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10th Circuit in Unpublished Opinion Holds § 6751(b)(1) Written Supervisor Approval Must Precede Notice of Deficiency (1/20/23; 1/21/23)

In Minemyer v. Commissioner (10th Cir. 1/19/23), 10th Cir. here and TN here and GS here (Unpublished), The Court key holding is relatively short, so I copy and paste it held (Slip Op. 10-13 , footnotes omitted):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, 57 F.4th 447 (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.