Updates on Filing under the Corporate Transparency Act (“CTA”) (2/27/25; 3/4/25)

Added 3/4/25 10:00 am: Please note below that, on March 2, 2025, Treasury announced here that 

(i) Treasury will not enforce penalties or fines associated with the beneficial ownership reporting requirements of the Corporate Transparency Act, even after the anticipated interim final rules are promulgated;

(ii) Treasury in the near future will  issue "a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only."

That background for all this is that, because of the lack of transparency of U.S. entities, the U.S. consistently rates high on lists of tax haven countries, all the while the U.S. complains about foreign countries' lack of transparency. The CTA was designed to address lack of transparency. Most practitioners I know felt that it was required to address money laundering and related genres of crime. Yet, in an announcement that reads more like a political paper (see the link above), Treasury is giving up enforcing that which the statute clearly requires. On the political nature of the announcement, Trump went on his social media outlet very soon after bragging about it.

On February 18, 2025, FinCEN, noting that it was no longer enjoined from enforcing the filing requirements of the CTA, advised that the filing must be done, except in narrow cases, by March 21, 2025. See FinCEN Extends Beneficial Ownership Information (FinCEN 2/18/25), here. The document is short (2 pages), so all interested in filing should read it.

On February 10, 2025, the House passed unanimously the Protect Small Businesses from Excessive Paperwork Act, H.R. 736, unanimously. That Act modifies the filing deadline to January 1, 2026 instead of by January 1, 2025, as required under current regulations. See H.R.736 - Protect Small Businesses from Excessive Paperwork Act of 2025 at Congress.Gov, here; and Maureen Leddy, House Passes Bipartisan Bill to Delay Corporate Transparency Act Deadline (ThomsonReuters 2/14/25), here.

I expect that the Senate will pass the legislation and that President Trump will sign it. Further, I expect that, since the CTA is disliked by certain portions of the Trump followers in both houses, there will be some legislative commotion prior to that delayed deadline to address some of the features in the CTA. I have no prediction on whether that commotion will result in legislation defanging the CTA. Stay tuned.

Added 2/28/25 12:00pm 

On 2/27/25 FinCEN issued this public notice: FinCEN Not Issuing Fines or Penalties in Connection with Beneficial Ownership Information Reporting Deadlines (FinCEN 2/27/25), here. The notice is short, so I just copy and paste the contents (bold face supplied by JAT):

Today, FinCEN announced that it will not issue any fines or penalties or take any other enforcement actions against any companies based on any failure to file or update beneficial ownership information (BOI) reports pursuant to the Corporate Transparency Act by the current deadlines. No fines or penalties will be issued, and no enforcement actions will be taken, until a forthcoming interim final rule becomes effective and the new relevant due dates in the interim final rule have passed. This announcement continues Treasury’s commitment to reducing regulatory burden on businesses, as well as prioritizing under the Corporate Transparency Act reporting of BOI for those entities that pose the most significant law enforcement and national security risks.

No later than March 21, 2025, FinCEN intends to issue an interim final rule that extends BOI reporting deadlines, recognizing the need to provide new guidance and clarity as quickly as possible, while ensuring that BOI that is highly useful to important national security, intelligence, and law enforcement activities is reported.

FinCEN also intends to solicit public comment on potential revisions to existing BOI reporting requirements. FinCEN will consider those comments as part of a notice of proposed rulemaking anticipated to be issued later this year to minimize burden on small businesses while ensuring that BOI is highly useful to important national security, intelligence, and law enforcement activities, as well to determine what, if any, modifications to the deadlines referenced here should be considered.

The interim final rule is like a Treasury Temporary Regulation that sets an enforcement or application date prior to the Final Regulation after notice and comment. 

Tax Court Sustains Regulation's Filling Gap in Statute on Factors Other than Ambiguity (2/26/25/ 3/4/25)

In Hamel v. Commmissioner, T.C. Memo. 2025-19 (Hamel II), TN here, GD here * and GS here **, decided 2/25/25, upon reconsideration of its prior opinion in Hamel v. Commissioner, 2024 T.C. Memo. 62 (Hamel I), GS here, the Court rejected Hamel’s argument that the regulation failed the Loper Bright requirement of the best interpretation of the statute. The regulation in question interpreted the requirement in TEFRA §6229(e) to furnish notice of an otherwise unidentified partner in a specific way in order to avoid the extended statute of limitations. Basically, Hamel argued that the IRS otherwise knew of the unidentified partner even though the notice required by the regulation was not furnished as the regulation required.

