tag:blogger.com,1999:blog-17334898350010405762024-03-18T11:29:39.315-04:00Federal Tax ProcedureJack Townsend offers this blog in conjunction with his Federal Tax Procedure Books, currently in the 2019 editions (Student and Practitioner). Annual editions of the books are published in August. Those books may be downloaded from SSRN (see the page link in the top right hand column of this blog title 2019 Federal Tax Procedure Book & Updates). In addition, Jack uses this blog to discuss issues of federal tax procedure.Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.comBlogger626125tag:blogger.com,1999:blog-1733489835001040576.post-60406639403679626862024-03-18T11:01:00.009-04:002024-03-18T11:29:07.455-04:00War Story-Appellate: My Early Brush (1969) with Administrative Law Meaning of Legislative Regulations (3/16/24)<p><span style="font-family: inherit;">I am starting a new series of procedure-related appellate
war stories, mostly from my time with DOJ Tax Appellate Section (1969-1974). The purpose of the series is to tell the war story because it is interesting to me but to do so only when the telling of the story offers some opportunity for students (including for this purpose, practitioners) to learn from the story. I have
previously posted some such war stories; all such stories will be under the label
“War Story-Appellate", <a href="https://federaltaxprocedure.blogspot.com/search/label/War%20Story-Appellate">here</a>
(the link can be clicked at any time to show all postings).</span></p><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Today’s War Story-Appellate relates to one of the first
cases I handled with DOJ Tax, </span><i style="font-family: inherit;">Davis v. Commissioner</i><span style="font-family: inherit;">, 422 F.2d 401 (6th
Cir. 1970), </span><a href="https://scholar.google.com/scholar_case?case=10633872539526261019" style="font-family: inherit;">here</a><span style="font-family: inherit;">.
I wrote the brief in late 1969; the case was decided in 1970. The substantive
issue was whether the taxpayer had proved entitlement to more expenses than
allowed by the Tax Court. That is not a tough issue to address and is factual with no precedential importance. The Sixth
Circuit addressed it in a one-line per curiam opinion:</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote>On consideration of the files and records in this case, the
judgement of the Tax Court is affirmed for the reasons set forth in the
Memorandum Opinion of the Tax Court, Tax Ct. Memo 1969-74.</blockquote><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">As I have said before in War Story-Appellate, the DOJ Tax Appellate
Section did not assign tough cases to relatively new attorneys. I had joined DOJ Tax Appellate in June 1969. I had not yet proved my self capable of handling more difficult cases.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">My <i>Davis</i> assignment had a more significant threshold procedural issue that is not
addressed in the Sixth Circuit’s one-line per curiam opinion. The issue was (presented
in our brief as filed, <a href="https://drive.google.com/file/d/12QatpGwA3iC0dO4N7IjS7Zul7uwuvpv4/view?usp=sharing">here</a>, p. 1):</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote>1. Whether this Court has jurisdiction over the merits of this
appeal when taxpayer failed to file a notice of appeal until ninety-two days
after entry of the Tax Court decision.</blockquote><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">Actually, that question was written by my reviewer, Tom
Stapleton. In my draft (<a href="https://drive.google.com/file/d/1cdk-TSk370gWpAy0GEIB8njjrZtbehEo/view?usp=sharing">here</a>), I stated the question as follows:</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote>1, Whether the taxpayer's untimely filing of the notice of
appeal from the Tax Court's decision denies this Court from deciding the merits
of the appeal.</blockquote><p></p><p class="MsoNormal"><span style="font-family: inherit;">Tom’s version was better, but still not optimal. How would I
improve the question today? Here is my current shot at the best statement of the issue.</span></p><p class="MsoNormal"></p><blockquote><span style="font-family: inherit;">1. Whether FRAP 13(a)'s requirement to file notice of appeal within 90 days from the Tax Court decision override the previously enacted statute's (</span>§ 7483) three-month requirement.<span><a name='more'></a></span></blockquote><p></p><p class="MsoNormal"><span style="font-family: inherit;">This current statement of the issue does not suggest (or argue by question) the answer we wanted, but it does pack more information as to the conflict than my original proposal or Stapleton's amendment for the final brief.</span></p><p class="MsoNormal"><span style="font-family: inherit;">Question to readers: Which statement of the issue is better? Why? Can you frame a better statement?</span></p><p class="MsoNormal"><span style="font-family: inherit;">The issue of the timeliness of the appeal arose because of a
conflict between (i) the statute, § 7483, </span><a href="https://www.law.cornell.edu/uscode/text/26/7483" style="font-family: inherit;">here</a><span style="font-family: inherit;">, as </span><b style="font-family: inherit;">then written</b><span style="font-family: inherit;">, required appeal from a
Tax Court decision within “three months” and (ii) FRAP Rule 13(a), <a href="https://www.law.cornell.edu/rules/frap/rule_13">here</a> requiring
appeal from a Tax Court decision within 90 days. As a result of this case, in
1969, Congress amended the statute, see </span><a href="https://www.govinfo.gov/content/pkg/STATUTE-83/pdf/STATUTE-83-Pg487.pdf#page=248" style="font-family: inherit;">here</a><span style="font-family: inherit;">,
prospectively from the date of enactment December 30, 1969. See § 959, P.L.
91-172 (Tax Reform Act of 1969), 83 Stat. 734, </span><a href="https://www.govinfo.gov/content/pkg/STATUTE-83/pdf/STATUTE-83-Pg487.pdf#page=248" style="font-family: inherit;">here</a><span style="font-family: inherit;">.
The amendment requires appeal within 90 days, thus conforming the statute to FRAP Rule 13(a). The Act further provides </span>§ 962(f) (not codified) to fix the <i>Davis</i> problem:</p><p class="MsoNormal"></p><blockquote>(f) The amendments made by sections 959 and 960(h) shall take effect 30 days after the date of the enactment of this Act. In the case of any decision of the Tax Court entered before the 30th day after the date of the enactment of this Act, the United States Courts of Appeals shall have jurisdiction to hear an appeal from such decision, if such appeal was filed within the time prescribed by Rule 13(a) of the Federal Rules of Appellate Procedure or by section 7483 of the Internal Reveuue Code of 1954, as in effect at the time the decision of the Tax Court was entered. </blockquote><p></p><p class="MsoNormal"><span style="font-family: inherit;">I don't recall now whether I was involved in the amendment but if so it was probably just to confirm the problem and the solution.</span></p><p class="MsoNormal">Lesson for students: The above subsection (f) is not in the Code provision but is in the Notes accompanying the Code provision. <b>It is important to read those notes.</b></p>
<p class="MsoNormal">So, the conflict problem was resolved by statute before the oral argument, which is why the opinion does not address the issue. In our brief filed before the TRA 1969, we addressed the conflict and urged that the FRAP 13(a) 90-day requirement prevailed over the statute. <span style="font-family: inherit;">Here is the summary of the
argument (pp. 4-5):</span></p>
<p class="MsoNormal"><span style="font-family: inherit; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; text-indent: -0.25in;"></span></p><blockquote><span style="font-family: inherit; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; text-indent: -0.25in;"> </span><span style="font-family: inherit; text-indent: -0.25in;">Section 2072 of 28 U.S.C. provides that the
Supreme Court shall have the power to prescribe by general rules the practice
and procedure in proceedings for the review by the Courts of Appeals of
decisions of the Tax Court of the United States. Rule 13(a) of the Federal
Rules of Appellate Procedure, promulgated pursuant to this grant of authority,
establishes a ninety-day period for filing a notice of appeal. The time period
for effecting an appeal relates to "practice and procedure" and is
clearly within the rule-making authority delegated to the Supreme Court under Section 2072. Taxpayer's notice of
appeal was not filed until the ninety-second day after the decision of the Tax
Court. It was therefore untimely, and hence taxpayer may not invoke the
Jurisdiction of this Court in this case. The appeal should be dismissed.</span></blockquote><span style="font-family: inherit; text-indent: -0.25in;"></span><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">This issue of whether Rules under the authority of 28 U.S.C.
§ 2072 supersede statutes is an interesting one invoking authority that has
echoed into the present in the </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> deference context. Readers may
recall that I have engaged the issue of the distinction between <b>interpretive
rules</b> and <b>legislative rules</b> (must be by notice and comment regulation, except for
interim final rules, in tax called Temporary Regulations). (I address the issue in many blogs, but most
definitively in John A. Townsend. <u>The Report of the Death of the Interpretive
Regulation Is an Exaggeration</u> (SSRN December 14, 2021), </span><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3400489" style="font-family: inherit;">here</a><span style="font-family: inherit;">;
those wanting shorter explanations from my blogs should click on the following labels:
Regulations-Interpretive, </span><a href="https://federaltaxprocedure.blogspot.com/search/label/Regulations%20-%20Interpretive" style="font-family: inherit;">here</a><span style="font-family: inherit;">,
and Regulations-Legislative, </span><a href="https://federaltaxprocedure.blogspot.com/search/label/Regulations%20-%20Legislative" style="font-family: inherit;">here</a><span style="font-family: inherit;">.)</span></p>
<p class="MsoNormal"><o:p><span style="font-family: inherit;"> </span></o:p><span style="font-family: inherit;">In our appellee brief (<a href="https://drive.google.com/file/d/12QatpGwA3iC0dO4N7IjS7Zul7uwuvpv4/view?usp=sharing">here</a>) arguing that Rule 13(a) supersedes the statute, we presented
the following (p. 6 n. 8):</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><span style="font-family: inherit;"> <b>n8</b> A proper exercise of a delegated authority to establish
rules which are legislative in character (i.e., rules which establish rather
than interpret the law), results in
rules which have the force and effect of law, superseding any inconsistent
statute. I Davis, <u>Administrative Law</u>, Sec. 503, p. 299. Section 2072,
applicable in this case, expressly provides that all laws in conflict with such
rules shall be of no further force or effect after such rules have taken
effect. See, for example, </span><i style="font-family: inherit;">Sibbach v. Wilson & Co.</i><span style="font-family: inherit;">, 312 U.S. 1, 13
(1941).</span></blockquote><span style="font-family: inherit;"></span><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">My draft of the brief (<a href="https://drive.google.com/file/d/1cdk-TSk370gWpAy0GEIB8njjrZtbehEo/view?usp=sharing">here</a>) (p. 6 n. 8) included:</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><p class="MsoNormal"><span style="font-family: inherit;"> <b>n8</b> A proper
exercise of a delegated authority to establish rules which are legislative in
character (i.e., rules which establish rather than interpret the law), result in rules which have
the force and effect of law, superseding any inconsistent statute. I Davis,
<u>Administrative Law</u>, Sec. 503, p. 299. That this is so is further reinforced by
language contained within the delegation of 28 U.S.C. Sec. 2072:</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><span style="font-family: inherit;">ALL laws in conflict with such rules shall be of no further
force or effect after such rules have taken effect.</span></blockquote><span style="font-family: inherit;"><o:p></o:p></span><p></p>
<p class="MsoNormal"><span style="font-family: inherit;"> See, for example,
<i>Sibbach v. Wilson & Co.</i>, 312 U.S. 1, 13 (1941).</span></p></blockquote><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;"><u>Question to readers</u>: Do you see why Stapleton revised the
footnote? I think that the omission of the quote may have been unintended by
Stapleton, but assuming he intended it, what do you think about the footnote 8 in
the final brief?</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">In my draft </span><a href="https://drive.google.com/file/d/1cdk-TSk370gWpAy0GEIB8njjrZtbehEo/view?usp=sharing">here</a> <span style="font-family: inherit;">(but omitted from the final), I preceded that
footnote with footnote 7 as follows:</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><span style="font-family: inherit;"> <b>n7 </b>Rules
promulgated pursuant to a grant of authority to establish rules legislative in
character (i.e., rules which establish rather than interpret the law) are
invalid only if: (1) outside the authority delegated; (2) promulgated without
observing proper procedure; or (3) unreasonable. I Davis, </span><u style="font-family: inherit;">Administrative Law</u><span style="font-family: inherit;">,
Sec. 503, p. 299. Since the FRAP were clearly promulgated pursuant to the
procedure anticipated by Congress and Rule 13(a) is reasonable (a mere change
from three months to ninety days), the issue on this appeal resolves itself to
whether the rule is within the authority delegated.</span></blockquote><span style="font-family: inherit;"></span><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">Stapleton omitted that footnote, presumably because
its essence was in footnote 8. Did footnote 8 add anything important?</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">So far as I can now recall, <i>Davis</i> was my first
foray into administrative law and was probably the last until I began focusing
on Professor Kristin Hickman’s claims about <i>Chevron</i> deference for tax regulations
starting in the early 2000s. I then focused on the <i>Chevron</i> issues because I wanted to discuss them in my annual Federal Tax Procedure editions.</span></p><p class="MsoNormal"><span style="font-family: inherit;">Addendum on Tom Stapleton as reviewer. Tom was one of the best reviewers in the DOJ Tax Appellate Section. He reviewed 9 of my briefs while I was in the Appellate Section as follows (click on graphic for better view):</span></p><p class="MsoNormal"><span style="font-family: inherit;"></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-family: inherit;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiBVyyGruTEVRJDGxdtgdy8t_Yv6mlbgFP6Xru6lNPezbnwNtIh0-aqbeN59vQizD__Z1BNfXmb2LufTdrdwL1w8i0eugwZi6xcH-2wCiLNWsM_8I-13HxffiOR1QPDdQdRrtWYuJVpE_eznDBYG5BKWAc0PjIlnbX88TbB64yi-GYRGi00M_ztZVYpOgs" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="241" data-original-width="1086" height="250" src="https://blogger.googleusercontent.com/img/a/AVvXsEiBVyyGruTEVRJDGxdtgdy8t_Yv6mlbgFP6Xru6lNPezbnwNtIh0-aqbeN59vQizD__Z1BNfXmb2LufTdrdwL1w8i0eugwZi6xcH-2wCiLNWsM_8I-13HxffiOR1QPDdQdRrtWYuJVpE_eznDBYG5BKWAc0PjIlnbX88TbB64yi-GYRGi00M_ztZVYpOgs=w637-h250" width="637" /></a></span></div><span style="font-family: inherit;"><br /><br /></span><p></p><p></p><p class="MsoNormal"><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-72986926318079508782024-03-12T15:22:00.002-04:002024-03-12T20:51:51.896-04:00District Court Rejects Transferee's Claim of Lack of Personal Jurisdiction for FBAR Willful Penalty Suit (3/12/24)<p>In <i>United States v. Wolin</i> (E.D. N.Y. No.
