Second Circuit Says § 6751(b) Means What It Says-Appeals Officer in CDP Appeal Must Verify the Supervisor Approval Requirement (6/30/29)

In Besicorp Group, Inc. v. Commissioner, ___ F.4th ___ (2d Cir. 2026), 2Cir here and GS here, the Court held that, in a CDP Appeals Office Conference, the Appeals Officer must verify the IRS’s compliance with § 6751(b)’s written supervisor approval requirement for penalties. The Court says that in 29 pages cogently, if not succinctly, traversing the applicable statute and other authority. Those 29 pages are not all fluff without lessons for students and practitioners, so I address certain key points.

1. I open with a comment I make in a soon to be published article. Section 6751(b) is nonsensical and a textual mess. That comment was focused on the courts’ flailing around to make sense of the mess and was an argument for courts to approve the regulations adopted in December 2024 to make sense of key components of § 6751(b). However, as to the text in § 6751(b) that Besicorp interprets and applies, the text is clear, so Besicorp is correct that CDP Appeals Office proceedings require verification of the written supervisor approval requirement. (I except from that the possible application of res judicata discussed below in ¶ 5.) That is a textualist reading of the text; I don’t see any reasonable mode of interpretation that would reach a different conclusion.

2. Of course, in making that verification, the Appeals Officer must wade into the mess of the other components of § 6751(b) which are a mess with differing interpretations by the courts. I suppose, the Appeals Officer might rely upon the § 6751(b) regulations, either proposed or permanent, although the Besicorp Appeals Office hearing likely occurred before the regulations were proposed or adopted. (In this regard, the Second Circuit argument in Besicorp was 2/5/24; and Besicorp (and consolidated cases) were filed in the Tax Court in 2017. See T.C. dkt. Entries here, before the 2024 regulations were even a twinkle in the Commissioner’s eye.

3. The income tax liabilities in Besicorp and consolidated cases arose from bullshit tax shelters. The Court says the tax and interest (Slip Op. 3) reporting and tax savings from “tax shelter transactions designed to avoid the payment of taxes,” as determined by the IRS. The tax shelter transactions were of the “intermediary tax shelter” aka Midco ilk. (Slip Op. 10.) Besicorp’s deficiency was $50 million. (Slip Op. 5.) And, being a category of bullshit tax shelters, the IRS also asserted the 40% penalty which for Besicorp was “roughly $20 million penalty on a $50 million deficiency for its accuracy-related gross valuation misstatements,” citing § 6662(h). (Slip Op. 5.)

4. The taxpayers involved in Besicorp and consolidated cases may have been affiliated with the promoters who promoted the bullshit tax shelters. Indeed, from my work in this area, I found it was not uncommon for the promoters who “earned” very large amounts from promoting the fake tax savings (a price taxpayers were willing to pay for fraud insurance) to themselves then “shelter” their income with their own bullshit tax shelters (always permitting some variance in the smoke and mirrors game). I note in this regard that one of the attorneys for the taxpayers was also an attorney for at least one promoter and related corporation.

Wherefore Art Thou Tax Court? (6/29/26; 7/1/26)

In two cases today, the Court held that

• The general rule is that (i) the President can fire executive agency personnel at will even if the statute says that they can only be removed for cause or for some other similarly worded reason  Trump v. Slaughter, 609 U. S. ___ (2026) (stating the general rule); but
• An exception to the general rule in the case  of members of the Board of Governors of the Federal Reserve where the statute requires “for cause” removal. Trump v. Cook, 609 U. S. ____ (2026) (stating the exception).

The opinions may be viewed and downloaded here: Trump v. Slaughter, SC Slip Op. here and GS here; and Trump v. Cook, SC Slip Op. here and GS here. 

Of course, the general rule (concocted under the “unitary executive” theory) and the exception require a definition of an executive agency subject to the respective rule and exception. In other words, it is not clear that Cook states a single exception applicable to the Federal Reserve. 

In the tax world, the Tax Court is potentially implicated in this brouhaha. Consider the following statutory text:

26 U.S. Code § 7441 – Status
There is hereby established, under article I of the Constitution of the United States, a court of record to be known as the United States Tax Court. The members of the Tax Court shall be the chief judge and the judges of the Tax Court. The Tax Court is not an agency of, and shall be independent of, the executive branch of the Government.