Loper Bright Enterprises v. Raimondo, 603 U. S. ____, 144 S.Ct. 2244 (2024) overruled Chevron deference based on statutory ambiguity. In overruling Chevron deference, the Court noted that Congress might confer discretionary authority to the agency to fill gaps but such authority will not be assumed from statutory ambiguity alone. The Supreme Court also cautioned that prior authority relying upon Chevron deference was not necessarily overruled.

The principal authority relied upon in Hamel I was Gaughf Props., L.P. v. Commissioner, 139 T.C. 219 (2012), aff'd, 738 F.3d 415 (D.C. Cir. 2013). Gaughf  relied upon Chevron deference to sustain the regulation. Hence, Hamel I was based upon a Chevron deference holding. Hamel filed the motion for reconsideration urging that Loper Bright required reconsideration of the Gaughf precedent applied in Hamel I. As I understand Hamel II (I did not find it easy to understand), the Court held that the statutory provisions were sufficient to authorize the Treasury to fill in those details by regulation. In other words, although the statutory provision was ambiguous (i.e., did not permit resolution of the issue by textual interpretation alone), the Treasury was given the discretion to fill in the details. Hence, the resolution was not based on ambiguity alone, and the manner chosen by Treasury in the regulation was not arbitrary and capricious.

The Court relied in part upon Nat’l Muffler Dealers Ass’n v. United States, 440 U.S. 472 (1979) for the following which it apparently felt was unaffected by Loper Bright (Slip Op. 7-8):

Bullshit Tax Shelter "Investors" Reach the End Game on Tax Dodging from 1999 BLIPS "Transaction" (2/20/25)

Yesterday, the Tax Court (Judge Goeke) entered its opinion in Blum v. Commissioner, T.C. Memo. 2025-18, TN here, GD here*, and GS here**. The opinion is 48 pages long. After reading Slip Op. pp. 1 & 2, I had the sense that Judge Goeke would have made it much shorter except for inappropriate arguments made by the Blums (really their counsel), which he apparently felt necessary to address. So that readers might get that same sense, I quote pages 1 & 2 in their entirety (footnote omitted):

This affected items case deals primarily with the responsibility of taxpayers and the Internal Revenue Service (IRS) to update information about the partners of a partnership under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97- 248, §§ 401–407, 96 Stat. 324, 648–71. The Treasury regulations 1 explicitly and clearly state the requirements for partnerships and their partners to update names and addresses of the partners as well as the IRS’s obligations when mailing a notice of Final Partnership Administrative Adjustment (FPAA).

           Petitioners did not adhere to the regulations; the IRS did. Petitioners did not properly identify Scott Blum as an indirect partner in the TEFRA partnership or update the address for sending the FPAA with respect to his partnership interest. Instead, they try to place the blame for their alleged nonreceipt of the FPAA on the revenue agent (RA) who audited their personal and partnership returns. Petitioners do this because they want to avoid a district court’s decision in the TEFRA partnership case that held that Mr. Blum engaged in a tax shelter and improperly deducted a $78.5 million artificial loss (tax shelter loss). They knew about the partnership case while it was ongoing in district court and are obviously unhappy with the outcome. We find not only that the IRS mailed the required FPAA with respect to Mr. Blum’s partnership interest to the correct address but also that petitioners received it.

          Throughout this case, petitioners have concocted numerous unfounded theories about the IRS’s alleged failure to follow proper procedure. They have also made multiple misrepresentations to the Court and omitted important information. Testimony by IRS employees clearly and credibly establishes that the IRS indeed followed proper procedures and that the IRS mailed the FPAA as required by the Code and the regulations.

          Apart from their argument about their alleged nonreceipt of the FPAA, petitioners also make multiple baseless arguments to avoid paying the tax that they owe pursuant to the district court’s decision.  They argue that the district court did not really disallow the tax shelter loss and that they resolved the disallowance of the $78.5 million tax shelter loss in a prior Tax Court case for a mere $373,641 in tax. They also challenge the timeliness of the FPAA and the affected items Notices of Deficiency that precipitated the filing of the Petition. Each of these arguments fails. Accordingly, we find, in accordance with the district court’s decision in the TEFRA case, that petitioners are not entitled to deduct the $78.5 million tax shelter loss.