1:17-CV-02927 Dkt 137 Memo & Order 2/26/24), CL <a href="https://storage.courtlistener.com/recap/gov.uscourts.nyed.401663/gov.uscourts.nyed.401663.137.0.pdf">here</a>
and GS <a href="https://scholar.google.com/scholar_case?case=9640746059529469500">here</a>,
the Court denied the motion to dismiss the Government’s FBAR willful penalty collection
suit for lack of jurisdiction over the defendant Greenberg, a recipient of an
alleged fraudulent transfer from the person liable for the FBAR penalty. Greenberg’s
motion for summary judgment alleged lack of personal jurisdiction. (The CL Docket Entries are <a href="https://www.courtlistener.com/docket/8207366/united-states-v-wiesel/">here</a>.)</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">Essentially, although Greenberg was a resident of Israel,
she maintained sufficient contacts with New York to support jurisdiction. The
Court summarized those contacts as follows (Slip op. 6-8):</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"></p><blockquote> As noted
previously, Defendants Wiesel and Greenberg are both daughters of Ziegel and
Defendant Wolin is Ziegel’s granddaughter. (FAC ¶¶ 38-39.) Although Defendant
Wiesel still lives in New York (FAC ¶ 6), Plaintiff acknowledges that
throughout the relevant time period, Defendant Greenberg has lived in Israel.
(FAC ¶ 7.) Nevertheless, Plaintiff asserts that Defendant Greenberg maintains
sufficient contacts with the State of New York to be subject to personal
jurisdiction. (Id.) Plaintiff first contends that Defendant Greenberg is a U.S.
citizen and exercises the many benefits and privileges of U.S. citizenship,
including by voting in the last two presidential elections. (Id.) Plaintiff
further contends that Defendant Greenberg maintains an active New York voter
registration in connection to which she listed a Queens, New York address as
her residence. (Id.) Plaintiff also alleges that Defendant Greenberg filed
federal income tax returns and New York state tax returns for each year during
the 2015 — 2019 period. (Id.) Defendant Greenberg is alleged to have made nine
visits to the state of New York between January 1, 2014 and December 31, 2019,
some of which lasted several months. (Id.) Plaintiff asserts that Defendant
Greenberg is the co-owner of residential real property in Queens, New York,
that was previously owned by her deceased father, Ziegel, and in connection to
which she commenced and is engaged in two lawsuits in New York state courts in
Queens County.<b>n2</b> (Id.) Defendant Greenberg also commenced four additional
lawsuits in New York state court, Kings County, which relate to disputes with
Defendant Wiesel regarding real properties and business entities previously
owned by Ziegel and Ziegel’s estate generally, in which Defendant Greenberg
claims an interest. Defendant Greenberg commenced a Queens County Surrogate
Court proceeding relating to Ziegel’s estate wherein Defendant Greenberg moved
to compel production of Ziegel’s last will and testament and petitioned for
letters testamentary in a probate proceeding involving Ziegel’s estate. (Id.)
Finally, Plaintiff alleges that Defendant Greenberg is the sole or partial
owner of eight personal bank accounts at HSBC in New York and that Greenberg
has an ownership interest in at least two New York limited liability companies.
(Id.)<br /> <b>n2</b>
The real property located at 135-41 78th Drive, Flushing, New York 11267 (the
"Queens Property") is co-owned by Defendants Greenberg and Wiesel and
was originally owned by Ziegel. (ECF No. 131-3, Ptf. Opp. Ex. C, "N.Y.
Sup. Ct. Queens Cnty. 712033-2015 Compl." ¶ 7.) In 2006, Ziegel executed a
"Life Estate Deed" designating his daughters, Defendants Greenberg
and Wiesel, as the beneficiaries of the ownership interest in the Queens
Property, in equal shares. (N.Y. Sup. Ct. Queens Cnty. 712033-2015 Compl. ¶ 8.)
Upon Ziegel’s death in 2014, the ownership interest in the Queens Property
transferred to Defendants Greenberg and Wiesel and has since been the subject
of multiple lawsuits, including at least two in Queens County, which were
commenced by Greenberg against Wiesel in New York Supreme Court. See e.g., (ECF
No. 131-2, Ptf. Opp. Ex. B, "N.Y. Sup. Ct. Queens Cnty. 705219-2018
Compl."; N.Y. Sup. Ct. Queens Cnty. 712033-2015 Compl.).</blockquote><p></p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">The Court examined New York law and Due Process Law to find
sufficient basis for personal jurisdiction.
(Slip Op. 19-49.)</p><span><a name='more'></a></span><p class="MsoNormal"><b>Added 2/12/24 @ 9:00 pm:</b><o:p></o:p></p><p class="MsoNormal">One other thing that I thought noteworthy from the opinion
is the following description from an earlier opinion (Slip op. 9-11)”</p><p class="MsoNormal"><o:p></o:p></p><p class="MsoNormal"></p><blockquote><p class="MsoNormal"> Wiesel’s
third argument for dismissal centered on her assertion that a fraudulent
conveyance required "a volitional act on the part of the conveyor or
recipient(s)" such that the death of a person cannot constitute a
fraudulent transfer or conveyance under federal or state law. (Sep. 28, 2020
M&O at 6.) The Court noted that "[d]espite Wiesel’s insistence that
fraudulent conveyance requires ‘action’ on the part of the conveyor or
recipients to distribute assets, New York law is clear that both fraudulent transfer
and fraudulent conveyance can occur upon death." (Sep. 28, 2020 M&O at
15.) The Court further held that under federal law, "Ziegel’s interests in
[the] Assadah [Trust] and the [UBS] Account were involuntarily transferred to
the Daughters, as contingent co-beneficiaries, upon Ziegel’s death . . . [and
that] [t]his transfer of [ ] assets fits squarely within" the definition
of 28 U.S.C. §§3301(6), 3304(a). (Sep. 28, 2020 M&O at 14-15.)<o:p></o:p></p><p class="MsoNormal"> As a
corollary to her third argument, Wiesel argued that because the Second Amended
Complaint did not allege that Defendants ever received a distribution from the
Assadah Trust or UBS Account, Plaintiff failed to state a claim for unjust
enrichment under New York law. (Sep. 28, 2020 M&O at 6.) The Court rejected
this argument as well, pointing to case law that clearly establishes a claim
for unjust enrichment may allege "that one party has parted with money or
a benefit that has been received by another at the expense of the first
party." (Sep. 28, 2020 M&O at 16-17). Because the Second Amended
Complaint adequately alleged "that Wiesel and Greenberg did receive
‘something of value’ — Ziegel’s beneficial interest in the Assadah [T]rust . .
. the United States has stated a claim for unjust enrichment." (Sep. 28,
2020 M&O at 17) (internal citation omitted).<o:p></o:p></p><p class="MsoNormal">
</p><p class="MsoNormal"> Accordingly,
Wiesel’s motion to dismiss was denied in its entirety by Judge Mauskopf on
September 28, 2020. (Sep. 28, 2020 M&O.) On October 29, 2020, Wiesel filed
a notice of appeal with respect to Judge Mauskopf’s Memorandum and Order
denying Wiesel’s motion to dismiss, but subsequently withdrew the appeal on
December 14, 2020. Two weeks later, Defendant Greenberg filed a motion to
dismiss for lack of personal jurisdiction pursuant to Fed. R. Civ. P. 12(b)(2).
(ECF No. 73.)</p></blockquote><p class="MsoNormal"><o:p></o:p></p><p class="MsoNormal"><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-29738198467724203972024-03-11T19:49:00.002-04:002024-03-11T19:55:07.402-04:00Court on Summary Judgment Sustains FBAR Liability and Fraudulent Transfer Liability But Orders Further Briefing on Repatriation to Pay Liabilities (3/11/24)<p>In <i>United States v. Harrington</i> (D. Colo. No.
1:19-CV-02965 Dkt. #111 Order 2/28/24), <a href="https://storage.courtlistener.com/recap/gov.uscourts.cod.192581/gov.uscourts.cod.192581.111.0.pdf">here</a>,
the Government brought an FBAR willful penalty collection suit against George
Harrington, later expanded to include his wife, Monica on fraudulent transfer
liability. The Government sought
judgment for the FBAR penalties plus interest and costs (Count One), fraudulent
transfer liability against Monica (Count Two), and an order for repatriating
sufficient funds necessary to pay the respective liabilities (Count Three). (The CL docket entries are <a href="https://www.courtlistener.com/docket/16429328/united-states-v-harrington/">here</a>.)</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><u>Count One</u> (FBAR liability) is fairly straightforward with
the Court imposing the civil standard for willfulness approved by other
circuits because the 10<sup>th</sup> Circuit had not spoken on the issue. See pp. 15-24.)</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><u>Count Two</u> (fraudulent transfer liability) is also fairly straightforward, with the Court imposing
fraudulent transfer liability upon Monica for having received assets from
George under the Federal Debt Collections Procedures Act, 28 U.S.C. §3304(b)(1). See pp. 24-30. The FDCP imposes liability for transfers having 11 nonexclusive characteristics
called badges of fraud. The Court discusses the presence or absence of those characteristics and
concludes (p. 30):</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"></p><blockquote>The Court finds six (out of 11) badges of fraud are present.
See <i>Key</i>, 837 F. App’x at 354 (five badges of fraud sufficient to uphold
summary judgment for government); <i>Osborne</i>, 807 F. App’x at 524 (six
badges of fraud sufficient to affirm summary judgment). As a result, the Court
finds a reasonable jury could only determine that George’s transfer of his
interest in the ValorLife policies to Monica was a fraudulent transfer under 28
U.S.C. §3304. See <i>Anderson</i>, 477 U.S. at 248. The Motion is granted,
therefore, as to Count 2.</blockquote><p></p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><u>JAT Comment</u>: I infer that the 11 characteristics
permit some weighting rather than just majority controls the decision (I infer this because 5 was sufficient in the cited Osborne precedent.; I have not otherwise researched the issue of weighting).<span></span></p><a name='more'></a><p></p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><u>Count Three</u> (repatriation) for an order for repatriation, the Court found
sufficiently uncertain to resolve on motion for summary judgment (p. 33 footnote omitted):</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"></p><blockquote> But the
parties do not address this issue in their briefing. Nor do the parties discuss
this Court’s authority (or lack thereof) to order a United States citizen to
repatriate funds held in a foreign country. Because the parties fail to discuss
these issues — i.e., whose law applies under 28 U.S.C. §3010(a) when the
property is located in no "State" because it is located in a foreign
country and what the Court’s authority to order repatriation of foreign funds
may be — the Court cannot determine what portion of the account at issue is
George’s fraudulently transferred funds or what portion the Court should order
Monica to repatriate (50%, 100%, or some other amount), if anything. See, e.g.,
United States v. Silverman, No. 18-cr-00407-PAB, 2019 WL 6799460, at *14 (D.