26 U.S. Code § 7443 - Membership
* * * *
(f)Removal from office
Judges of the Tax Court may be removed by the President, after notice and opportunity for public hearing, for inefficiency, neglect of duty, or malfeasance in office, but for no other cause.

A strict textual reading of § 7441 specifically states that the Tax Court is not an executive body (agency in administrative law lingo). The President has the power to appoint Tax Court Judges, “by and with the advice and consent of the Senate, solely on the grounds of fitness to perform the duties of the office.”  § 7443(b). (That may suggest that politics should not be involved, but babies come in baskets (although politics is involved some of the Tax Court Judges are exceptional on the metric of “fitness to perform”).) Then, once the Senate has advised and consented, the President alone has the power to remove Tax Court Judges but only, to repeat, “after notice and opportunity for public hearing, for inefficiency, neglect of duty, or malfeasance in office, but for no other cause.”

Supreme Court Denies Cert in Murrin on Issue of Whether Taxpayer's Fraud is Required for § 6501(c)(1) Unlimited Statute of Limitations (6/22/26)

Today, the Supreme Court denied the petition for certiorari in Murrin v. Commissioner (Sup. Ct. No. 25-988), docket here. See Order List dated 6/22/26, here at p.3, The Third Circuit opinion from which Murrin sought cert was Murrin v. Commissioner, 158 F.4th 527 (3rd Cir. 2025), here.

The question presented in the petition here was:

Whether, under 26 U.S.C. § 6501(c)(1), the IRS may assess tax beyond the Code’s three-year limitations period based solely on the fraudulent intent of a third-party, even when the taxpayer herself neither intended to evade tax nor knew of any wrongdoing.

The question as framed by the SG in the Commissioner’s Brief in Opposition here was:

Whether the indefinite limitations period in 26 U.S.C. 6501(c)(1) applies to a false or fraudulent return prepared by a tax return preparer who acted with the intent to evade tax.

Tax Court Sustains IRS Interpretation for the Research Credit as Best Interpretation or, Possibly, with Loper Bright Deference from § 7805(a) (6/19/26)

In Smith v. Commissioner, T.C. Memo. 2026-50, TC No, 13382-17 here at #286 dated 6/16/26 and GS here, the Court sustained a regulations interpretation of the research credit over the taxpayers’ Loper Bright objections. Readers will recall that Loper Bright rejected Chevron deference for agency interpretations, exhorting courts to determine and apply the “best” interpretation. “Best interpretation” was not an inflexible command; Loper Bright permitted deference to agency interpretations when delegation was expressly or impliedly granted by Congress and courts might still find the agency interpretation persuasive under Skidmore.

A number of pre-Loper Bright cases sustained the applicable agency regulation by applying Chevron deference. In Smith, the taxpayers argued that (*30) “under the Supreme Court's landmark decision in Loper Bright, Treasury Regulation § 1.41-4A(d) is no longer the single best reading of section 41(d)(4)(H).”

One problem with the taxpayers’ argument was that prior cases had sustained the interpretation under Chevron. The Smith opinion mentions (*31) “statutory stare decisis” which Loper Bright expressly approved for pre-Loper Bright cases applying (or appearing to apply) Chevron deference. Smith concludes that discussion (*33):

           Thus, we find that the holdings in our prior cases and the aforementioned decisions of the Federal Circuit and Federal Claims continue to remain in effect. See Diversified Grp. Inc. v. Commissioner, Nos. 17038-18L, et al., 166 T.C., slip op. at 21–22 (2026); see also, e.g., Garcia Pinach v. Bondi, 147 F.4th 117, 121, 131–33 (2d Cir. 2025) (analyzing Loper Bright and the doctrine of statutory stare decisis and leaving undisturbed the holding of a prior panel opinion).