Final Paper on SSRN Titled: Loper Bright Is the Law But Poor Statutory Interpretation (2/28/25)

Today, I finalized a paper which has been posted to SSRN. The posting is here:

John A. Townsend, Loper Bright Is the Law But Poor Statutory Interpretation (February 18, 2025). Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5143707

As I understand SSRN, although it is posted and can be publicly accessed, SSRN still has to go through an approval process. I am not sure why that is, but I think that the paper can be accessed through the link above.

I had previously posted to SSRN a draft of the paper (the draft is here).

Readers may also be interested in the updates that I make during the year to the discussion of deference (Chevron, Loper Bright, et al.) in the 2025 Working Draft of the Federal Tax Procedure Book.  I will publish the 2025 Editions on SSRN in early August 2025. In the meantime, because of all the developments in the general subject of deference since the publication of the August 2024 editions, I will periodically post aggregate changes on the page to the right titled Federal Tax Procedure Book 2024 Editions Updates (7/26/24; 1/5/25), here.

The Relation of the Current DOJ Commotion to Loper Bright (2/15/25)

Readers have undoubtedly heard of the commotion about the DOJ order to the prosecutors in the U.S. Attorney’s Office in SDNY to dismiss the criminal case against NY Mayor Adams. There are many good accounts out there, but I link one to segue into a theme I have addressed before. Both sides of the commotion invoked then-Attorney General Robert H. Jackson, later Supreme Court Justice, to support their positions. Adam Liptak, A Rupture on the Right Over Prosecutors, Politics and the Rule of Law (New York Times 2/14/25), here.

Each side invoked Jackson’s classic speech on the role of the federal prosecutor. Robert H. Jackson, The Federal Prosecutor (Speech Delivered by Attorney General Jackson at the Second Annual Conference of United States Attorneys) (4/1/1940), from DOJ website here and from the Robert H. Jackson Center here. Jackson’s speech is generally considered the classic statement of the responsibilities and duties of federal prosecutors and particularly the local U.S. Attorneys.

It is ironic that both sides claimed support in Jackson’s speech. (Like Abraham Lincoln’s Second Inaugural equally ironic statement that “Both read the same Bible and pray to the same God and each invokes His aid against the other.”) I am familiar with Jackson’s speech from my days at DOJ Tax Division, and have just re-read it. My personal cut on the speech is that it favors the protesting Acting U.S. Attorney for SDNY,  Danielle R. Sassoon, rather than the President’s appointed DOJ hatchet man, Emil Bove with Pam Bondi in the background. Others can read the speech and reach their own conclusions.

The pre-eminent Jackson scholar is John Q. Barrett, here, a law professor and director of the Robert H. Jackson Center, here. The NYT article quotes Professor Barrett as follows:

John Q. Barrett, a law professor at St. John’s University who is writing a biography of Justice Jackson, said there was little doubt about how he [Jackson] would have viewed the Justice Department’s handling of the Adams case. “Pretty obviously he [Jackson] would be dismayed and appalled,” Professor Barrett said.

Agency Interpretations, Bell Curves, and Skidmore ooomph under Loper Bright (2/12/25)

Professor Christopher Walker, here, a frequent commentator on administrative law and on deference under Chevron and Loper Bright, has offered an interview on the current scene under Loper Bright.  Judicial Constraints on Agency Action (The Regulation Review 2/9/25), here. In that article, he states, based on his study of a large set of Chevron opinions, that “there was nearly a 25 percentage-point difference in agency-win rates when the courts of appeals applied Chevron deference than when they did not.”

I did a similar study of two smaller sets of opinions but enough to feel comfortable that it was a reasonably fair sample set. My conclusion was different from Walker’s and more in line with Second Circuit Judge Jon Newman’s conclusion that courts often invoke Chevron but do what they want to anyway—that is, interpret as they think is right (the best interpretation). Jon O. Newman, On Reasonableness: The Many Meanings of Law’s Most Ubiquitous Concept, 21 J. App. Prac. & Process 1, 83 (2021) (emphasis supplied), here. If that is right, Chevron was not ever as outcome determinative as people imagined from the rhetoric or the apparent win rate such as Professor Walker posits.

