the partnership’s return, and therefore the statute of limitations did not bar the IRS’s readjustment of the partnership’s tax liability.

 * * * * *

        26 U.S.C. § 6230(i) (2000), which was applicable during the period in question, provided that a partnership’s return “shall be filed . . . at such time, in such manner, and at such place as may be prescribed in regulations.” The implementing regulations, 26 C.F.R. § 1.6031(a)-1(e)(2001), in turn, provided that “[t]he return of a partnership must be filed with the service center prescribed in the relevant IRS revenue procedure, publication, form, or instructions to the form” and that “[t]he return of a partnership must be filed on or before the fifteenth day of the fourth month following the close of the taxable year of the partnership.” The Tax Court held that Seaview never “filed” its 2001 return because it failed to send the return to [*4] the designated place for filing under Treasury Regulation § 1.6031(a)-1(e)(1) )—namely, the IRS’s Ogden Service Center. The en banc court agreed.

       The en banc court explained that Seaview did not meticulously comply with the regulation’s place-for-filing requirement because neither the IRS revenue agent nor the IRS attorney to whom Seaview sent copies of its 2001 return qualified as a designated place for filing. And at no point was Seaview’s return ever forwarded to the designated place for filing at the Ogden Service Center. The en banc court concluded that because Seaview did not meticulously comply with the regulation’s place-for-filing requirement, it was not entitled to claim the benefit of the three-year limitations period. Rather, having never properly filed its return, Seaview was instead subject to 26 U.S.C. § 6229(c)(3) (2000), which allows taxes attributable to partnership items to be assessed “at any time.”

JAT Comments:

Friday, February 10, 2023

Tax Court in Reviewed Opinion Rejects Chevron and State Farm Attack on § 482 Blocked Income Regulation (2/10/23; 2/15/23)

In 3M Companies v. Commissioner, 160 T.C. ___ No. 3 (2/9/3) (reviewed), TA here*, the court sustained the IRS so-called blocked income regulations. The opinions (opinion of the court and concurring and dissenting opinions) cover 346 pages. The following is the page breakdown.

*  note the pdf of the file may be downloaded by clicking on the adobe icon in the upper right corner.

  • Opinion of the court by Morrison, joined by Kerrigan, Gale, Gustafson, Nega, Ashford, and Marshall): pp. 1-273, with 208 footnotes
  • Kerrigan concurring (joined by Gale, Paris, Ashford and Copeland): pp. 275-280, no footnotes
  • Copeland concurring in the result joined by Kerrigan, Gale and Paris: pp. 281-286, 1 footnote
  • Buch dissenting joined by Urda, Jones, Toro, and Greaves: pp. 287-305, 9 footnotes
  • Pugh dissenting, joined by Foley, Buch, Urda, and Toro: p. 306, 1 footnote
  • Toro dissenting, joined by Buch, Urda, Jones, Greaves, and Weiler (307-346, 33 footnotes

Judge Toro offers (p. 309 n. 2) this helpful and short statement describing the function of the opinion of the court: “Following the Court’s tradition, I refer to the opinion by Judge Morrison, which received 7 votes (out of 17) from active judges, as the opinion of the Court.” The opinion of the court is not a majority opinion, so what gives? For more on this phenomenon, see Kandyce Korotky, All for One, and Five for Sixteen? When the Tax Court’s “Majority” Opinion Isn’t (Procedurally Taxing Blog 4/10/18), here. [Note: in a subsequent Order in Coca-Cola v. Commissioner (Dkt. No. 31183-15 Order dated 2/14/23), a case on hold pending the outcome of 3M, Judge Lauber asked the Coca-Cola parties to file briefs addressing some issues remaining open after the 3M opinions and describing the 3M split among the judges as follows: "On February 9, 2023, a Court-reviewed opinion was issued in the 3M case, rejecting by a 9-8 vote the taxpayer's Chevron and APA arguments and upholding the validity of the “blocked income” regulation. See 160 T.C. No. 3 (2023)."]