Colo. Dec. 13, 2019) (holding that, based upon Colorado law, only half of a
joint account was subject to garnishment).</blockquote><p></p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">The Court then (pp. 31-32):</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"></p><blockquote>ORDERED that the Parties shall file simultaneous briefs on
or before March 20, 2024, not exceeding 10 pages in length, on the issues of
whose law applies under 28 U.S.C. §3010(a) when the property is located in no
"State" because it is located in a foreign country and this Court’s
authority (or lack thereof) to order a United States citizen to repatriate
funds held in a foreign country. No response briefs are permitted, absent leave
of the Court. Oral argument may be necessary after the Court’s review of the
briefs.</blockquote><p></p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">Interesting predicate facts are (p. 3 n. 6): Prior to his death, George proceeded pro se in this case. In
a prior tax Court case involving a deficiency, George was represented by
counsel and lost at both levels. <i>Harrington v. Commissioner</i>, T.C. Memo
2021-95 (<i>Harrington I</i>), GS <a href="https://scholar.google.com/scholar_case?case=4963260961248660421">here</a>,
aff’d 2022 WL 17333080 (10th Cir. 2022) (nonprecedential) (<i>Harrington II</i>), GS <a href="https://scholar.google.com/scholar_case?case=7198925803875217267">here</a>.
The underlying facts were similar because the Tax Court case involved the
income tax consequences of the offshore accounts. George also did not fare well
in that proceeding. (See p. 3 n. 6.)</p><p class="MsoNormal"><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-79323815926480396942024-03-08T13:36:00.004-05:002024-03-08T13:37:55.135-05:00Buckeye Institute Claims that "§ 6033(b) [Required Contributor Disclosure] violates the First Amendment" (3/8/24)<p>In <i>Buckeye Institute v. IRS, et al.</i> (S.D. Ohio No.
2:22-CV-04297 Dkt. 60 Opinion and Order 11/9/23), <a href="https://storage.courtlistener.com/recap/gov.uscourts.ohsd.274686/gov.uscourts.ohsd.274686.60.0.pdf">here</a>,
the court denied the parties' motions for summary judgment. (The CL docket
entries in the case are <a href="https://storage.courtlistener.com/recap/gov.uscourts.ohsd.274686">here</a>.)
In the case, Buckey sought (Prayer for Relief in Amended Complaint p. 12, <a href="https://storage.courtlistener.com/recap/gov.uscourts.ohsd.274686/gov.uscourts.ohsd.274686.1.0.pdf">here</a>). </p><p></p><ul style="text-align: left;"><li>A declaration that compelling disclosure of contributor
names and addresses pursuant to 26 U.S.C. § 6033(b) violates the First
Amendment, both on its face and as applied to Buckeye”; and</li><li>“preliminary and permanent injunctive relief barring
Defendants from compelling Buckeye to disclose contributor names and addresses
pursuant to Section 6033(b)”.</li></ul><p></p><p class="MsoNormal" style="text-align: left;"><o:p></o:p></p>
<p class="MsoNormal">Accordingly, with the denials of the motions for summary
judgment, the case will proceed to trial.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">The factual basis for Buckeye’s complaint is that the IRS <b>may</b> not keep the information about contributors
secret. In support of its factual (or projected factual) basis for the claim, Buckeye
claims that, in some instances, such information has escaped the walls of the
IRS. I have no way of predicting the court’s resolution of the claim based upon
such isolated disclosure instances. .</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">I thought, however, that there must be an agenda in pursuing
this issue. In its Amended Complaint (par. 8, p. 3, bold-face supplied), Buckeye
alleged that “Buckeye is a <b>nonpartisan</b>,
nonprofit, tax-exempt organization.” My limited observation of Buckeye’s
activities is principally through Supreme Court amicus briefs filed). My sense is that Buckeye usually aligns itself with partisan
positions, principally Republican positions, but in any event partisan
positions (in the broader sense of the term).</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">The Government responded to Buckeye’s claim (Answer to
Amended Complaint, <a href="https://storage.courtlistener.com/recap/gov.uscourts.ohsd.274686/gov.uscourts.ohsd.274686.70.0.pdf">here</a>, par. 8, p. 4):</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"></p><blockquote>Response: Admits that Buckeye holds itself out as a
“nonpartisan, nonprofit, tax-exempt organization, organized under Ohio law” and
has a headquarters in Columbus, Ohio. Lacks knowledge or information sufficient
to form a belief about the truth of the remainder of the allegations.<span><a name='more'></a></span></blockquote><p></p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">As to whether Buckeye is in fact nonpartisan, I offer the
following derived from a quick Google search, although, while it seems right, I still do not vouch for its accuracy:</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">From Sourcewatch <a href="https://www.sourcewatch.org/index.php/The_Buckeye_Institute">here</a>:</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"></p><blockquote><p class="MsoNormal">The Buckeye Institute (formerly The Buckeye Institute for
Public Policy Solutions) is a right-wing advocacy group based in Ohio.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">[After noting that Buckey is a member of State Policy
Network (SPN), "a web of state pressure groups that denote themselves as
"think tanks" and drive a right-wing agenda in statehouses
nationwide."]</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">Although SPN's member organizations claim to be nonpartisan
and independent, the Center for Media and Democracy's in-depth investigation,
"EXPOSED: The State Policy Network -- The Powerful Right-Wing Network
Helping to Hijack State Politics and Government," reveals that SPN and its
member think tanks are major drivers of the right-wing, American Legislative
Exchange Council (ALEC)-backed corporate agenda in state houses nationwide,
with deep ties to the Koch brothers and the national right-wing network of funders.</p></blockquote><p class="MsoNormal"></p><p class="MsoNormal"><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-29167325188636380732024-03-08T12:51:00.005-05:002024-03-08T12:55:46.392-05:00Taxpayers Should Be Prosecuted Along with Enablers of Abusive Tax Shelters (3/8/24)<p>This blog entry is an opinion piece. Individual taxpayers should be prosecuted along with their enablers who promote and implement the abusive shelters (particularly enablers from the tax professions).</p><p class="MsoNormal"><o:p></o:p></p><p class="MsoNormal">The following is from a report of Attorney General Garland's comments (Kerry K. Walsh Deborah A. Curtis Amy Jeffress, <u>“Swift” Justice: Attorney General Garland Vows To Uphold DOJ Priorities in Fireside Chat</u> (Arnold & Porter 3/6/24), <a href="https://www.arnoldporter.com/en/perspectives/blogs/enforcement-edge/2024/03/swift-justice_ag-garland">here</a>):</p><p class="MsoNormal" style="margin-left: 0.5in;">Additionally, AG Garland explained how DOJ’s three co-equal priorities — upholding the rule of law, keeping America safe, and protecting civil liberties — implicated corporate accountability. <b>AG Garland stressed that the greatest deterrent of white collar crime is holding individual corporate executives to account.</b> AG Garland also reiterated the importance of applying the rule of law equally, regardless of rank or position of power.<o:p></o:p></p><p class="MsoNormal">I supplied the bold-face to emphasize the point. There has been a perception that, by delivering up the corporation (or other entity) for criminal consequences, the people in the corporations (collectively, the executives) could escape accountability.</p><p class="MsoNormal"><o:p></o:p></p><p class="MsoNormal">A similar perception and resulting phenomenon exists in the tax area where the promoters of abusive tax shelters (think, for example, the Son-of-Boss shelters in the late 1990s and early 2000s) were prosecuted, but the taxpayers generally were not. Yet all of those taxpayers or at least most of them knew that they were violating the law and participated in the fraud. For example, the abusive shelters wrapped in complex structures and voluminous more-likely-than-not opinions, required at the minimum that the taxpayers represent to the promoters that they had a nontax profit motive when, in fact, they did not. That was a lie that was essential to abusive tax shelter. Moreover, most of those wealthy taxpayers had independent counsel (other than the ones supplied or recommended by the promoters) before buying into the deal. Assuming that most of those independent counsel were competent, those taxpayers knew that the deals were bogus, but nevertheless sought to buy fraud insurance through the legal opinions rendered by the promoter’s supplied or recommended counsel (as opposed to their own independent counsel). That worked as insurance.</p><p class="MsoNormal"><o:p></o:p></p><p class="MsoNormal">My argument has been that the way to discourage abusive tax shelters is to prosecute the taxpayers along with the promoters. This would discourage the tax professional penalty insurance industry and abusive tax shelters generally.</p><p class="MsoNormal">This blog entry is cross-posted on the Federal Tax Crimes Blog <a href="https://federaltaxcrimes.blogspot.com/2024/03/taxpayers-should-be-prosecuted-along.html">here</a>.</p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-90575790077388037522024-03-04T19:15:00.008-05:002024-03-05T08:09:18.288-05:00District Court in ND Alabama Holds the Corporate Transparency Act Unconstitutional (3/4/24)<p><span style="font-family: inherit;">In <i>Nat'l Small Business United v. Yellen et al.</i> (N. D. Ala.
No. 5:22-cv-1448-LCB Dkt 52 3/1/24), CL <a href="https://storage.courtlistener.com/recap/gov.uscourts.alnd.183445/gov.uscourts.alnd.183445.51.0_1.pdf">here</a>,
the Court declared the Beneficial Ownership reporting requirements of the Corporate Transparency Act unconstitutional and enjoined
its application against the defendants in the case. For more on the Beneficial Ownership Information requirements, see the FinCEN page <a href="https://www.fincen.gov/boi">here</a>. The judgment in the case is <a href="https://storage.courtlistener.com/recap/gov.uscourts.alnd.183445/gov.uscourts.alnd.183445.52.0_1.pdf">here</a>.</span></p><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">The Court starts its opinion with the following: </span></p>
<p class="MsoNormal" style="margin-left: 0.5in;"><span style="font-family: inherit;"> The
late Justice Antonin Scalia once remarked that federal judges should have a
rubber stamp that says STUPID BUT CONSTITUTIONAL. See Jennifer Senior, In
Conversation: Antonin Scalia, New York Magazine, Oct. 4, 2013. The
Constitution, in other words, does not allow judges to strike down a law merely
because it is burdensome, foolish, or offensive. Yet the inverse is also
true—the wisdom of a policy is no guarantee of its constitutionality. Indeed,
even in the pursuit of sensible and praiseworthy ends, Congress sometimes
enacts smart laws that violate the Constitution. This case, which concerns the
constitutionality of the Corporate Transparency Act, illustrates that
principle.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">That’s a cute opening for a final conclusion of
unconstitutionality that is, in my gut reaction, constitutionally suspect.
Indeed my cute initial analysis (I do not offer a detailed analysis here) is:</span></p><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<blockquote><p class="MsoNormal"><span style="font-family: inherit;">This opinion is dumb, stupid.</span></p></blockquote><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">I will be back to discuss it later when I have given more
complete analysis. I will hold open the possibility that my initial reaction above
is itself dumb, stupid. (That will not be the first time.) But for now, until further analysis drives me to a
different conclusion, I stick to the dumb, stupid characterization.</span></p><p class="MsoNormal"><span style="font-family: inherit;">In the meantime, I do note that the injunction is limited to the plaintiffs only. The court does not attempt universal vacatur which itself is a bit suspect. So, at least,. it is modest in its holding as to the effect of the unconstitutionality holding.</span></p><p class="MsoNormal"><b><span style="font-family: inherit;">Added 3/5/24 8am Eastern Time:<span></span></span></b></p><a name='more'></a><b><span style="font-family: inherit;"><o:p></o:p></span></b><p></p><p class="MsoNormal"><span style="font-family: inherit;">As to the scope of the injunction, it applies to the
members of the “National Small Business Association [which] is ‘an Ohio
non-profit corporation that represents and protects the rights of small
businesses across the United States,” ‘including ‘over 65,000 businesses and
entrepreneurs located in all 50 states.’” The universe of possible persons subject to the CTA is much larger, so those outside the membership of the NSBA are not affected. In any event, the first filing date
is not until December 2024, so there is no immediate impact except that the
affected parties and other parties not immediately affected have to make the
decision whether to do the work in the interim to make the filing if the judgment
is reversed.</span></p><p class="MsoNormal"><span style="font-family: inherit;">The New York Times article says this (Kate Kelly, Judge’s
Ruling Sets Back Law Meant to Fight Money Laundering (New York Times 3/3/24)):</span></p><p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote>“This is an aberrant decision issued by a lone district
judge in Alabama, based on an extraordinarily narrow view of Congress’s
constitutional powers that is unsupported by precedent,” said Senator Sheldon
Whitehouse, the Rhode Island Democrat who is one of the law’s supporters. “I
would urge the government to appeal quickly to correct the erroneous decision
and ensure the law’s transparency requirements can be fully and uniformly
implemented.”</blockquote><p></p><p class="MsoNormal"><span style="font-family: inherit;">Judge Liles C. Burke’s Wikipedia page is </span><a href="https://en.wikipedia.org/wiki/Liles_C._Burke" style="font-family: inherit;">here</a><span style="font-family: inherit;">. I found nothing
particularly noteworthy there, except the following:</span></p><p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote>Burke attended The JAG School at the University of Virginia
and entered the Judge Advocate General's Corps of the Alabama Army National
Guard. He served for more than a decade, achieving the rank of Major.</blockquote><p></p><p class="MsoNormal"><span style="font-family: inherit;">There is no indication of active duty other than his
attendance at the JAG School. In any event, he served in
the Alabama National Guard for a long time. His Alabama State Bar page is </span><a href="https://www.alabar.org/?attachment_id=58177" style="font-family: inherit;">here</a><span style="font-family: inherit;">, showing him in
full Army uniform with the brief description as follows:</span></p><p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote>Major Liles Burke is a JAG officer in the Alabama Army
National Guard . He is assigned to Joint Forces Headquarters in Montgomery,
Alabama, where he is the Deputy Staff Judge Advocate. In civilian life Major
Burke is a United States District Judge for the Northern District of Alabama
with a duty station at the Huntsville, Alabama United States Courthouse.</blockquote><p></p><p class="MsoNormal"><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-39066368212369871332024-02-29T14:29:00.009-05:002024-02-29T20:51:07.252-05:00Garland v. Cargill-Comments on Briefs and Oral Argument (2/29/24)<p><span style="font-family: inherit;">Yesterday,
the Supreme Court held oral argument in <i>Garland v. Cargill</i> (No. 22-976
docket <a href="https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/22-976.html">here</a>,
oral argument audio <a href="https://www.supremecourt.gov/oral_arguments/audio/2023/22-976">here</a>,
and transcript of oral argument <a href="https://www.supremecourt.gov/oral_arguments/argument_transcripts/2023/22-976_bq7d.pdf">here</a>).