The conceptual model I posit is that, when courts defaulted to what appeared to be an agency win because the interpretation was “reasonable,” many of those cases really involved the courts’ determinations or hunches that the agency interpretations were the best interpretations. That’s the observation Judge Newman made. If that observation is true (I think it is), there should be a higher win rate because the indicated 25% difference in win rates in the Chevron era meant that, often, even usually, an agency win was not that just that the interpretation was reasonable but that the court thought it was best. Stated another way, Chevron was only outcome determinative when an agency not best interpretation was approved under Chevron. Judge Newman (and I) conclude that that was likely significantly less than 50% of the time when courts noised about Chevron.

Prominent Senate Finance Committee Members Offer Discussion Draft of Bill to Fix Certain IRS Procedure and Administration Issues (2/2/25)

Note to Readers: This blog entry was posted yesterday to a page rather than a blog page. I have moved it to the blog page. I will leave the page error up with a link to this blog entry. Please comment on this blog page.

Senators Crapo (R) and Wyden (D), prominent Senate Finance Committee members, have proposed a discussion draft, here, of a proposed bill making what Senator Wyden says would be “common-sense fixes to Internal Revenue Service (IRS) procedure and administration.” The proposed bill is nonpartisan. Many of the proposals address issues presented in cases that I have blogged about on the Federal Tax Procedure Blog. Senators Crapo and Wyden’s section-by-section explanation of the proposal is here. The announcement of this initiative, here, seeks comments by March 31, 2025; comments may be sent to discussiondraft@finance.senate.gov.

I have reviewed the section-by-section explanation and parts of the draft bill. For what it is worth, I applaud the proposal. It indeed does provide “common-sense” fixes to problems that have unnecessarily vexed tax procedure. It does not fix all problems, but it fixes a fair number of them. Nor does it fix issues the way I or other practitioners or interested parties would have fixed them, but the fixes are pretty good. With appropriate comments, perhaps other problems could be fixed, and of course the proposals may be fine-tuned and improved.

I link here to the Table of Contents for the proposed bill which I encourage readers to review.

JAT Comments:

My comments are necessarily selective for proposals that particularly interest me (based on my blogging). I encourage readers to read the entire bill and/or the section-by-section explanation.

1. Fixing the supervisor written approval timing requirement in § 6751(b). Sec. 113. Modification of procedural requirements for penalties and disallowance periods.

As I have noted before, current § 6751(b) is poorly drafted. See e.g., Eleventh Circuit Makes Clarity from Confusion as to the Written Supervisor Approval in § 6751(b) (Federal Tax Procedure Blog 9/20/22), here. Poor draftsmanship is not surprising given its genesis in the IRS Restructuring and Reform Act of 1998. See Federal Tax Procedure (2024 Practitioner Ed.) pp. 345 and (2024 Student Ed.) 22. I have posted 26 blog entries, here, on the Federal Tax Procedure Blog discussing § 6751(b). The poor draftsmanship has given hope to those who have abused the tax system that they can avoid penalties for playing the audit lottery for a real or perceived IRS footfault in the assertion of penalties. This hope has played itself out in, for example, syndicated conservation easement cases as recently as January 30 in Park Lake II v. Commissioner, T.C. Memo. 2025-11, GS here (finding no footfault, so that the case can proceed on the merits which may be not much but will chew up a lot of IRS, taxpayer, and Court time and resources).

The solution in the proposed bill is to amend § 6751(b) to require that the supervisor approval must occur before the initial determination of the penalty (much like the current law) but defines initial determination by adding at the end of § 6751(b):

Tax Court Rejects Constitutional Challenges to Appeals Office CDP Participation (1/30/25)

In Tooke v. Commissioner, 164 T.C. ___, No. 2 (1/29/25), here * and GS here**, the Court, in a CDP case, rejected taxpayer arguments that (i) Appeals Office participants violated the Appointments Clause of the Constitution and (ii) Appeals Office violated the Separation of Powers requirement of the Constitution. I just provided a nonnuanced summary of the arguments rejected. This blog entry will serve primarily as notice to practitioners and students of the holding, an important one; I copy and paste the Tax Court syllabus which, I think, fairly summarizes the full opinion:

           P filed federal income tax returns for taxable years 2012 through 2017 but did not pay the tax. The Internal Revenue Service (IRS) assessed the tax and separately issued P a Notice of Federal Tax Lien Filing and a Final Notice of Intent to Levy. P timely requested a collection due process (CDP) hearing with the IRS Independent Office of Appeals (Appeals). During the CDP hearing, P raised constitutional arguments that Appeals, and the employees who work therein, serve in violation of the constitutional separation of powers, particularly the Appointments Clause; these arguments were rejected. The Appeals Officer prepared a draft Notice of Determination, which was subsequently reviewed and approved by the Appeals Team Manager.