I think it will be most helpful to readers just to offer the Syllabus at the beginning of all the opinion of the court. The Syllabus summarizes the opinion of the court (not the concurring and dissenting opinions): 

Thursday, February 9, 2023

Chevron Step Two Reasonableness and Agency Best Interpretations in Courts of Appeals (2/9/23)

Many observers have noted that the Supreme Court has avoided Chevron deference in recent years. E.g., Isaiah McKinney, The Chevron Ball Ended at Midnight, but the Circuits are Still Two-Stepping by Themselves (Notice & Comment 12/18/22), here. The Supreme Court has affirmed so-called Auer deference for agency subregulatory interpretations of ambiguous regulations. Kisor v. Wilkie, 588 U.S. ___, 139 S.Ct. 2400 (2019). (Auer deference is now sometimes called Auer/Kisor deference.) But the Supreme Court has not deployed core Chevron deference recently, although one prominent scholar has said that Kisor was an affirmation of Chevron deference. Cass R. Sunstein, Zombie Chevron: A Celebration, 82 Ohio St. L.J. 565, 570-571 (2021) (“If Kisor was right, it would be easy to conclude that Chevron was also right, and for exactly the reasons given by the Court in that case.”) Still, I suspect that the Supreme Court’s Chevron avoidance is to avoid reflexive deference and more rigorously apply the tools of construction to find no ambiguity at Chevron Step One (without mentioning Chevron).  See e.g., Isaiah McKinney, At the Supreme Court, Chevron Deference Has Morphed into the Application of the Tools of Construction (Notice & Comment 2/9/23), here.

Not all Justices avoid Chevron. Justice Gorsuch has lamented Chevron in dissenting opinions. E.g., Buffington v. McDonough, 143 S. Ct. 14 (2022), here, discussed at Justice Gorsuch's Newest Rant on Chevron and the Administrative State (Federal Tax Procedure Blog 11/7/22; 11/8/22), here. This ranting is just a continuation of his famous claim on the 10th Circuit that Chevron was the “elephant in the room * * * [permitting] executive bureaucracies to swallow huge amounts of core judicial and legislative power and concentrate federal power in a way that seems more than a little difficult to square with the Constitution of the framers' design.” Gutierrez-Brizuela v. Lynch, 834 F.3d 1142, 1153 (10th Cir. 2016) (concurring to his own majority opinion apparently because he could not get the other judges on the panel to join his rant).

With Chevron falling  into desuetude on the Supreme Court, others have noted that the Chevron action is in the lower courts, noting particularly the Courts of Appeals. Chevron is Supreme Court authority that has not been overruled; logically, Chevron should be used by Courts of Appeals in appropriate cases.

I recently tested a one-year dataset of possible Chevron applications in the Courts of Appeals. Is Chevron on Life Support; Does It Matter? (Federal Tax Procedure Blog 4/2/22; 4/3/22), here. That data set included no Court of Appeals opinion where the Court said it was deferring to a less persuasive agency interpretation. In each instance where a Court of Appeals invoked Chevron in outcome determinative way, it simply declared the agency interpretation reasonable at Chevron Step Two. Of course, agency interpretations that are the best interpretations are reasonable. So, when a court stops at merely declaring the agency interpretation reasonable, it has not determined that the agency interpretation was not the best interpretation and was deferring anyway.

Monday, January 23, 2023

Supreme Court Dismisses Attorney-Client Privilege Case as Improvidently Granted (1/23/2023)

I recently reported on this blog and my Federal Tax Crimes Blog on the Oral Arguments in In Re Grand Jury (Sup Ct. No. 21-1397), docket entries here.  See On Supreme Court Oral Argument in In Re Grand Jury On Issue of Principal or Significant Purpose for Attorney-Client Privilege (Federal Tax Procedure Blog 1/17/23), here, linking to On Supreme Court Oral Argument in In Re Grand Jury On Issue of Principal or Significant Purpose for Attorney-Client Privilege (Federal Tax Crimes Blog 1/10/23; 1/11/23), here.

Today, the Supreme Court entered the following order “Writ of certiorari DISMISSED as improvidently granted. Opinion per curiam.”  See the docket entried liked above and the opinion here. 

For further discussion, see Supreme Court Dismisses Attorney-Client Privilege Case as Improvidently Granted (1/23/2023), here.