The ultimate issue is whether “bump stock” devices are within the
definition of “machinegun” in the</span> National Firearms Act of 1934, as amended, and the Gun Control Act of 1968<span style="font-family: inherit;">. Bump stocks were not devised when the
statute was enacted and there is no definitive interpretation of the statutory term
“machinegun” that includes or excludes bump stocks. Hence, the job of the
regulator or the court in interpreting or applying the term is to determine whether,
within the fair bounds of interpretation, the term includes or excludes bump
stocks.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">At first
glance, this issue might call for the application of </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> deference.
Recall that </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> deference requires two steps—</span></p>
<p class="MsoNormal"></p><ul style="text-align: left;"><li><span style="font-family: inherit;"><u>Step One</u>
where the Court determines whether, on the text alone using proper tools of statutory
interpretation, the text resolves the issue. If the text does, the interpreted
text applies and there is no deference. If the text does not resolve the
interpretive issue and the text is said to be ambiguous.</span></li><li><span style="font-family: inherit;"><u>Step Two</u>,
reached only if Step One does not resolve the interpretive issue, where the court determines whether the agency interpretation is reasonable (also called permissible). If so,
the agency interpretation will <b>prevail</b>. Note that I said “prevail” rather than
that the agency interpretation receives </span><b style="font-family: inherit;">deference</b><span style="font-family: inherit;">
which is the standard </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> Step Two formulation. Deference is only meaningful
when the agency interpretation is <b>not the best interpretation</b>. If, within the
zone of ambiguity in the statutory text, the agency interpretation is the
better interpretation or even in equipoise as to the best interpretation,
applying the agency interpretation is not deference. See e.g., </span><u>What is the Best Interpretation for Purposes of Determining a Not Best Interpretation for Chevron Deference?</u> (Federal Tax Procedure Blog 10/21/22; 11/8/22), <a href="https://federaltaxprocedure.blogspot.com/2022/10/what-is-best-interpretation-for.html">here</a>.</li></ul><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">In the facts
of </span><i style="font-family: inherit;">Cargill</i><span style="font-family: inherit;">, the agency interpretation of “machinegun” to include bump
stocks was made in the Trump administration in a notice and comment regulation adopting an “interpretive”
rule. (I will address the interpretive characterization for the regulation
below.) In adopting the regulation, the agency relied on </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">. In the
litigation culminating in <i>Cargill</i> in the Supreme Court, the agency did not rely
on <i>Chevron</i> but rather asserted that the interpretation was the best
interpretation. (Conceptually, the best interpretation can be determined at
Step One <b>or</b> at Step Two (if the agency interpretation is the best in the zone of
ambiguity); so it is unclear which Step the government’s reliance on the best
interpretation applies.)</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">At oral
argument, apparently because the government was not relying on deference or perhaps
the uncertain future of <i>Chevron</i> deference, <i>Chevron</i> or deference was not
mentioned. The argument simply addressed whether the text “machinegun” resolved
the issue.<span></span></span></p><a name='more'></a><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">As I
mentioned, and all readers of this blog or even good newspapers know, the
future of <i>Chevron</i> deference is uncertain. So, I will not dwell further on <i>Chevron</i>
and deference in this blog. I will mention certain related issues that were
addressed in the parties’ briefs (excluding the amicus briefs) or in oral
argument.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">1. There has
been a long-running issue of whether the category of “interpretive” regulation
adopted with notice and comment still exists. For my longer, perhaps rambling, discussion of that issue, see </span><u style="font-family: inherit;">The Report of the Death
of the Interpretive Regulation Is an Exaggeration</u><span style="font-family: inherit;"> (last revised 4/8/22), posted on SSRN, </span><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3400489" style="font-family: inherit;">here</a><span style="font-family: inherit;">. Both in oral argument and in the briefs that
interpretive characterization came up:</span></p>
<p class="MsoNormal"></p><ul style="text-align: left;"><li><span style="font-family: inherit;">Gov’t
Merits Opening Brief </span><a href="https://www.supremecourt.gov/DocketPDF/22/22-976/293668/20231218165513713_22-976tsUnitedStates.pdf" style="font-family: inherit;">here</a> at p. 43 (bold-face supplied by JAT)<span style="font-family: inherit;">:</span> </li></ul>
<p class="MsoNormal" style="text-indent: 0.5in;"><span style="line-height: 107%;"><span style="font-family: inherit;"></span></span></p><blockquote><span style="font-family: inherit;">First, this case presents a pure question of statutory
interpretation: Whether bump stocks satisfy the definition of “machinegun” in
26 U.S.C. 5845(b). See Pet. I. ATF has set forth its position on that question
in an <b>interpretive rule</b>, but <b>the government does not contend that the
rule has the force and effect of law or that ATF’s interpretation is entitled
to deference</b>. See Pet. 30. Accordingly, neither ATF’s changes in position
nor any asserted defects in its explanation for those changes have any bearing
on the Court’s resolution of the question presented.<span style="font-family: inherit; text-indent: 0.5in;"> </span></span></blockquote><blockquote></blockquote><p></p><p class="MsoNormal"></p><ul style="text-align: left;"><li><span style="font-size: 12pt; line-height: 107%;">Cargill’s
Merits Answering Brief <a href="https://www.supremecourt.gov/DocketPDF/22/22-976/298344/20240122163801884_Respondent%20Brief%20on%20the%20Merits.pdf">here</a> (bold-face supplied by JAT):</span></li></ul><p></p>
<p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: inherit; text-indent: 0.5in;"></span></p><blockquote><span style="font-family: inherit; text-indent: 0.5in;">The canon of constitutional avoidance should also lead this
Court to reject ATF’s </span><b style="font-family: inherit; text-indent: 0.5in;">interpretive rule</b><span style="font-family: inherit; text-indent: 0.5in;">
because it purports to declare what 26 U.S.C. § 5845(b) has always meant. ATF’s
construction retroactively makes felons out of the hundreds of thousands of
Americans who possessed or transferred bump stocks before the final rule had
declared them “machineguns,” even though ATF had repeatedly declared these
devices lawful for more than a decade and issued at least 15 classification
letters to that effect. See supra at 7–8 & note 6. Allowing an agency to
retroactively expand the scope of a criminal statute in these circumstances
would (at the very least) [*50] present serious constitutional questions under
the due process clause. See Bouie v. City of Columbia, 378 U.S. 347, 353
(1964). So ATF’s construction of 26 U.S.C. § 5845(b) should be rejected even if
the Court finds it textually permissible. See Edward J. DeBartolo Corp. v. Fla.
Gulf Coast Bldg. & Constr. Trades Council, 485 U.S. 568, 575 (1988)
(constitutional-avoidance canon prevails over agency-deference doctrines) </span></blockquote><span style="font-family: inherit; text-indent: 0.5in;"></span><p></p><ul style="text-align: left;"><li><span style="font-size: 12pt; line-height: 17.12px;">Gov't Merits Reply Brief <a href="https://www.supremecourt.gov/DocketPDF/22/22-976/300779/20240216121411253_22-976rbUnitedStates.pdf">here</a> (at p. 20, bold-face supplied by JAT):</span></li></ul><p class="MsoNormal" style="text-indent: 0.5in;"></p>
<p class="MsoNormal" style="text-indent: 0.5in;"><span style="line-height: 107%;"></span></p><blockquote>4. Respondent next argues (Br. 48-50) that this Court does not owe deference to ATF’s interpretation under <i>Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc.</i>, 467 U.S. 837 (1984). But as the government has explained (Br. 43), it does not seek any such deference here because ATF’s regulation is not a legislative rule carrying the force and effect of law; <b>instead, it is simply an interpretive rule announcing ATF’s understanding of the statute</b>. That should be the end of the matter. See <i>HollyFrontier Cheyenne Refining v. Renewable Fuels Ass’n,</i> 141 S. Ct. 2172, 2180 (2021) (“‘[T]he government is not invoking <i>Chevron</i>.’ * * * We therefore decline to consider whether any deference might be due its regulation.”) (citation omitted). </blockquote><p></p><ul style="text-align: left;"><li>Oral Argument <a href="https://www.supremecourt.gov/oral_arguments/argument_transcripts/2023/22-976_bq7d.pdf" style="text-indent: 48px;">here</a>, pp. 19-22 (bold-face supplied by JAT; Mr. Fletcher is the lawyer from the Solicitor General's office).</li></ul><p></p><p></p><p class="MsoNormal" style="text-align: left; text-indent: 0.5in;"><span style="font-family: inherit; text-indent: 0.5in;"></span></p><blockquote><p class="MsoNormal" style="text-align: left; text-indent: 0.5in;"><span style="font-family: inherit; text-indent: 0.5in;">JUSTICE GORSUCH: Mr. Fletcher, on -- </span><span style="font-family: inherit; text-indent: 0.5in;">on that score, can we just step back a minute? </span><span style="font-family: inherit; text-indent: 0.5in;">I can certainly understand why these items </span><span style="font-family: inherit; text-indent: 0.5in;">should be made illegal, but we're dealing with a </span><span style="font-family: inherit; text-indent: 0.5in;">statute that was enacted in the 1930s, and </span><span style="font-family: inherit; text-indent: 0.5in;">through many administrations, the government </span><span style="font-family: inherit; text-indent: 0.5in;">took the position that these bump stocks are not </span><span style="font-family: inherit; text-indent: 0.5in;">machineguns.</span></p>
<p class="MsoNormal" style="text-indent: 0.5in;"><span style="line-height: 107%;"><span style="font-family: inherit;">And then you
-- you adopted an </span></span><span style="line-height: 107%; text-indent: 0.5in;"><span style="font-family: inherit;"><b>interpretive rule</b>, not even a legislative rule, </span></span><span style="font-family: inherit; text-indent: 0.5in;">saying otherwise that would render between a </span><span style="font-family: inherit; text-indent: 0.5in;">quarter of a million and a half million people </span><span style="font-family: inherit; text-indent: 0.5in;">federal felons and not even through an APA </span><span style="font-family: inherit; text-indent: 0.5in;">[*20] process they could challenge, subject to 10 </span><span style="font-family: inherit; text-indent: 0.5in;">years in federal prison, and the only way they </span><span style="font-family: inherit; text-indent: 0.5in;">can challenge it is if they're prosecuted, and </span><span style="font-family: inherit; text-indent: 0.5in;">they may well wind up dispossessed of guns, all </span><span style="font-family: inherit; text-indent: 0.5in;">guns in the future, as well as a lot of other </span><span style="font-family: inherit; text-indent: 0.5in;"> civil rights,
including the right to vote. </span></p>
<p class="MsoNormal" style="text-indent: 0.5in;"><span style="text-indent: 0.5in;">MR. FLETCHER: * * *</span></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: inherit; text-indent: 0.5in;">After the Las Vegas shooting, the </span><span style="font-family: inherit; text-indent: 0.5in;">deadliest shooting in our nation's history, I </span><span style="font-family: inherit; text-indent: 0.5in;">[*21] think it would have been irresponsible for the </span><span style="font-family: inherit; text-indent: 0.5in;">ATF not to take another closer look at this </span><span style="font-family: inherit; text-indent: 0.5in;"> prior interpretation,
which was reflected in a </span><span style="font-family: inherit; text-indent: 0.5in;"> handful of
classification letters, and to look </span><span style="font-family: inherit; text-indent: 0.5in;">at the problem more carefully.</span></p>
<p class="MsoNormal" style="text-indent: 0.5in;"><span style="line-height: 107%;"><span style="font-family: inherit;">And having
done that, I think it would </span></span><span style="font-family: inherit; text-indent: 0.5in;">have been irresponsible if the ATF concluded, as </span><span style="font-family: inherit; text-indent: 0.5in;">it did, that these devices are prohibited under </span><span style="font-family: inherit; text-indent: 0.5in;">the best reading of the statute for the ATF not </span><span style="font-family: inherit; text-indent: 0.5in;">to fix its errors.</span></p>
<p class="MsoNormal" style="text-indent: 0.5in;"><span style="line-height: 107%;"><span style="font-family: inherit;">JUSTICE GORSUCH: Then why not do a </span></span><span style="font-family: inherit; text-indent: 0.5in;">legislative rule properly and in which -- I -- I </span><span style="font-family: inherit; text-indent: 0.5in;">know you did notice and comment, but it was an </span><span style="font-family: inherit; text-indent: 0.5in;"><b>interpretive rule</b>, and an interpretive rule you </span><span style="font-family: inherit; text-indent: 0.5in;">can more or less just issue and you don't even </span><span style="font-family: inherit; text-indent: 0.5in;">have to put it in the Federal Register. I mean, </span><span style="font-family: inherit; text-indent: 0.5in;">maybe you do in some circumstances, but not all. </span></p>
<p class="MsoNormal" style="text-indent: 0.5in;"><span style="line-height: 107%;"><span style="font-family: inherit;"> </span></span><span style="font-family: inherit; text-indent: 0.5in;">JUSTICE GORSUCH: Well, I understand </span><span style="font-family: inherit; text-indent: 0.5in;">that, but in your reply brief, you say, oh, </span><span style="font-family: inherit; text-indent: 0.5in;"> don't touch that
because that's not before us. </span><span style="font-family: inherit; text-indent: 0.5in;">That's not part of the QP. And in an </span><span style="font-family: inherit; text-indent: 0.5in;"><b>interpretive rule</b>, you don't get an APA </span><span style="font-family: inherit; text-indent: 0.5in;">challenge. You get -- you get a criminal </span><span style="font-family: inherit; text-indent: 0.5in;">prosecution against you is what you get.</span></p>
<p class="MsoNormal" style="text-indent: 0.5in;"><span style="line-height: 107%;"><span style="font-family: inherit;">MR.