          Pursuant to I.R.C. § 6330(d)(1), P timely filed a Petition with the Tax Court. During this proceeding, P filed two Motions concerning the constitutional separation of powers and the CDP hearing before Appeals: (1) an Appointments Clause Motion, asserting that the Appeals Officers who conducted the CDP hearing, the Appeals Team Manager who reviewed and approved the Notice of Determination, and the Chief of Appeals (Chief), who the statutory scheme tasks with the “supervision and direction” of Appeals, see I.R.C. § 7803(e)(2)(A), but did not  [*2] participate in the CDP hearing, each serve in violation of the Appointments Clause, see U.S. Const. art. II, § 2, cl. 2; and (2) a Separation of Powers Motion (Removal Power Motion), asserting that Appeals, codified by the Taxpayer First Act, Pub. L. No. 116-25, § 1001(a), 133 Stat. 981, 983 (2019) (codified at I.R.C. § 7803(e)(1)), is a de facto independent agency whose head, the Chief, a position also codified by the Taxpayer First Act § 1001(a), 133 Stat. at 983 (codified at I.R.C. § 7803(e)(2)(a)), is subject to an unlawful removal restriction.

          Held: We reject P’s “root-to-branch” theory of causation. P has not made the necessary showing that the Chief’s tenure affected his hearing and prejudiced him in some way. See, e.g., United States v. Smith, 962 F.3d 755 (4th Cir. 2020); United States v. Castillo, 772 F. App’x 11 (3d Cir. 2019).

Schwarzbaum Redux – 11th Circuit Issues New Opinion to Correct Statement of FBAR Willfulness Civil Penalty Standard (1/23/25)

 In United States v. Schwarzbaum, ___ F.4th ___ (11th Cir. 1/23/25), CA11 here and GS here, the 11^th Circuit revisited the long-running Schwarzbaum FBAR civil penalty litigation. I discussed the immediately preceding visitation/opinion in 11th Circuit on Third Consideration Seals FBAR Willful Penalty Except for Relatively Small Amount Held Excessive Fine under 8th Amendment (Federal Tax Procedure Blog 9/4/24) here. In this new opinion, issued yesterday, the Court starts:

Appellee’s [United States’] petition for panel rehearing is GRANTED. We VACATE our prior opinion in this case and substitute the following in its place:

The Slip Opinion for the prior opinion was 53 pages; the Slip Opinion for this new opinion is 55 pages. For purposes of Federal Tax Crimes and Federal Tax Procedure Blogs, the material changes * only correct misstatements in the original opinion that the FBAR willfulness civil penalty standard is the same as the FBAR willfulness criminal penalty standard (the Cheek/Ratzlaf standard). (See new footnotes on p. 40 n. 7 and p. 46 n. 10.) As all readers of this blog surely know, the civil penalty standard includes recklessness but the criminal penalty standard requires the stricter specific intent requirement in Cheek and Ratzlaf. I don’t think that those corrections affect the bottom-line holdings, so I just copy and paste the succinct summary I provided in the original blog entry.

(1)  (a) held the FBAR civil willful penalties are “fines” within the meaning of the Eighth Amendment; (b) held the minimum $100,000 penalties applying to Schwarzbaum’s accounts with small amounts (those $16,000 or less) are disproportional and excessive; (c) held the penalties on the accounts with significantly larger amounts are not disproportional and thus not excessive; and (d) remanded to the district court to determine the effect of the $300,000 reduction required by the (1)(b) holding.

(2)   (a) rejected Schwarzbaum’s attack that, in a prior appeal, the court held the assessment was “arbitrary and capricious” and thus rendered the assessments invalid from inception; instead holding that the prior holding was that the assessment was “not in accordance with law,” a different standard under APA § 706(2)(A), requiring a remand to the IRS to fix the calculation mistake rather than wipe out the assessments; (b) rejected a related statute of limitations argument that the remand required a new out of time assessment, holding the issue had been decided against Schwarzbaum in an earlier appeal; (c) sustained a lower assessment rather than the correct assessment which would have been higher; and (d) held the district court properly remanded the case to the IRS and retained jurisdiction of the case to consider after the IRS recalculated the penalties.