Friday, January 20, 2023

10th Circuit in Unpublished Opinion Holds § 6751(b)(1) Written Supervisor Approval Must Precede Notice of Deficiency (1/20/23; 1/21/23)

In Minemyer v. Commissioner (10th Cir. 1/19/23), 10th Cir. here and TN here and GS here (Unpublished), The Court key holding is relatively short, so I copy and paste it held (Slip Op. 10-13 , footnotes omitted):

             The IRS argues that the tax court imposed a requirement that appears nowhere in the text of the statute. That position is supported by two recent circuit court decisions, from the Ninth and Eleventh Circuits, which have examined the plain language of § 6751(b)(1) and concluded that it is not ambiguous and does not require supervisory approval before an initial determination of an assessment is communicated to the taxpayer. Kroner v. Comm’r, 48 F.4th 1272, 1276-81 (11th Cir. 2022); Laidlaw’s Harley Davidson Sales, Inc. v. Comm’r, 29 F.4th 1066, 1070-74 (9th Cir. 2022). The courts in Kroner and Laidlaw’s found nothing in the text of the [*11] statute to support the timing requirement imposed by the tax court here. See Kroner, 48 F.4th at 1278 (“nothing in the text . . . requires a supervisor to approve penalties at any particular time”); Laidlaw’s, 29 F.4th at 1072-73 (“[t]he statute does not make any reference to the communication of a proposed penalty to the taxpayer”). We agree with these assessments of § 6751(b)(1) and hold that its plain language does not require approval before proposed penalties are communicated to a taxpayer.

            That does not end our inquiry, however, for there remains the question whether § 6751(b)(1) imposes a timing requirement of any kind. The Second Circuit has observed that “[i]f supervisory approval is to be required at all, it must be the case that the approval is obtained when the supervisor has the discretion to give or withhold it.” Chai, 851 F.3d at 220. The court reasoned that supervisory approval would be meaningless if the statute were construed to allow such approval after the supervisor lost the authority to prevent the penalty from being assessed. See id. at 220-21. The court further observed that the last moment that a supervisor still has [*12] discretion to give or withhold approval is the IRS’s issuance of the notice of deficiency, id. at 221, because after a notice of deficiency is issued the IRS loses the discretion not to assess penalties. See 26 U.S.C. § 6213(c) (“the deficiency . . . shall be assessed” if the deadline for seeking tax court review expires); § 6215(a) (if taxpayer petitions the tax court, then the tax court determines the deficiency and penalties, which “shall be assessed” once the tax court’s decision becomes final). Accordingly, the Second Circuit held “that § 6751(b)(1) requires written approval of the initial penalty determination no later than the date the IRS issues the notice of deficiency . . . asserting such penalty.” Chai, 851 F.3d at 221.

            We are persuaded by the Second Circuit’s reasoning and hold that with respect to civil penalties, the requirements of § 6751(b)(1) are met so long as written supervisory approval of an initial determination of an assessment is obtained on or  before the date the IRS issues a notice of deficiency.6  In this case, it is undisputed that the proposed penalties received written supervisory approval three months before the IRS issued the notice of deficiency to Mr. Minemyer. That is all that § 6751(b)(1) required. We therefore reverse the holding of the tax court denying a [*13] civil fraud penalty for 2001 and remand for the tax court to decide on the evidence whether Mr. Minemyer is liable for the civil fraud penalty for 2001.

Thursday, January 19, 2023

On Remand from 6th Circuit, District Court Orders Vacatur of Listed Transaction Notice (1/19/23)

I have previously written on the Sixth Circuit’s invalidation of an IRS listed transaction Notice (as opposed to regulation).  Sixth Circuit Invalidates Notice Identifying Listed Transaction Requiring Reporting and Potential Penalties (Federal Tax Procedure Blog 3/3/22), here, discussing  Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 3/3/22) CA6 here and GS here.

On remand, on 1/18/23, the district court held that the 6th Circuit’s holding required vacatur of the Notice, thus applying nationwide rather than just vacatur as to the plaintiff or some other subset of taxpayers more limited than nationwide (e.g., in the Sixth Circuit).  Mann Construction, Inc. v. United States (E.D. Mich. Case 1:20-cv-11307 Opinion and Order Docket 72 dated 11/18/23), TN here and CL here).