FLETCHER: So I -- I guess I </span></span><span style="font-family: inherit; text-indent: 0.5in;">disagree with that on a number of levels. </span><span style="font-family: inherit; text-indent: 0.5in;">First, I would think it would be better for </span><span style="font-family: inherit; text-indent: 0.5in;">those who are concerned about administrative </span><span style="font-family: inherit; text-indent: 0.5in;">power that we acknowledge this is an </span><span style="font-family: inherit; text-indent: 0.5in;"><b>interpretive rule</b>.</span><span style="font-family: inherit; text-indent: 0.5in;">.</span></p></blockquote><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: inherit; text-indent: 0.5in;"></span></p>
<p class="MsoNormal"><span style="line-height: 107%;">2. At one point, Justice Gorsuch chides the Mr. Fletcher because ATF adopted the rule as an interpretive rule rather than a legislative rule. Thus, in oral argument p. 19, Justice Gorsuch says "</span>you adopted an interpretive rule, not even a legislative rule," And again on p. 20, Justice Gorsuch says "Then why not do a legislative rule properly." Of course, the reason is that Congress had not given ATF the authority to adopt a legislative rule.</p><p class="MsoNormal">3. In Cargill’s Merits Brief, the following is said (p. 49, bold-face added by JAT and footnote omitted): <span style="font-family: inherit;"> </span></p><p class="MsoNormal"><span style="line-height: 107%;"></span></p><blockquote>ATF’s interpretation of 26 U.S.C. § 5845(b) turns on legislative history rather than “text, structure, history and purpose,” and the rule of lenity should trump consideration of legislative history whenever agencies or courts construe a statute with criminal consequences. <b>Ordinary citizens do not have access to the 1934 testimony of a gun lobbyist, and if ATF can use legislative history of that sort to resolve the meaning of a criminal statute then the rule of lenity will no longer ensure that citizens receive fair notice before being subjected to criminal punishment.</b></blockquote><p></p><p class="MsoNormal"><span style="font-family: inherit;">What caught
my eye was the bold-faced text referring to some legislative history (“testimony
of a gun lobbyist”). This type of “secret” legislative history exists and apparently
was used by the Government in <i>Cargill</i>.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">When I was with
DOJ Tax Appellate in the early 1970s, I handled </span><i style="font-family: inherit;">Kansas Sand and Concrete,
Inc. v. Commissioner</i><span style="font-family: inherit;">, 462 F. 2d 805 (10</span><sup style="font-family: inherit;">th</sup><span style="font-family: inherit;"> Cir. 1972), </span><a href="https://scholar.google.com/scholar_case?case=18074370330858701631" style="font-family: inherit;">here</a><span style="font-family: inherit;">.
My reviewer on the case was Ernest J. Brown, a giant in the tax law, formerly
Harvard Law Professor for many years. I will recount an anecdote of that
briefing below, but for now want to point out that, in our brief </span><a href="https://drive.google.com/file/d/1BBp3kYvhqf-ChZkkW0OnnE3ST9yf7ZfC/view?usp=sharing">here</a><span style="font-family: inherit;"> </span><span style="font-family: inherit;">p. 16 we
referred to (pp. 15-16):</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><span style="font-family: inherit;">9
Confidential Senate Hearings before the Committee on Finance, 74th Cong., 2d
Sess., on the Revenue Act of 1936, pp. 11 (line 27 to bottom of page), and
41-43 (line 40, p. 41 to line 17, p. 43) <b>n4</b><br /></span><span style="font-family: inherit;"> <b>n4</b> These hearings have not been
released. The Justice Department has, however, obtained permission from the
Senate Finance Committee to cite from the
hearings. For the convenience of the Court and opposing· counsel, the cited portions are reproduced in
the appendix, infra. [the cited portions are reproduced at pp. 33-36]</span></blockquote><span style="font-family: inherit;"></span><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">The <i>Kansas Sand</i> opinion
does not cite the confidential hearings.</span></p><p class="MsoNormal">The point is that for this type of confidential legislative history, the government may know about it but the taxpayer (citizen) may not. Apparently, citing it and including the relevant part in the Appendix made little difference, because the court did not cite it. (But, maybe it did make an unstated marginal difference.)</p>
<p class="MsoNormal"><span style="font-family: inherit;">An
interesting (to me) anecdote is from Professor Brown’s review of my draft brief </span><a href="https://drive.google.com/file/d/1I2JBZrHirqsoQi5DNCuA6TyjVO7MPxsX/view?usp=sharing" style="font-family: inherit;">here</a>.<span style="font-family: inherit;"> A
significant part of the argument in the draft brief was based on Kenneth J. Seplow,
</span><u style="font-family: inherit;">Acquisition of Assets of a Subsidiary: Liquidation or Reorganization?</u><span style="font-family: inherit;">, 73
Harv. L. Rev. 484 (1960). In that article, in the opening footnote, Seplow says
“The author wishes to acknowledge his gratitude to Professor Ernest J. Brown of
the Harvard Law School for his encouragement and advice in the preparation of
the article.”</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">So, when
Professor Brown was assigned to review my <i>Kansas Sand</i> brief, I was encouraged.
But, Professor Brown’s review did not go as I expected. He started out early by
dismissing Seplow’s arguments, saying “I never agreed with Seplow’s arguments.”
(I think that is verbatim because it was short and memorable.) With that ego deflation,
he then sent me off on multiple quests to locate things from the mid-1930s
legislative history that his prodigious memory told him was there. After multiple tries, I could not find most of what he thought he
remembered from the legislative history. In the end, we made basically the same
argument—a subsidiary-into-parent state-law merger was a liquidation for tax
purposes, but for different reasons. Professor Brown did let me get the Seplow article into footnote 3 (spanning pp. 12-13).</span></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-40810907475328634782024-02-27T11:40:00.004-05:002024-02-27T11:42:57.602-05:00District Court Holds Indicatively While Case on Appeal That Remand of FBAR Willful Penalty to IRS Did Not Vacate the Timely Assessments (2/27/24)<p> <span style="font-family: inherit;"> In</span><span style="font-family: inherit;"> </span><i style="font-family: inherit;">United States v. Kerr</i><span style="font-family: inherit;"> </span><span style="font-family: inherit;">(D. AZ Dkt O. 2:19-CV-05432 Order dtd 2/23/24), TN</span><span style="font-family: inherit;"> </span><a href="https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/indicative-ruling-fbar-case-says-penalties-were-not-vacated/7j7xz" style="font-family: inherit;">here</a><span style="font-family: inherit;"> </span><span style="font-family: inherit;">and CL</span><span style="font-family: inherit;"> </span><a href="https://storage.courtlistener.com/recap/gov.uscourts.azd.1209283/gov.uscourts.azd.1209283.76.0.pdf" style="font-family: inherit;">here</a><span style="font-family: inherit;">, the district court ruled</span><span style="font-family: inherit;"> </span><b style="font-family: inherit;">indicatively</b><span style="font-family: inherit;"> </span><span style="font-family: inherit;">clarifying the intended effect of the district court termination of the case after remand to the IRS of willful FBAR penalties for certain years. The intended effect was not to vacate those penalties but to provide a procedure to reconsider and modify the amount of the penalties for future district court judgment. In other words, the remand did not require a new assessment of FBAR willful penalties (for which the assessment statute of limitations had run). Rather, any IRS action would adjust the previously timely assessed FBAR penalties. After this indicative ruling, the appeal of the case can proceed in the Ninth Circuit.</span></p><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p><p class="MsoNormal"><span style="font-family: inherit;">Links to items related to this blog are:</span></p><p class="MsoNormal"></p><ul><li><span style="font-family: inherit;">FRCP 62,1, titled Indicative Ruling on a Motion for Relief That is Barred by a Pending Appeal, </span><a href="https://www.law.cornell.edu/rules/frcp/rule_62.1" style="font-family: inherit;">here</a><span style="font-family: inherit;">,</span></li><li><span style="font-family: inherit;">FRAP 12.1, Remand After an Indicative Ruling by the District Court on a Motion for Relief That Is Barred by a Pending Appeal, <a href="https://www.law.cornell.edu/rules/frap/rule_12.1">here</a>,</span></li><li><span style="font-family: inherit;">Kerr docket entries for this civil case (FBAR penalty enforcement case): CL, </span><a href="https://www.courtlistener.com/docket/16355120/united-states-v-kerr/" style="font-family: inherit;">here</a><span style="font-family: inherit;">.</span></li><li><span style="font-family: inherit;">Ninth Circuit Order staying Ninth Circuit proceedings pending the district court’s indicative ruling, <a href="https://storage.courtlistener.com/recap/gov.uscourts.azd.1209283/gov.uscourts.azd.1209283.75.0.pdf">here</a>.</span></li></ul><p></p><p class="MsoNormal"><span style="font-family: inherit;">Prior blogs involving Mr. Kerr are (reverse chronological order):<span></span></span></p><a name='more'></a><p></p><p class="MsoNormal"></p><ul><li><u>Court Holds Defendant in FBAR Suit Alleging No Deficiency in Tax for Excessive Fines Argument Must Prove Deficiency Despite Tax Court No Deficiency Decision</u> (Federal Tax Procedure Blog 4/1/22), <a href="https://federaltaxprocedure.blogspot.com/2022/04/court-holds-defendant-in-fbar-suit.html" style="font-family: inherit;">here</a><span style="font-family: inherit;">.</span></li><li><span style="font-family: inherit;"><u>Issue Preclusion (Collateral Estoppel) in FBAR Civil Willful Penalty Suit After Criminal Conviction</u> (Federal Tax Crimes Blog 3/3/21), </span><a href="https://federaltaxcrimes.blogspot.com/2021/03/issue-preclusion-collateral-estoppel-in.html" style="font-family: inherit;">here</a><span style="font-family: inherit;">.</span></li><li><span style="font-family: inherit;"><u>U.S. Attorney Enabler Sentenced for Assisting Offshore Evasion</u> (Federal Tax Crimes Blog 3/19/14), </span><a href="https://federaltaxcrimes.blogspot.com/2014/03/us-attorney-enabler-sentenced-for.html" style="font-family: inherit;">here</a><span style="font-family: inherit;">.</span></li><li><span style="font-family: inherit;"><u>Kerr & Quiel - Denial of Post-Trial Motions - Installment #2</u> (Federal Tax Crimes Blog 8/20/13), </span><a href="https://federaltaxcrimes.blogspot.com/2013/08/kerr-quiel-denial-of-post-trial-motions_20.html" style="font-family: inherit;">here</a>,</li><li><span style="font-family: inherit;"><u>Kerr & Quiel - Denial of Post-Trial Motions - Installment #1</u> (Federal Tax Crimes Blog 8/19/13), </span><a href="https://federaltaxcrimes.blogspot.com/2013/08/kerr-quiel-denial-of-post-trial-motions.html" style="font-family: inherit;">here</a><span style="font-family: inherit;">.</span></li><li><span style="font-family: inherit;"><u>Convictions of U.S. Persons Related to UBS and Pictet Accounts</u> (Federal Tax Crimes Blog 4/12/13), </span><a href="https://federaltaxcrimes.blogspot.com/2013/04/convictions-of-us-persons-related-to.html" style="font-family: inherit;">here</a><span style="font-family: inherit;">.</span></li><li><span style="font-family: inherit;"><u>Defendant Waives Attorney-Client Privilege by Asserting Reliance on FBAR Advice Defense</u> (Federal Tax Crimes Blog 7/19/12), </span><a href="https://federaltaxcrimes.blogspot.com/2012/07/defendant-waivers-attorney-client.html" style="font-family: inherit;">here</a><span style="font-family: inherit;">.</span></li><li><span style="font-family: inherit;"><u>Swiss Bank Pictet Turns Over U.S. Client Data</u> (Federal Tax Crimes Blog 5/8/12), </span><a href="https://federaltaxcrimes.blogspot.com/2012/05/swiss-bank-pictet-turns-over-client.html" style="font-family: inherit;">here</a><span style="font-family: inherit;">.</span></li><li><span style="font-family: inherit;"><u>2 Taxpayers and their U.S. Lawyer Indicted re Foreign Accounts</u> (Federal Tax Crimes Blog 2/1/12), </span><a href="https://federaltaxcrimes.blogspot.com/2012/02/2-taxpayers-and-their-us-lawyer.html" style="font-family: inherit;">here</a><span style="font-family: inherit;">.</span></li></ul><p></p><p class="MsoNormal"><o:p> </o:p><span style="font-family: inherit;">This blog entry is cross-posted on the Federal Tax Crimes Blog <a href="https://federaltaxcrimes.blogspot.com/2024/02/district-court-holds-indicatively-while.html">here</a>.</span></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-21685818306972640272024-02-24T21:53:00.002-05:002024-02-24T21:53:47.163-05:00Grossly Overvalued Conservation Easement Disallowed in Full and Gross Valuation Misstatement Penalty Applied (2/24/24)<p><span style="font-family: inherit;">In <i>Oconee Landing Property, LLC v. Commissioner</i>, T.C. Memo.