Supreme Court Stays District Court Injunction Against Filing Requirements of Corporate Transparency Act (1/24/25; 1/26/25)

Corporate Transparency Act Case Overview

The first Corporate Transparency Act ("CTA") case to reach the Supreme Court involved a preliminary skirmish over a district court’s universal injunction. This injunction prevented the Treasury and the IRS from enforcing the filing requirements of the Corporate Transparency Act (“CTA”). For more details, see Texas District Court Enjoins the Corporate Transparency Act Nationwide (Federal Tax Procedure Blog (12/5/24; 1/6/25), here, as well as the articles linked below.

Legal Proceedings

The district court action consisting of holding the CTA unconstitutional and enjoining the CTA spawned the following:

1.   Appeal on the Merits: The appeal on the merits to the Fifth Circuit is currently pending expedited consideration.

2.   Requests to Lift the Injunction: Requests to lift the injunction filed (i) in the Fifth Circuit, which ultimately denied the request, and then (ii) in the Supreme Court where it was docketed as No. 24A653, here.

Supreme Court Order

On January 23, 2025, the Supreme Court entered an order on the docket (No. 24A653), here:

Application (24A653) for stay presented to Justice Alito and by him referred to the Court is granted. The December 5, 2024 amended order of the United States District Court for the Eastern District of Texas, case No. 4:24–cv–478, is stayed pending the disposition of the appeal in the United States Court of Appeals for the Fifth Circuit and disposition of a petition for a writ of certiorari, if such a writ is timely sought. Should certiorari be denied, this stay shall terminate automatically. In the event certiorari is granted, the stay shall terminate upon the sending down of the judgment of this Court. Justice Gorsuch concurring in the grant of stay. (Detached Opinion). Justice Jackson dissenting in the grant of stay. (Detached Opinion)

Media Coverage

Use of AI, Including Large Language Models (LLMs), in Tax Court Brief Writing (And Really Other Legal Analysis) (1/22/25; 1/23/25)

 AI (artificial intelligence) is ubiquitous now; or at least the discussion of AI is ubiquitous. See generally Artificial intelligence. (2025, January 22), Wikipedia, here.  I asked ChatGPT about use of AI by lawyers and received the response linked here. I write today on some instances recently called to my attention of misuse of AI in briefing in Tax Court cases, but I understand that similar misuse has been identified in briefing in other courts.

Use of AI in legal briefing has received considerable attention, from general discussion of the strengths and weaknesses to specific instances where lawyers have been called out when they used AI that failed. E.g., Is AI a Good Tool for Legal Brief Writing? (Spellbook 10/22/24), here (general discussion, but noting in part for today’s blog that “AI tools can sometimes "hallucinate" information and generate fake citations that human lawyers must carefully check.”); What Are the Best AI Tools for Writing Legal Briefs? (Bloomberg Law 6/10/24), here (nothing that AI in large language models (“LLM”) can produce “false information” via what are called “hallucinations;” and that, as a result, “21 federal trial judges have issued standing orders regarding AI, and attorneys are often required to disclose all uses of AI.”) Suffice it to say that my understanding is that AI generated content must be carefully checked and appropriate revisions made before submitting that content in a brief submitted to the court. (This is confirmed by my limited use of AI as discussed at the end of this blog.)

The Tax Court has no formal rule addressing the use of AI. However, a reader recently advised me of two Tax Court Orders by Judge Buch addressing the issue. Thomas v. Commissioner (T.C. Dkt 10795-22 at #36 Order dtd 10/23/24), here; and Westlake Housing, L.P. v. Commissioner (T.C. Dkt. No. 478-24L at # 32 Order dated 1/13/25), here. (I have posted both orders to my Google Docs to permit a permalink that readers can directly access without having to go through the DAWSON docket sheet which does not offer a permalink for direct access to the orders.)

Thomas is a short order (5 pages); Westlake is even shorter (2 pages). I discuss Thomas in some detail. The Court (Judge Buch) sets the issue up in its opening paragraph:

          This case was tried on September 17, 2024, in Atlanta, Georgia. In preparing for trial, the Court noticed that some of the authorities cited in petitioner’s Pretrial Memorandum did not exist, evidencing possible AI hallucinations. To inquire into these authorities, the Court held a hearing to provide petitioner’s counsel an opportunity to clarify the Pretrial Memorandum. During that hearing, petitioner’s counsel explained that someone else had prepared the Pretrial Memorandum, and she did not review the work that was provided to her. Rule 33 instructs that, in signing a pleading, counsel is certifying that he or she has read the pleading, that it is well grounded in fact; and that it is warranted by existing law. Because the Pretrial Memorandum violates this standard, we will deem it to be stricken. We will also take this occasion to address the use of AI as a tool to assist petitioners and practitioners. As discussed below, however, striking the Pretrial Memorandum will not affect the ultimate outcome in this case.