More importantly, Smith reasons (*33-*34, emphasis supplied by JAT):

          Moreover, we find respondent’s power to persuade argument compelling. In reaching a conclusion on the validity of a regulation we may give “[c]areful attention to the judgment of the Executive Branch.” Loper Bright, 144 S. Ct. at 2273. For the views of Treasury in this context “constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance.” Id. at 2262 [*34] (quoting Skidmore, 323 U.S. at 140). “The weight of such a judgment in a particular case,” of course, “depend[s] upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.” Id. at 2259 (quoting Skidmore, 323 U.S. at 140); see also Varian Med. Sys., 163 T.C. at 106. Congress has delegated authority to Treasury under section 7805(a) to define criteria for Congress’s funded research exclusion found in section 41(d)(4)(H). Here, Treasury has exercised that authority and issued longstanding and favorable administrative guidance that offers both clarity and certainty for taxpayers.

Considering the foregoing, we conclude the regulatory requirements found in Treasury Regulation § 1.41-4A(d) used to determine whether research is funded are reasonably related to and otherwise consistent with the intent of section 41(d)(4)(H). Accordingly, we reject petitioners’ contention that the Supreme Court’s decision in Loper Bright undermines the prior decisions that relied on Treasury Regulation § 1.41-4A(d) and their effects as precedent in these cases. Further, we reject petitioners’ reading of the phrase “to the extent funded by any grant, contract, or otherwise” found in section 41(d)(4)(H) to mean only “a sum of money set apart for a specific objective” and likewise determine our reading of this phrase would not be as beneficial as the Treasury regulation requirements. In other words, we find no benefit to petitioners’ argument, should we be inclined to reject respondent’s reading of the Code for our own.

          On the basis of the foregoing, we decline to invalidate Treasury Regulation § 1.41-4A(d) and the requirements for determining funded research under section 41(d)(4)(H) incorporating both “contingent on success” and “substantial rights” elements.

As I read this, Smith is saying that, although the prior cases may have noised about Chevron deference and in some cases even appeared to apply Chevron deference, in truth and might pass muster under statutory stare decisis, the IRS interpretation was the “best” interpretation, passing muster under Loper Bright’s de novo interpretation imperative.

Smith muddles on the point of best interpretation by citing § 7805(a) as a Congressional delegation of interpretive authority for the substantive Code provision. Is Smith suggesting in citing § 7805(a) that the interpretive regulation was a delegation qualifying for Loper Bright deference? If so, since Smith seems to have determined the agency interpretation was the best, was the citation of § 7805(a) necessary or even appropriate?

One side note on § 7805(a): Throughout its history, § 7805(a) has been authority for interpretive regulations. That authority was muddled by those claiming that interpretive regulations when applied by courts using Chevron deference meant that the interpretive regulation was transformed into a legislative regulation. That claim was always nonsense (even when made by Justice Scalia); with the demise of Chevron deference, courts are free to get past the nonsense. 

D.C. District Court Vacates IRS Notice Limiting Test for Clean Energy Credit (6/18/26)

In Oregon Env. Council v. IRS, ___ F.Supp.3d ___ (D. D.C. 6/6/26), CL here and GS here, the Court rejected the IRS attempt to eliminate one of the tests the IRS had used to satisfy the “beginning of construction” dates for clean energy tax credits. For a long time, the IRS had Notices permitting “beginning of construction” to be tested under the “Physical Work Test” and the ”Five Percent Test” (or “Safe Harbor”). By Notice 2025-42, 2025-36, IRB 351 (2025), the IRS eliminated the Five Percent Test.

The Notice was based on the President’s Executive Order No. 14,315, titled  "Ending Market Distorting Subsidies for Unreliable, Foreign Controlled Energy Sources," directing the IRS to "take all action as the [Secretary] deems necessary and appropriate to strictly enforce the termination of the clean electricity production and investment tax credits under sections 45Y and 48E of the Internal Revenue Code for wind and solar facilities." Soon after the Executive Order but before Notice 2025-42, reacting to the Executive Order, “multiple interested parties,” filed comments. Some commenters urged the IRS to retain the existing tests, called the “Physical Work Test” and the ”Five Percent Test” (or “Safe Harbor”) or make any new test only prospective. Prominent Congressmen offered comments, some supporting the existing Tests. The IRS then issued Notice 2025-42, 2025-36, IRB 351 (2025) providing that the “beginning of construction” requirement will be based only on the Physical Work Test, thus eliminating the “Five Percent Test.”