2024-25 (2/21/24), GS <a href="https://scholar.google.com/scholar_case?case=6898292544917253131">here</a>,
the Court (Judge Lauber) denied the charitable contribution deduction because</span></p><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNormal"></p><ul style="text-align: left;"><li><span style="font-family: inherit;">the allegedly relied upon appraisers were not “qualified appraisers”
because the petitioners knew the property was worth only a fraction of the
appraisers’ opined values (Slip Op. 39-48; and</span></li><li><span style="font-family: inherit;">the property was “ordinary income property” in the hands of
the promoters and that character carried over to the partnership, thus limiting
the charitable deduction to the promoters basis. Petitioner supplied “no
evidence” of that basis. (Slip Op. 48-57.)</span></li></ul><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">Further, the Court held that, although entitled to no
deduction, the Court still had to determine the value of the contributed easement to
determine whether the valuation misstatement penalties applied. § 6662(a),
(b)(3). The penalties are 20% if the valuation is substantial—i.e., 150% or
more of the correct value--and 40% if the valuation is gross—200% or more of
the correct value. (Slip Op. 74, citing </span>§ 6662(h) and § 6662(h)(2)(A)(i), respectively<span style="font-family: inherit;">.) The value of the easement claimed on the
return was $20.67 million but the value determined “was no greater than
$4,972,002, thus the claimed value “exceeded the correct value by 416%.” (Slip Op.
74-75.)</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">In support of the first holding (not qualified appraisers),
the Court said (Slip Op. pp. 45-46):</span></p><p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote>A person who achieves an advance
agreement with an appraiser that property will be overvalued—knowing that it is
being overvalued—cannot establish good faith reliance on professional advice
that the appraisal is acceptable. <b>n14</b></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">But there is more in the indicated footnote, the
Court said (Slip Op. 46):</span></p><p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><span style="font-family: inherit;"> </span><span style="font-family: inherit;">n14 In its opening post-trial brief petitioner asserted that the
regulations governing qualified appraisals and qualified appraisers “did not go
through a proper notice-and-comment process and are, therefore, invalid.” That
assertion occupied a single sentence; petitioner supplied no argument in
support of that assertion, stating that “the Court need not reach that issue in
this case.” And in its post-trial Answering Brief petitioner did not mention
any challenge to the validity of Treasury Regulation § 1.170A-13(c)(5)(ii), or
any other provision of the regulations, based on the Administrative Procedure
Act (APA). Under these circumstances, petitioner has not properly presented or
preserved an APA challenge to any regulation discussed in this Opinion.<span><a name='more'></a></span></span></blockquote><span style="font-family: inherit;"></span><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">The Petitioners were apparently feinting at invoking Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021), which held that, with respect to another requirement of the 1980s regulation, the IRS had not properly considered and addressed a material comment, thus invalidating that requirement. But that requires <b>proof</b>, as made in <i>Hewitt</i>, that material comments
were made and not addressed in the 1980s regulation. In any event, the holding
in <i>Hewitt</i> is in substantial question because, based on briefing and oral
argument in <i>Corner Post v. Board of Governors of the Federal Reserve System</i>
(Sup. Ct. Case No. 22-1008), such procedural challenges are subject to the
6-year statute of limitations in 28 U.S.C. §2401(a). See <u>Oral Argument in
Corner Post on Whether Procedural Challenges to Regulations Are Subject to §
2401(a)’s Six-Year Statute of Limitations</u> (Federal Tax Procedure Blog 2/21/24),
<a href="https://federaltaxprocedure.blogspot.com/2024/02/oral-argument-in-corner-post-on-whether.html">here</a>.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">In summary, the petitioner and the flow-through taxpayers struck
out.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">I finally note that, in promoting the adventure/misadventure,
the promoters offered marketing material touting a 4:1 tax write-off and alleging
that they “had successfully closed 62 conservation easement projects” and “had
never been audited by the IRS.” I have no idea whether that was just sales
exaggeration (itself possibly bullshit) or accurate, and there is no indication whether those 62
instances (if they exist) were now outside the statute of limitations. The name of the game for
bullshit tax shelters is to hide the ball and hope that they can win the audit
lottery. Probably many, if not most, such bullshit shelters over the years have succeeded
in hiding the ball.</span></p><p class="MsoNormal"><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-56863740796750939982024-02-23T13:54:00.009-05:002024-02-23T14:02:13.864-05:00Tax Court Denies WB Claim Made Contemporaneously With Target Taxpayer’s Voluntary Disclosure (2/23/24)<p><span style="font-family: inherit;">In </span><i style="font-family: inherit;">Whistleblower 14376-16W v. Commissioner</i><span style="font-family: inherit;">, T.C.
Memo. 2024-22, GS <a href="https://scholar.google.com/scholar_case?case=7143179007436479259">here</a>, the Court held that the Whistleblower (“WB”) was entitled to no
relief from the Whistleblower Office’s denial of an award. The opinion establishes
no new precedent, which is why it is a Memo opinion. The opinion does offer
some interesting aspects, which I will discuss here.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">1. The WB claim targeting several taxpayers was made a couple
of months before some of the taxpayers made a request to CI to participate in an
IRS voluntary disclosure program.</span><span style="font-family: inherit;"> </span><span style="font-family: inherit;">(It is
not clear whether the request was under one of the offshore variants or was
under the general voluntary disclosure program (see p. 3 n. 6); it makes no
difference, however, for the point I discuss here, so I will just call it a VDP
request.) The VDP request was made before any submissions (amended returns,
etc.) required to complete voluntary disclosure; those submissions were delayed
a substantial period. After the voluntary disclosure request, the WBO processed
and sent to the field the WB claim after CI received the VDP request. The IRS
subsequently undertook the work required to determine and collect substantial
tax based on the taxpayers' submissions. The IRS says that, although its examination
function received the WB information, it took no action based on the
information. The record before the Court (essentially the record related to the
WB claim and related items) supported the IRS’s claim that the proceeds generated
from its activity did not rely on the WB claim and information in the WB claim.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">2. The Court denied the WB’s sweeping and broadly written
discovery requests designed to ferret out all documents and information that
could test even tangentially the IRS’s narrative that no collected proceeds
resulted from the WB information (including whether the record the IRS
submitted to the Court was complete). In part, the WB requested documents and
information in the voluntary disclosure package that, it claims, was “indirectly
considered” in collecting the proceeds. (See pp. 33-37.) In part, the Court
reasoned:</span></p>
<p class="MsoNormal"></p><blockquote><p class="MsoNormal"> <span style="font-family: inherit;">Petitioner contends, however, that the WBO “indirectly
considered” the VDP materials. As one court has aptly observed, “it is not
entirely clear what it means to indirectly consider documents or materials.” </span><i style="font-family: inherit;">Amgen
Inc. v. Hargan</i><span style="font-family: inherit;">, 285 F. Supp. 3d 397, 404 (D.D.C. 2017) (treating the
“indirect consideration” concept as “captur[ing] materials that are necessary
to understand the documents that the agency directly relied upon” and denying
motion to supplement the administrative record with documents intended to test
a decision by the Food and Drug Administration for consistency with previous
decisions). The caselaw provides no general test.24 But it does suggest some
guiding principles. One court has observed that if an agency's final decision
was based “on the work and recommendations of subordinates, those materials
should be included as well.” </span><i style="font-family: inherit;">Amfac Resorts, L.L.C. v. U.S. Dep't. of
Interior</i><span style="font-family: inherit;">, 143 F. Supp. 2d 7, 12 (D.D.C. 2001) (collecting cases), aff'd in
part, rev'd in part 282 F.3d 818 (D.C. Cir. 2002), vacated in part sub nom. </span><i style="font-family: inherit;">Nat'l
Park Hosp. Ass'n v. Dep't of Interior</i><span style="font-family: inherit;">, 538 U.S. 803 (2003). On the other
hand, it is not always necessary to include in the administrative record source
information upon which agency staff relied in making their recommendations to
the agency decisionmakers if other information in the record obviates the need
to consider the source information independently. See, e.g., </span><i style="font-family: inherit;">James Madison
Ltd. by Hecht v. Ludwig</i><span style="font-family: inherit;">, 82 F.3d 1085, 1095 (D.C. Cir. 1996) (affirming
denial of discovery and record supplementation with respect to source documents
that bank examiners had relied upon in making their bank-insolvency reports to
the Comptroller of the Currency, where “detailed contemporaneous reports from
the examiner-in-charge and members of her examination team explain[ed] how and
why they reached their conclusions regarding the banks' reserves”); </span><i style="font-family: inherit;">Cape
Hatteras Access Pres. All.</i><span style="font-family: inherit;">, 667 F. Supp. 2d at 114 (denying motion to
supplement the record with a biological report that the National Park Service
had relied upon [*35] in developing an interim strategy that was before the
Fish and Wildlife Service when it designated certain critical habitats, even
though the biological report was referenced by several other documents in the
administrative file).<span></span></span></p><a name='more'></a><p></p>
<p class="MsoNormal"><span style="font-family: inherit;"> In <i>Berenblatt</i>,
160 T.C., slip op. at 19-21, this Court denied requested discovery of certain
interview documents and subpoenaed financial records that the IRS had obtained
before the whistleblower initially provided information to the IRS in an
interview. The CI special agent who had interviewed the whistleblower
referenced these documents in his Form 11369 narrative, but they were not
included in the designated administrative record. This Court rejected an
argument that because these documents had been available to the CI special
agent when he completed the Form 11369, they had been indirectly considered in
reaching a decision on the whistleblower's award claim. The Court reasoned that
the decisionmakers for the whistleblower's claim were the relevant WBO
personnel and not the CI special agent who prepared the Form 11369. Id. at 19.