The only thing worth commenting on is the vacatur holding applying like a nationwide injunction.  I can’t add anything beyond what I have already written.  On vacatur generally see Law Prof Article on the APA Tax Revolution and My Extended Comments (12/1/22; 12/3/22), here.  On alternative judicial approaches, see District Court Holds IRS Tax Shelter Notice Imposing Obligations Invalid as a Legislative Rule Without Notice-and-Comment But Limits Holding to Parties (Federal Tax Procedure Blog 11/20/22), hereFifth Circuit En Banc Reverses the Bump Stock Regulation By Wobbling Around Statutory Interpretation Issues (Including Chevron) (Federal Tax Procedure Blog 1/8/23), here (discussing vacatur in paragraph 12); and Law Prof Article on the APA Tax Revolution and My Extended Comments (Federal Tax Procedure Blog 12/1/22; 12/3/22), here (discussing original meaning of the APA and vacatur at portion of blog after the section captioned Original Meaning of the APA and Other Post-APA Spinning).

Tuesday, January 17, 2023

Supreme Court Denies Certiorari in Oakbrook Land Holdings (1/17/23)

I have previously discussed the Circuit arguable split between the Eleventh and Sixth Circuits over the procedural validity of the so-called Treas. Reg. 26 C.F.R. 1.170A-14(g)(6) (the Proceeds Regulation). See Sixth Circuit Creates Circuit Conflict with Eleventh Circuit on Conservation Easement Regulations (Federal Tax Procedure Blog 3/15/22), here, discussing Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021) (held regulation procedurally arbitrary and capricious and thus invalid for failure of regulation to address a significant comment); and Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700 (6th Cir. 2022) (Proceeds Regulation interpretation valid). On 1/9/23, the Supreme Court denied Oakbrook's petition for writ of certiorari. (See Sup. Ct. Case 22-323 Docket Entries here.)

Denials of certiorari usually do not state or hint the reasons for the denial of certiorari. Certain inferences can be drawn if one or more Justices make a statement or dissent from denial of certiorari, but there was none here.

The Government’s brief in opposition to the petition for writ of certiorari, here, perhaps was influential in the denial. The broad claims the Government made (Br. 18-24, with numbering same as in brief) were:

1. “The decision below does not implicate any conflict with a decision of another court of appeals that warrants this Court’s review.” (Br. 18.)

a. regarding a possible conflict with Hewitt, the Government argued (Br. 18) that both courts applied the correct standard but just reached different conclusions as to the Proceeds Regulation. In perhaps inartful language, the Government claims that:

Hewitt did not purport to vacate or otherwise invalidate the proceeds regulation  as such; instead, it held only that “the Commissioner’s interpretation of § 1.170A-14(g)(6)(ii), to disallow the subtraction of the value of post-donation improvements to the easement property in the extinguishment proceeds allocated to the donee, is arbitrary and capricious and therefore invalid.” 21 F.4th at 1353 (emphasis added).

I think, however, that the Hewitt court did not declare the interpretation invalid; rather, it declared invalid the regulation that contained the interpretation. The difference is important. In any event, the Government closes this section with the following (Br. 19):

Third, petitioners do not identify any other court of appeals that has addressed whether the agency adequately responded to comments when promulgating the proceeds regulation nearly 40 years ago, and the government is not aware of any. Indeed, it appears that this case was the first in which the Tax Court itself opined on the issue. The issue would therefore benefit from further percolation in the regional courts of appeals, counseling against this Court’s review in this case at this time.

 [b not discussed]

c The Government argues (Br. 21-24) that, in any event, apart from the validity of the regulation, the deed violated the statutory language which, if true, would temper any perceived conflict between Oakbrook and Hewitt.

On Supreme Court Oral Argument in In Re Grand Jury On Issue of Principal or Significant Purpose for Attorney-Client Privilege (1/17/23)

Readers of this Federal Tax Procedure Blog may be interested in the following blog entry -  On Supreme Court Oral Argument in In Re Grand Jury On Issue of Principal or Significant Purpose for Attorney-Client Privilege (Federal Tax Crimes Blog 1/10/23; 1/11/23), here.  Rather than cross-posting as I did with the granting of certiorari in the case, I will just link to the Federal Tax Crimes Blog posting.

Monday, January 16, 2023

Further Commotion in Liberty Global Collection Suit Over Whether a Notice of Deficiency Is Required Before Collection Suit (1/16/23; 1/19/23)

Updated 1/19/23 with Court docket entry stating that the claim Liberty Global wanted to assert was should not be filed.  See Comment #2 below.

