District Court Sustains IRS Summons at Treaty Partner's Request, Requesting Third-Party Contact Requirement (9/19/26)

In United States v. Yoon (N.D. Cal. No.26-cv-01423-VC  Order dtd 9/17/26 at # 34), CL here and GS here [to come], the Court enforced an IRS summons issued in response to a request by a treaty partner, South Korea. The significant issues addressed are:

1. The Government need only satisfy the four-part Powell test. United States v. Powell, 379 U.S. 48, 57–58 (1964). (Slip Op. 3.)

2. In applying Powell, only the IRS’s good faith is in issue, not the treaty partner’s good faith. Id.

3. Relevance of the summons to a legitimate tax investigation of the treaty partner is not in issue. (Slip Op. 4-5.) South Korea’s request to the IRS “said that all that information was relevant, and it only sought records from the years that match its investigation;” the “request seems sensible on its face.” There is no requirement to test the treaty partner’s statement of relevance.

4. The Court rejected Yoon’s argument that § 7602(c) requires 45-day notice which was not given here. (Slip Op. 5-7.) The notice period, although stated without limitation in the statutory text, is properly read in context not to apply to a summons issued at a treaty partner’s request. The Court concluded (Slip Op. 7) that “there is no ambiguity” as to that reading of the statute.

5. With regard to this interpretation of the statute, the Court acknowledged the IRS’s long-time consistent interpretation to that effect in Regulation § 301.7602-2(c)(3)(C), noting that the interpretation might in a state of ambiguity be useful in statutory interpretation (absent here), this consideration (Slip Op. 7-8): 

          For what it’s worth, another consideration works against Yoon here: the IRS’s own longstanding interpretation that section 7602(c) does not apply to foreign tax liabilities. 66 Fed. Reg. 77 (Jan. 2, 2001) (codified at 26 C.F.R. § 301.7602-2(c)(3)(C)). After considering the ordinary meaning of statutory language, a court may look to the interpretation of the agency responsible for implementing the statute. Leon-Vriviesca, 179 F.4th at 1191. Such agency interpretations receive “‘due respect,’ but not binding deference.” Lopez v. Garland, 116 F.4th 1032, 1039 (9th Cir. 2024) (quoting Loper Bright Enterprises v. Raimondo, 603 U.S. 369, 403 (2024)). The IRS’s regulation was issued in 2001, just a few years after the codification of section 7602(c) in 1998, and has remained consistent since then. Therefore, even if the statutory text were ambiguous, the IRS’s interpretation would be “especially useful in determining the statute’s meaning”—and that might cut against Yoon’s legislative purpose argument. Loper Bright, 603 U.S. at 394 (citing Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)).n5
   n5 The government makes an alternative argument that the general grant of rulemaking authority to the IRS in 26 U.S.C. § 7805(a) empowers the agency to “fill up details” in the statutory scheme; i.e., that section 7805(a) explicitly authorizes the agency to define the phrase “tax liability” in section 7602(c). But the best reading of the statutory text, informed by due respect to the IRS’s regulation, is that section 7602(c) does not apply to foreign tax liabilities. It is therefore not necessary to consider whether section 7805(a) can bear the weight that the government says it does.

 JAT Comments:

1. The foregoing quote from the opinion was the most interesting to me. The reason is that, given the Court’s finding no ambiguity in the statutory text through its interpretation, the quoted text is seemingly dicta to buttress the holding if the Court was not correct in finding no textual ambiguity.

2. I was particularly interested in the footnote acknowledging but not deciding Government’s claim that 7805(a) is a Loper Bright qualified delegation of interpretive authority. The Court said: it is “It is therefore not necessary to consider whether section 7805(a) can bear the weight that the government says it does.” I infer from the way the Court worded that last quote that it might have been skeptical of the claim. So, I went to the Government’s Motion and found that the 7805(a) argument is at the end of its brief, here at p. 14: 

iii. Alternatively, the Regulation is a proper exercise of the IRS’s delegated authority under § 7805.

          Sometimes “the statute’s meaning may well be that the agency is authorized to exercise a degree of discretion.” Loper Bright, 603 U.S. at 394. Like many statutes that “empower an agency to prescribe rules to ‘fill up the details’ of a statutory scheme,” id. at 395, § 7805(a) of the Internal Revenue Code delegates to the IRS the authority to “prescribe all needful rules and regulations for the enforcement of” the internal revenue laws. This is Congress’s “explicit authorization” for the IRS to define words left undefined. Mayo Found. for Med. Educ. v. United States, 562 U.S. 44, 57 (2011); see also McNamee v. Dep’t of Treasury, 488 F.3d 100, 105 (2d Cir. 2007) (“Congress expressly delegated authority to the [IRS] to adopt regulations to fill in gaps in the Code” under § 7805(a).). The IRS relied on § 7805 in promulgating the Regulation. See 26 C.F.R. § 301.7602-2. And the IRS acted appropriately within § 7805(a)’s delegation in defining “tax liability” as a Title 26 tax liability for § 7602(c)(1) notice purposes. Cf. Lesko v. United States, 161 F.4th 1352, 1360-64 & n.11 (Fed. Cir. 2025) (en banc) (upholding OPM regulation requiring written approval for overtime based on delegation similar to § 7805(a)). Thus, the Regulation should be upheld.

I think we are still at the early stages of courts’ consideration of the precise meaning of 7805(a) in the Loper Bright universe.