The Court observed: “If any potentially available document in the IRS's
possession at the time the WBO made its decision were discoverable, that would
render the record rule all but meaningless.” Id. at 20. The Court further
stated that discovery of items available to the CI special agent were “limited
to those relevant to [the whistleblower's] contribution to the ongoing
investigation and generally does not extend to those created before his
interview.” Id.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;"> In the
instant case, CI received the target taxpayers' VDP application and forwarded
it to SB/SE weeks before receiving petitioner's complete Form 211 package and
forwarding it to a CI analyst for consideration. It was many months later that
the WBO, upon learning that CI had ultimately declined to pursue the matter,
forwarded petitioner's whistleblower information to SB/SE. Nothing in the
record suggests that the VDP materials were “relevant to [the whistleblower's]
contribution to the ongoing investigation.” Id. As the record makes clear, the
only tax collections resulting from the investigation of the target taxpayers
were attributable to the taxes that they reported on their delinquent and
amended income tax returns and not to any information that petitioner provided.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;"> Similarly,
the references to the target taxpayers' VDP application as contained in SA
Chatham's ARMs do not compel the conclusion that the VDP materials were before
the WBO in making its decision. As the ARMs make clear, this information was
obtained from the Forms 11369 that CI and SB/SE forwarded to the WBO. The mere
reference to the [*36] VDP application in these documents does not necessarily
make it part of the record. See <i>Berenblatt</i>, 160 T.C., slip op. at 21
n.8; Oceana, Inc. v. Ross, 290 F. Supp. 3d 73, 79 (D.D.C. 2018) (“[T]he mere
mention of a document in the agency's decision or the record does not always
mean, ipso facto, that the agency considered the document.” (citing <i>Franks
v. Salazar</i>, 751 F. Supp. 2d 62, 69 (D.D.C. 2010))). There is a difference
between an agency's citing a document for a substantive proposition, which may
indicate that the agency actually considered the document in making its
decision, and merely referencing a document's existence, which is insufficient,
on its own, to show consideration. <i>Oceana</i>, 290 F. Supp. 3d at 80; see
also <i>Marcum v. Salazar</i>, 751 F. Supp. 2d 74, 80 (D.D.C. 2010)
(“[R]eferences to documents in the administrative record do not prove that that
the documents were 'before' the deciding agency.”); <i>WildEarth Guardians v.
Salazar</i>, 670 F. Supp. 2d 1, 6 (D.D.C. 2009) (“Although citation to a
document may . . . indicate consideration of the contents of the document, the
fact that a document is merely mentioned does not lead to the same
conclusion.”); <i>Cape Hatteras Access Pres. All.</i>, 667 F. Supp. 2d at 114
(stating that multiple references in the record to a biological report did “not
prove that it was before the agency when it made its decision”).<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;"> The
decisionmakers for petitioner's award claim were STA Chatham and his colleagues
in the WBO, not the IRS field personnel who considered the VDP request. See <i>Berenblatt</i>,
160 T.C., slip op. at 19; see also IRM 25.2.1.1.2(2) and (3) (Mar. 10, 2023)
(“The authority to determine and approve awards under IRC 7623 . . . is
delegated to the Director of the W[B]O. . . . The operating divisions do not
have authority to determine or approve awards under IRC 7623.”). Nothing in the
record suggests that the WBO actually considered the substantive contents of
the target taxpayers' VDP application or of any other VDP materials in making
its decision to deny petitioner's award claim. As stated in SA Chatham's
supplemental ARM: “This decision to accept the taxpayer's VDP filing was
totally outside the purview of the Whistleblower Office and had no direct
effect on the outcome of the Whistleblower's claim for award.” In these
circumstances the references to the target taxpayers' VDP application in the
ARMs and Forms 11369 are insufficient to overcome the presumption that the WBO
properly designated the record. See <i>Cape Hatteras Access Pres. Alliance</i>,
667 F. Supp. 2d at 114.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;"> Petitioner
suggests that discovery of the VDP materials is necessary because respondent's
actions are not adequately explained in the administrative record. Petitioner
posits various “mysteries” [*37] involving the IRS's decision to honor the
target taxpayers' VDP request — why the IRS accepted a VDP request that was
allegedly incomplete, disclosed the existence of a whistleblower to the target
taxpayers' representative, and ultimately honored the VDP request even though
it was submitted after petitioner had submitted the Form 211. The relevant
question in this whistleblower proceeding, however, is not whether the IRS
properly processed or honored the target taxpayers' VDP request — again, a
question outside the purview of the WBO — but whether the WBO abused its
discretion in denying petitioner's award claim. That question is the crux of
this case, and we address it below in evaluating the substantive merits of this
case rather than as part of our consideration of petitioner's discovery motion.</span><span style="font-family: inherit;"> </span></p></blockquote><p class="MsoNormal"></p>
<p class="MsoNormal"><span style="font-family: inherit;">3. The Court also denied the WB’s request to include the VDP
materials as “extrarecord evidence.” (See pp. 37-40.) After considering other
claims, the Court concludes (p. 42-43):<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><p class="MsoNormal"><span style="font-family: inherit;"> </span><span style="font-family: inherit;">In
conclusion, petitioner has failed to overcome the presumption that the WBO has
properly compiled the administrative record. Petitioner has not made a
significant showing that respondent exercised bad faith in compiling it, nor
has petitioner made a significant showing that it omits material that the WBO
actually considered, directly or indirectly, or material that otherwise falls
under a category listed in Treasury Regulation §301.7623-3(e). Furthermore,
petitioner has not demonstrated the applicability of any of the narrow
exceptions to the [*43] record rule that would permit extrarecord evidence to
be consulted in this case. Consequently, we will deny petitioner's Motion to
Compel Production of Documents.</span><span style="font-family: inherit;"> </span></p></blockquote><p class="MsoNormal"></p>
<p class="MsoNormal"><span style="font-family: inherit;">4. The Court denied the WB’s claim that “a good majority” of
the documents in the record “constitute
hearsay” reasoning (p. 43):<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><span style="font-family: inherit;">Respondent has submitted all these documents in support of
his Motion for Summary Judgment, not to prove the truth of their contents but
to show what documents STA Chatham relied on in deciding to deny petitioner's
whistleblower claim. Accordingly, we overrule the hearsay objection. See id.;
see also </span><i style="font-family: inherit;">Marino v. Commissioner</i><span style="font-family: inherit;">, T.C. Memo. 2021-130, at *21 (holding
that this Court reviews the administrative record in a whistleblower case
“without regard to whether it might include evidence that would be inadmissible
as hearsay in a trial de novo”); </span><i style="font-family: inherit;">Whistleblower 23711-15W v. Commissioner</i><span style="font-family: inherit;">,
T.C. Memo. 2018-34, at *18 n.9 (overruling hearsay objection with respect to
contents of a Form 11369 attached to a declaration in support of a motion for
summary judgment in a whistleblower case).</span></blockquote><span style="font-family: inherit;"></span><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">5. The Court found (p. 46) that “the administrative record
indicates that RA Martin in SB/SE used petitioner's whistleblower information
to issue IDRs and summonses but ultimately was unable to verify petitioner's
information.” The information thus resulted in no collected proceeds which were
based on the “taxpayers' delinquent and amended returns.”</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">6. Finally, the Court addressed IRS “missteps in the summer
of 2012 when it revealed to the target taxpayers' representative, in
communications about the target taxpayers' eligibility for the VDP program, the
existence (but not the identity) of a whistleblower.” </span><span style="font-family: inherit;"> </span><span style="font-family: inherit;">(Pp. 46-47.) Basically, the Court held that
that “misstep” did not affect the collected proceeds which is the base from
which any award must be based.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">This post was cross-posted to the Federal Tax Crimes Blog
<a href="https://federaltaxcrimes.blogspot.com/2024/02/tax-court-denies-wb-claim-made.html">here</a>.</span></p><p class="MsoNormal"><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-24584686167425767542024-02-22T09:11:00.004-05:002024-03-11T23:47:57.470-04:00Oral Argument in Corner Post on Whether Procedural Challenges to Regulations Are Subject to § 2401(a)’s Six-Year Statute of Limitations (2/21/24)<p><span style="font-family: inherit;">I previously included in another blog an introduction to <i>Corner
Post v. Board of Governors of the Federal Reserve System</i> (Sup. Ct. Case No.
22-1008), <a href="https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/22-1008.html">here</a>,
See <u>Update on Supreme Court Deference Case (with Speculation) and New
Supreme Court case on General 6-year Statute for Challenging Regulations
Interpretations (Without Speculation)</u> (Federal Tax Procedure Blog 10/1/23),
<a href="https://federaltaxprocedure.blogspot.com/2023/10/update-on-supreme-court-deference-case.html">here</a>.
The question presented in <i>Corner Post</i> is addressed to § 2401(a)’s
general fallback statute of limitations of six years :</span></p><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><p class="MsoNormal"><span style="font-family: inherit;">Does a plaintiffs APA claim "first accrue[]" under
28 U.S.C. §2401(a) when an agency issues a rule-regardless of whether that rule
injures the plaintiff on that date (as the Eighth Circuit and five other
circuits have held)-or when the rule first causes a plaintiff to "suffer[]
legal wrong" or be "adversely affected or aggrieved" (as the
Sixth Circuit has held)?</span><span style="font-family: inherit;"> </span></p></blockquote><p class="MsoNormal"></p>
<p class="MsoNormal"><span style="font-family: inherit;">The Solicitor General (“SG”) worded the question presented
slightly differently (appellate fans will understand the subtle difference):<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote>Whether the court of appeals correctly held that
petitioner’s freestanding challenge to a rule adopted by the Board of Governors
of the Federal Reserve System in 2011 was untimely under the six-year statute
of limitations in 28 U.S.C. 2401(a) because petitioner had brought that
challenge more than six years after the rule was adopted.</blockquote><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">I noted that the resolution of </span><i style="font-family: inherit;">Corner Post</i><span style="font-family: inherit;"> could
affect many cases, including tax cases. E.g., </span><i style="font-family: inherit;">Hewitt v. Commissioner</i><span style="font-family: inherit;">, 21
F.4th 1336 (11th Cir. 2021), GS </span><a href="https://scholar.google.com/scholar_case?case=11988793536434694687" style="font-family: inherit;">here</a><span style="font-family: inherit;">
(where the Court invalidated an interpretive tax regulation promulgated in the 1980s for procedural irregularity (failing to consider and respond to
meaningful comments during the notice and comment process).</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Oral argument in </span><i style="font-family: inherit;">Corner Post</i><span style="font-family: inherit;"> was held Tuesday,
February 20, 2024. See the transcript here and the recording here.</span><span style="font-family: inherit;"> I won’t cover oral argument except as it might affect an issue I have discussed
before—the difference between arbitrary and capricious procedural review and
interpretation review through </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> deference. The context for the following
excerpts is whether <b>procedural</b> challenges (such as failure to consider and
respond to comments in the notice and comment process) are subject to §
2401(a)’s six-year statute of limitations. Other nonprocedural challenges, referred
to as <b>substantive</b> but, I think, meaning interpretive challenges of whether the
regulation properly interprets the statute may be made on an as-applied basis during enforcement many years after the regulation was promulgated. I quote the
entire portions of the transcript (Tr. 33-24; & 73-74; note that Mr. Weir
is counsel for Corner Post. and Mr. Snyder is Assistant Solicitor General, counsel
for the Government):<span></span></span></p><a name='more'></a><p></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><p class="MsoNormal"><span style="font-family: inherit;">JUSTICE BARRETT: I just have one [*34] question and it's
about your point about procedural challenges not being the kind of challenges
that you could bring or, and you say, I think, that that's part of the
explanation for why the government's parade of horribles on page 39 of its
brief is not so horrible.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">The procedural challenges are out, am I right?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">MR. WEIR: That's -- that's what we think is the -- is the
best reading of -- of how injury occurs in that context. It doesn't need -- the
Court doesn't need to reach it in this -- <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">JUSTICE BARRETT: Are --<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">MR. WEIR: -- case because we don't have procedural
challenges.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">JUSTICE BARRETT: So are arbitrary and capricious challenges
procedural or not?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">MR. WEIR: Those are substantive. And -- and you --<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">JUSTICE BARRETT: So those would be substantive in your view?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">MR. WEIR: That's correct. And -- and -- and you can raise
those in as-applied enforcement contexts as well.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">JUSTICE BARRETT: Thank you. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">[*73]<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">JUSTICE SOTOMAYOR: And, number two, opposing counsel, in
answering Justice Barrett, said that procedural challenges would not happen.