I recently wrote on the Government’s Collection Suit against Liberty Global. Government Files Collection Suit in Liberty Global Raising Procedural Issues (Federal Tax Procedure Blog 10/8/22; 10/12/22), here. In their respective positions in pre-filing letters to the court, the parties address Liberty Global’s claim that a collection suit cannot be commenced without assessment of the tax and the assessment must be preceded by a notice of deficiency which did not occur here. Liberty Global’s letter of 12/20/22 at Docket Entry 15 is here; the Government’s response letter of 1/11/23 at Docket Entry 19 is here. (I noted in paragraph 9 of my initial blog that the complaint did not allege assessment of the tax liability.)  The docket entries in the case are here.

The letters are short and recommended reading. The gravamen of the competing claims are

  • Liberty Global’s Claim. Timely notice of deficiency and assessment are required to precede a collection suit, citing § 6213(a), here (“no levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer”).
  • The Government’s Claim. The Government claims that neither notice of deficiency nor assessment is required before filing a tax collection suit within the assessment period, citing § 6501(a), here (“no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such [three-year] period”)

Basically, on the face of the claims, § 6213(a) and § 6501(a) seem to conflict. Which is it?

We’ll see.

JAT Comments:

Sunday, January 8, 2023

Fifth Circuit En Banc Reverses the Bump Stock Regulation By Wobbling Around Statutory Interpretation Issues (Including Chevron) (1/8/23)

In Cargill v. Garland, ___ F.4th ___ (5th Cir. 2023) (en banc), CA5 here and GS here, the Fifth Circuit reversed the prior panel opinion and held that the ATF bump stock regulation interpreting the term "machinegun" to include a so-called bump stock. The holding, one of statutory construction, may be stated as follows: 

  • "A plain reading of the statutory language, paired with close consideration of the mechanics of a semi-automatic firearm, reveals that a bump stock is excluded from the technical definition of "machinegun" set forth in the Gun Control Act and National Firearms Act." (Slip Op. 3)
  • But, even if the statutory term machinegun were not unambiguous, the statutory term "machinegun" is not ambiguous enough to include bump stocks as a permissible interpretation because of the rule of lenity when criminal consequences might attend, requiring ambiguities to be resolved in favor of the citizen potentially subject to those criminal consequences.

In the course of these core holdings, the en banc majority, concurring and dissenting opinions delve into many topics that I have discussed in connection with the bump stock cases related to Chevron and Chevron-related issues (in a broad sense). I collect at the end of this blog in paragraph 16 some of my earlier Federal Tax Procedure blogs on these issues arising in prior cases involving the bump stock regulations.

I address several key points in the various opinions (the en banc majority, the concurring, and the dissenting opinions).

1. I state at the outset that I believe this commotion about bump stocks is inherently political. Those judges fearing the administrative state (at least in their rhetoric landing them a place on a court) are more likely to reach the decision the en banc majority reached. Those judges whose rhetoric does not include fear of the administrative state and believe that administrative agencies can enrich our society and make it work better are less likely to reach the decision the en banc majority did. Both sides can pull up soundbites masquerading as reasoned decisionmaking to justify the result they prefer. At the end of the day, I think the real issue is whether there can be a symbiotic relationship between Congress, the Executive, and the Courts which together act reasonably to make our system work.

2. The en banc majority main holding is that the meaning of the statutory term "machinegun" is plain and unambiguous. In the Chevron framework, that would be a Step One determination that stops the Chevron analysis. There have been many words spent in addressing precisely what is meant by plain meaning and unambiguous to avoid the Chevron framework (or, equivalently, stopping the Chevron analysis at Step One), but I think the en banc majority's claim is that the other courts finding ambiguity means that those other just missed the meaning of the term that is so plain to this en banc majority. Everyone can agree that, when enacted in the 1930s, the statutory term machinegun did not include a bump stock which did not then even exist. But once they began to exist around 2000, I don't think it is so plain that the statutory term machinegun should not include bump stocks. This seems to be an eye of the beholder thingy, with political implications (which is what originalism is about).

3. At least in less political analysis, determining whether the statute is plain requires the use of the normal tools of statutory construction. Rhetoric aside, the normal tools of statutory construction include Skidmore respect for an agency interpretation. Skidmore v. Swift & Co., 323 U.S. 134 (1944). None of the en banc opinions cite Skidmore. (Note in this regard that Skidmore is not deference as many so-called smart judges and scholars mislabel it.  See Really, Skidmore "Deference?" (Federal Tax Crimes Blog 5/31/20; 2/14/21), here.