The Plaintiffs (“a collection of governmental and private organizations”) sued alleging “that the Notice is harming them” in specific ways outlined in the opinion (but not relevant to this blog entry). Among the claims made was that the Notice violated the APA reasoned decisionmaking requirement for valid agency rules. See Motor Vehicle Manufacturers Ass'n of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 52 (1983).

After extensive analysis, the Court held (Slip Op. 49):

Notice 2025-42 falls short of these standards. The Notice’s elimination of the Five Percent Safe Harbor is a significant change in the IRS’s position on what it means to “begin construction” for purposes of clean energy tax credits. This changed position implicates “serious reliance interests,” which the agency actively invited by repeatedly restating its prior approach. See Encino Motorcars, 579 U.S. at 221–22. Although the record shows that the Defendants received clear warnings about those reliance interests before adopting the Notice, the agency failed to justify its decision to change course. Because neither the Notice nor the administrative record provides an explanation from which “the agency’s path may reasonably be discerned” in light of all the facts and circumstances, the Notice is arbitrary and capricious. See State Farm, 463 U.S. at 43.

On Legislative History—Supreme Court Faceoff Between Conservative and Liberal Justices with Comments (6/16/26)

In FS Credit Opportunities Corp.v. Saba Capital Master Fund, Ltd., 608 U. S. ____ (2026), decided June 22, 2026, SC here* and GS here**, the conservative and liberal Justices fussed about the proper role of legislative history in statutory interpretation. That fussing interested me because I had recently made substantial revisions to that fuss in my 2026 Working Draft of my Federal Tax Procedure book (Student and Practitioner Editions). I don’t think the fussing in FS Credit adds anything meaningful to the discussion, but it does offer a handy opportunity for those interested in the issue to be up to date on the Supreme Court’s views. So, I thought that, in addition to notifying readers and providing links to the Opinions, I would offer the current treatment of the issue from the Working Draft (due for publication on the SSRN platform in early August 2026). The Practitioner Working Draft (with text and footnotes) may be viewed or downloaded here. The Student edition is the Practitioner Edition text without the footnotes, so for readers generally I just copy and paste here the text only:

(5)    Legislative History in Statutory Interpretation.

           The pre-enactment history of enacted statutory text may be important in interpreting the enacted text (just as, for example, the history of the drafting and ratification of the Constitution may guide its interpretation). Relevant history is often discussed in two broad categories: Statutory History and Legislative History. (Actually, statutory history (defined below) is a subset of legislative history, but it is not uncommon to treat the two as separate categories.) Both types of history stop upon enactment of the statutory text being interpreted; at least conceptually, since the focus is on the meaning of the text upon enactment, there is no such concept as subsequent legislative history which at best would be comments on the meaning of the previously enacted text. (I return to subsequent legislative history below, beginning on p. 34.)

           Statutory history can include two broad categories: (i) enacted text only, including enacted text that has been revised by enacted text over time (call this category “enacted statutory history”); and (ii) the changes in the text of bills as they move through the legislative process to enactment (“drafting history”). Enacted statutory history considers only enacted text and any interpretive inferences that may be drawn from enacted text; drafting history also considers drafts of the text as it moved and changed through the legislative process. Textualists use enacted statutory history to draw inferences of enacted text meaning. Sometimes, textualists resort to drafting history treating it somewhat like enacted statutory history in drawing interpretive inferences.

           Legislative History includes all documents the legislature may have generated or considered in enacting the statutory text that might permit inferences as to the meaning of the enacted statutory text. Legislative history is the course of congressional consideration in identifying the need for legislation, drafting or revising the bills (the “drafting history” and statutory history for enacted statutory text), expressions by persons involved in the process as to how they understood the text of the bills, and the final statutory text. The principal sources of legislative history for statutes are the drafting history and the committee reports which I discuss below. (For tax legislation, the legislative history may also include proposals from Treasury (analogous to drafting history) and Treasury’s explanation of the proposals, most commonly along with Treasury’s annual budget request with tax proposals referred to as the Green Book.) Other sources include committee hearings, statements made on the floor of Congress in debating the legislation, and submissions to Congress by the executive branch. There is a long and substantial history of judicial use of legislative history in statutory interpretation, particularly in the tax area.