After then summarizing nicely the role of the Pretrial Memorandum (pp. 1 & 2), the Court noted:

Supreme Court Accepts Cert in Zuch as to Mootness in CDP where IRS Collected by Offset the Tax Subject to Levy (1/13/25)

On Friday, January 10, 2024, the Supreme Court granted the Solicitor General’s petition for writ of certiorari in Commissioner v. Zuch (S.Ct. No. 24-416), here. The order granting the petition is here; the Supreme Court’s docket sheet is here; the Third Circuit opinion is Zuch v. Commissioner, 97 F.4th 81 (3rd Cir. 2024), here. My blog on the 3^rd Circuit panel opinion in Zuch is 3rd Circuit Holds Tax Court Has Jurisdiction to Determine Overpayments in CDP Proceedings (3/29/24; 3/30/24), here. (Although I cite my prior blog, I recommend those new to the issue, spend their time on the briefing on the petition for writ of certiorari and the 3rd Circuit panel opinion.)

The Question Presented from the petition, filed by Solicitor General Prelogar but naming attorneys from the Solicitor General’s office and the Tax Division, is:

Whether a proceeding under 26 U.S.C. 6330 for a pre-deprivation determination about a levy proposed by the Internal Revenue Service to collect unpaid taxes becomes moot when there is no longer a live dispute over the proposed levy that gave rise to the proceeding.

The Question Presented from the Brief in Opposition. here, filed by a formidable Skadden Arps team led by Shay Dvoretzky, here, and joined by the ubiquitous Frank Agostino, here,

          The Internal Revenue Code authorizes the IRS to levy—that is, seize—a taxpayer’s property to collect unpaid taxes, but only after providing the taxpayer with notice and an opportunity for an administrative hearing before the IRS Independent Office of Appeals. (Appeals Office). See I.R.C. § 6330. At the hearing, the taxpayer may raise “any relevant issue relating to the unpaid tax or the proposed levy.” I.R.C. § 6330(c)(2)(A). The taxpayer may also challenge her underlying tax liability if she did not previously have an opportunity to do so. I.R.C. § 6330(c)(2)(B). After the Appeals Office renders its decision, the taxpayer may “petition the Tax Court for review of such determination,” “and the Tax Court shall have jurisdiction with respect to such matter.” I.R.C. § 6330(d)(1).

          The question presented is whether the Tax Court retains jurisdiction under I.R.C. § 6330 to review and issue declaratory relief as to the Appeals Office’s determination of the taxpayer’s underlying liability when, despite the parties’ live dispute about that liability, the IRS stops pursuing the levy.

JAT Comments:

Updates on Developments in IRS Penalty Administration and Voluntary Disclosure (1/11/25; 1/15/25)

 I post here links to earlier posts on my Federal Tax Procedure Blog about the IRS’s Voluntary Disclosure Practice (“VDP”). ABA Tax Section Comments on VDP Disclosure Form 14457, Voluntary Disclosure Practice Preclearance and Application (1/5/25), here; and IRS Voluntary Disclosure Practice (VDP) Requires Taxpayer Admit Criminal Willfulness (11/29/24; 1/5/25), here.

Also, I have just recently learned that, in the National Taxpayer Advocate’s Annual Report to Congress 2024, here, the NTA discusses two of 10 Most Serious Problems Encountered by Taxpayers that relate to tax administration of the type addressed in this blog (Federal Tax Crimes) and the companion blog (Federal Tax Procedure). Items 9 and 10 are, respectively:

9. Civil Penalty Administration (pdf 16 pages), here; and

10. Criminal Voluntary Disclosure (pdf 17 pages), here.

The most relevant to the initial item in this blog is the Criminal Voluntary Disclosure which I generally refer to as the IRS Voluntary Disclosure Practice (“VDP”). From the discussion of both items, I gather that the practitioner community has major concerns with IRS administration, that the NTA has listened to those concerns (calling the community “external stakeholders”), and that, in large part, the NTA has adopted those concerns.

Added 1/15/25 8:15pm: On the IRS Voluntary Disclosure Practice, see Dan Price, Is the IRS Trying to Terminate the Voluntary Disclosure Practice? 185 Tax Notes Federal 1573 (11/25/24), here, echoing some of the themes in the NTA's Item 10 above. Dan's article is offered with permission of Tax Analysts.

Although it probably does not matter what I believe, I will state my belief anyway:

On Remand from Supreme Court on Chevron's Demise, D.C. Circuit Holds that Agency Interpretation is Best Interpretation (1/11/25; 1/12/25)

Yesterday, the D.C. Circuit decided Lissack v. Commissioner, 125 F.4th 245(D.C. Cir. 1/10/25), D.C. Cir. here and GS here. The Supreme Court had remanded Lissack to re-consider its previous opinion in Lissack v. Commissioner, 68 F.4th 1312 (D.C. Cir. 2023), here in light of the demise of deference in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024), here.

I first describe the current Lissack decision in a straightforward manner. After that, I will discuss Lissack as an example of the type of case where, during the Chevron regime, courts , determined that the agency interpretation was the best interpretation and cited Chevron because best interpretations are necessarily reasonable; in effect, where that phenomenon occurs the courts have not deferred to the agency interpretation even though they may cite and discuss Chevron. But let’s first turn to the current Lissack decision.

Bottom-line, the Lissack panel determines that the agency interpretation is the best interpretation and therefore denies Lissack relief for that reason. Added 1/12/25 1:00pm: The Lissack panel opinion cites (Slip Op. 23-24; 124 F.4th, p. 259) Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944) because it found the IRS interpretation had "persuasive value," saying that it "makes good sense." Finding the IRS interpretation persuasive is not deference.

The context, highly summarized, is: Lissack filed a whistleblower claim regarding a condominium group’s treatment of membership deposits. The IRS decided to audit as a result of Lissack’s claim; otherwise, the IRS would not have audited at all. During the audit, the IRS made two key decisions: (i) that the taxpayer correctly reported the membership deposits, thus collecting no proceeds based on the whistleblower's claims; and (ii) that the taxpayer impermissibly claimed a deduction for an intercompany debt, thus collecting proceeds. The interpretive regulation required that, for a whistleblower award, the adjustment and related collected proceeds, the base for the award, must arise from the whistleblower’s claims. In other words, adjustments and collected proceeds unrelated to the whistleblower’s claims do not give rise to an award. The D.C. Circuit panel thus held that the IRS regulation treating separate adjustments as separate administrative actions was the best reading of the statute. (See Slip Op. 17-26; 125 F.4th, pp. 258-260)

The whistleblower argued for a “but for” test that asked whether the IRS discovered the adjustments because of the whistleblower’s claims which was the case here because the IRS started the audit that it would not have otherwise started because of the whistleblower’s claims. The D.C. Circuit panel rejected that argument.

The D.C. Circuit panel also rejected other whistleblower arguments about discovery and trial de novo but I discuss here only the Chevron issue, the basis for the remand from the Supreme Court.

 Agency Interpretation is Best Reading of Statute

ABA Tax Section Comments on VDP Disclosure Form 14457, Voluntary Disclosure Practice Preclearance and Application (1/5/25)

I previously expressed concerns about the IRS VDP Practice reflected in Form 14457, Voluntary Disclosure Practice Preclearance and Application (November 2024) I was concerned with the requirement that the taxpayer admit criminal willfulness in order to complete parts of the application. IRS Voluntary Disclosure Practice (VDP) Requires Taxpayer Admit Criminal Willfulness (11/29/24; 1/5/25), here.

The purpose of this post is to alert practitioners of the ABA Tax Section’s Comments on the Form 14457. See 12/20/24 Abreu Cover Letter to Werfel, Commissioner, with Comments on VDP and Streamlined Filing, TN here.

I do not offer further comments principally for lack of time and energy (I came down with a significant serious flue-type affliction shortly after Christmas, and have not regained full energy but should later next week (in which I case I might offer comments by expanding this blog entry)). In addition, I am not yet sure that my comments could add anything material to the ABA Tax Section comments. See the list of persons contributing to the comments.

I also alert readers that I have significantly revised (or re-revised) the VDP discussion in my Federal Tax Procedure Book. The revisions are here. See also Federal Tax Procedure Book 2024 Editions Updates (7/26/24; 1/5/25), here.