But in your brief, you suggested they would. Could you tell me why their
concession is not convincing to you?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">MR. SNYDER: Well, I mean, we said our brief -- we said it in
our brief before they had made that concession. They -- they hadn't said that
until the reply brief. And their complaint includes procedural challenges. If
you look at paragraphs 93 and 95 of their complaint, they include arguments
that the agency failed to provide a reasoned explanation of Regulation II and
that the record before the agency wasn't [*74]
sufficient to support it.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;"> So I -- I'm
glad that they're willing to give up procedural challenges, but we hadn't anticipated that before.</span></p></blockquote><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNormal"><o:p><span style="font-family: inherit;"> </span></o:p><span style="font-family: inherit;">The Solicitor General (“SG”) Merits Brief </span><a href="https://www.supremecourt.gov/DocketPDF/22/22-1008/293318/20231213165432435_22-1008bsUnitedStates.pdf" style="font-family: inherit;">here</a> <span style="font-family: inherit;">says (pp. 40-41, boldface supplied):</span></p><blockquote>
<p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: inherit;">Second, petitioner is wrong to
equate the scope of review that courts provide in timely facial challenges with
the review that is available during enforcement proceedings. Under existing
practice, “a party against whom a rule is applied may, at the time of
application, pursue substantive objections to the rule, including claims that
an agency lacked the statutory authority to adopt the rule.” <i>Independent
Community Bankers of [*41] America v. Board of Governors of the Federal Reserve
System</i>, 195 F.3d 28, 34 (D.C. Cir. 1999) (emphasis added). “By contrast, *
* * procedural attacks on a rule’s adoption are barred even when it is
applied.” Ibid.; see, e.g., <i>Coal River Energy</i>, 751 F.3d at 664 (“[W]hen
the government actually applies its regulation against a party * * * , [the
party] can mount a substantive rather than a ‘procedural’ defense against the
regulation.”); <i>Dunn-McCampbell Royalty Interest, Inc. v. National Park
Service</i>, 112 F.3d 1283, 1287 (5th Cir. 1997) (similar); <i>Wind River
Mining Corp. v. United States</i>, 946 F.2d 710, 715-716 (9th Cir. 1991)
(similar); see also <i>PDR Network</i>, 139 S. Ct. at 2060 (Kavanaugh, J.,
concurring in the judgment) (“[A] party traditionally has been able to raise an
as-applied challenge to an agency’s interpretation of a statute in an
enforcement proceeding.”) (emphasis added). <b>n11</b><br />
<b>n11</b>
While not directly at issue here, that contrasting treatment appropriately
reflects the different nature of substantive and procedural objections. Where a
court is reviewing an agency enforcement order that applies a regulation
adopted more than six years earlier, the only “final agency action” properly
before the court is the enforcement order itself. 5 U.S.C. 704. <b>If the underlying regulation reflected an
unreasonable interpretation of the governing statute, however, the order will
ordinarily be “not in accordance with law” because it, too, will conflict with
the statute. 5 U.S.C. 706(2)(A).</b> Unless Congress has provided otherwise,
therefore, the reviewing court
appropriately evaluates a challenger’s substantive objections to the regulation
in the course of reaching a judgment about the lawfulness of the enforcement
order before it. The same is not true for procedural objections to an
underlying regulation. <b>In the ordinary
course, an agency does not act “arbitrar[ily]” or “capricious[ly]” by enforcing
an extant regulation, ibid., even if a challenger could have raised procedural
objections to the regulation when it was originally adopted. Arguments about the
procedural invalidity of the underlying regulation therefore provide no basis
for setting aside an enforcement order that was itself the product of proper
agency procedures.</b></span></p></blockquote><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: inherit;"><b></b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">This is consistent with my understanding that arbitrary and
capricious review is different from </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> interpretation review. Much
confusion in this regard comes from the misreading of Justice Kagan’s footnote
in </span><i style="font-family: inherit;">Judulang v. Holder</i><span style="font-family: inherit;">, 565 U.S. 42, 53 n.7 (2011). In fact, Justice Kagan said
that “arbitrary or capricious review
under the APA,” rather than </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">, is “the more apt analytical
framework” when agency’s decision “is not an interpretation of any statutory
language”). See </span><u style="font-family: inherit;">Distinction Between APA Arbitrary and Capricious Review and
Chevron Interpretive Reasonableness
Review</u><span style="font-family: inherit;"> (Federal Tax Procedure Blog 6/19/20; 7/24/20), </span><a href="https://federaltaxprocedure.blogspot.com/2020/06/distinction-between-apa-arbitrary-and.html" style="font-family: inherit;">here</a><span style="font-family: inherit;">,
discussing the misreading of </span><i style="font-family: inherit;">Judulang</i><span style="font-family: inherit;"> and referring to my larger SSRN
article discussing the matter.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Finally, note that the Government in the
quote above says that interpretation review is under the <b>“not in accordance
with law”</b> standard in § 706. I boldfaced the standard in the SG Merits Brief excerpted above because that is the APA standard for statutory interpretation of agency authority. I recently posted an article on SSRN about that
specific text being likely an </span><i style="font-family: inherit;">APA</i><span style="font-family: inherit;"> adoption of the precise statutory
review text interpreted in <i>Dobson</i> </span><span style="font-family: inherit;">to <b>require </b>deference. </span><i>Dobson v. Commissioner</i>, 320 U.S. 489 (1943), reh. den. 321 U.S. 231 (1944). <span style="font-family: inherit;"><i>Dobson</i> articulated deference under the "not in accordance with law" statutory standard in key respects like </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> deference—ambiguity and
reasonable interpretation. The “not in accordance” language was not in the text
of the APA when introduced in 1945 but was in the text of § 10(e) [now § 706]
when enacted. I could not find when, by whom, or why the "not in accordance with law" text was added in the
legislative process (my hunch (and that's all it is) is Carl McFarland who worked with Congress in enacting the statute initiated it)</span><span style="font-family: inherit;">. I don’t know how the major discussions of § 706 have missed this point. But I am confident that the major players knew precisely what those words meant because <i>Dobson</i> had definitively interpreted them.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">For the article I mentioned in the last paragraph see </span></p>
<p class="MsoNormal"><o:p><span style="font-family: inherit;"> </span></o:p><span style="font-family: inherit;">• </span><u style="font-family: inherit;">The Tax Contribution to Deference and APA § 706</u><span style="font-family: inherit;">
(December 14, 2023 SSRN 4665227), </span><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4665227" style="font-family: inherit;">here</a><span style="font-family: inherit;">.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">For blogs on various aspects of points in the article, see</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">• </span><u style="font-family: inherit;">Article on The
Tax Contribution to Deference and APA § 706 Posted on SSRN</u><span style="font-family: inherit;"> (Federal Tax Procedure
Blog 12/14/23), </span><a href="https://federaltaxprocedure.blogspot.com/2023/12/article-on-tax-contribution-to.html" style="font-family: inherit;">here</a><span style="font-family: inherit;">;</span></p><p class="MsoNormal"><span style="font-family: inherit;">• </span><u style="font-family: inherit;">Scholar Doubles Down on Erroneous Claim that APA § 706
Precludes Deference</u><span style="font-family: inherit;"> (Federal Tax Procedure Blog 1/23/24; 1/24/24), </span><a href="https://federaltaxprocedure.blogspot.com/2024/01/scholar-doubles-down-on-erroneous-claim.html" style="font-family: inherit;">here</a><span style="font-family: inherit;">;</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">• </span><u style="font-family: inherit;">Musings on Proposed § 6751(b) Regulations and the
Potential Demise of Chevron Deference</u><span style="font-family: inherit;"> (Federal Tax Procedure Blog 1/8/24;
1/15/24), </span><a href="https://federaltaxprocedure.blogspot.com/2024/01/musings-on-proposed-6751b-regulations.html" style="font-family: inherit;">here</a><span style="font-family: inherit;">;
and</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">• </span><u style="font-family: inherit;">Key Points in Oral Arguments on 1/17/24 in the Supreme
Court Cases Considering the Future of Deference</u><span style="font-family: inherit;"> (Federal Tax Procedure Blog
1/18/24), </span><a href="https://federaltaxprocedure.blogspot.com/2024/01/key-points-in-oral-arguments-on-11724.html" style="font-family: inherit;">here</a><span style="font-family: inherit;">.</span></p><p class="MsoNormal"><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-18288047206217643242024-02-20T14:45:00.003-05:002024-02-20T14:45:55.846-05:00Court Holds that Untimely Refund Claim by Amended Return Stating a Different Legal Basis Does Not Relate Back to Timely Refund Claim by Amended Return (2/20/24)<p><span style="font-family: inherit;">In <i>American Guardian Holdings, Inc. v. United States</i>
(N.D. Ill. Case 23 C 1482 Memo Op. & Order 2/7/24), GS <a href="https://scholar.google.com/scholar_case?case=17197794953958536114">here</a>
and CL <a href="https://storage.courtlistener.com/recap/gov.uscourts.ilnd.431187/gov.uscourts.ilnd.431187.33.0.pdf">here</a>,
the district court held that that it had no jurisdiction over an <b>untimely refund claim</b> (by untimely amended return, Form 1120X) requesting
a refund in the same amount as a prior timely refund claim (by timely amended return, Form 1120X) but stating a different legal basis than the <b>timely refund claim</b>. In the untimely refund claim, the taxpayer asked the
court to “discard” the timely filed amended return. (The latter fact was not relevant to the holding.)</span></p><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">For clarity, the taxpayer filed the following documents: the
original return; a </span><b style="font-family: inherit;">timely</b><span style="font-family: inherit;"> refund claim (by Form 1120X) seeking most of the tax paid; a </span><b style="font-family: inherit;">timely</b><span style="font-family: inherit;"> refund claim (by Form 1120X) seeking all of the tax paid; and an <b>untimely</b>
third amended return (by Form 1120X) seeking all of the tax paid. For analysis of the issue of
whether the court had jurisdiction over the untimely amended return, the court
compared the untimely third amended return to the timely second amended return.
The issue was whether the claim in the untimely third amended return was a clarification
of the claim made in the timely second amended return or stated a different basis. I simplified in the original paragraph by mentioning only a timely filed refund claim and a subsequent untimely filed refund claim.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">I discuss the general issue in the most recent edition of
the </span><u style="font-family: inherit;">Federal Tax Procedure</u><span style="font-family: inherit;"> (Practitioner Edition p. 236; Student Edition
(without footnote p. 165)) as follows:</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><p class="MsoNormal"><span style="font-family: inherit;"><b>(d) Germaneness Doctrine.</b></span></p>
<p class="MsoNormal"><span style="font-family: inherit;"> </span><span style="font-family: inherit;">The
germaneness doctrine may apply where the taxpayer:</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"> </span><span style="font-family: inherit;">(1) files a
formal claim within the limitations period making a specific claim; and (2)
after the limitations period but, while the IRS still has jurisdiction over the
claim, files a formal amendment raising a new legal theory -- not specifically
raised in the original claim -- that is “germane” to the original claim, that
is, it depends upon facts that the IRS examined or should have examined within
the statutory period while determining the merits of the original claim. Unlike
the waiver doctrine, the inquiry here is not whether the particular legal
theory for recovery has been considered by the IRS during the limitations
period but whether the underlying facts supporting that legal theory were
discovered or should have been discovered by the IRS in considering the
original claim during the limitations period. n1049</span></p></blockquote><blockquote><p class="MsoNormal"><span style="font-family: inherit;">n</span>1049 <span style="font-family: inherit;"> </span><i style="font-family: inherit;">Computervision Corp. v. United States</i><span style="font-family: inherit;">, 445 F.3d
1355, 1370 (Fed. Cir. 2006) (citing</span><span style="font-family: inherit;"> </span><i style="font-family: inherit;">Bemis
Brothers Bag Co. v. United States</i><span style="font-family: inherit;">, 289 U.S. 28, 53 S. Ct. 454 (1933) and </span><i style="font-family: inherit;">United
States v. Andrews</i><span style="font-family: inherit;">, 302 U.S. 517, 524 (1938).</span><span style="font-family: inherit;"> </span><span style="font-family: inherit;">In </span><i style="font-family: inherit;">Computervision</i><span style="font-family: inherit;">, the Federal Circuit
rejected the holding of two other courts that the more specific formal claim
could be filed after the IRS has completed consideration of the inadequate
original claim by granting the original claim, by denying the original claim,
or by the taxpayer having filed a suit for refund without IRS formal action on
the claim. The cases rejected in </span><i style="font-family: inherit;">Computervision</i><span style="font-family: inherit;"> are:</span><span style="font-family: inherit;"> </span><i style="font-family: inherit;">Mutual Assurance Inc. v. United States</i><span style="font-family: inherit;">,
56 F.3d 1353 (11th Cir. 1995); </span><i style="font-family: inherit;">St. Joseph's Lead Co. v. United States</i><span style="font-family: inherit;">,
299 F.2d 348 (2d Cir. 1962).</span></p></blockquote>
<p class="MsoNormal"><o:p><span style="font-family: inherit;"> </span></o:p><span style="font-family: inherit;">In <i>American Guardian</i>, the Court discusses the germaneness
doctrine as follows:<span></span></span></p><a name='more'></a><p></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><p class="MsoNormal"><span style="font-family: inherit;">[T]he Supreme Court's decision in <i>Andrews</i>—cited in <i>Parker
Hannifin</i>—controls. Although the amended claim in <i>Andrews</i> was (unlike here) for
a different amount than the original claim, it was also (as in this case)
premised on a different basis. The Court focused on the latter point in
deciding that the second, untimely, claim could not be considered as an
amendment of the first, timely claim: "a claim which demands relief upon
one asserted fact situation, and asks an investigation of the elements appropriate
to the requested relief, cannot be amended to discard that basis and invoke
action requiring examination of other matters not germane to the first
claim." <i>Andrews</i>, 302 U.S. at 524.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"> This
principle from <i>Andrews</i>, in the Court's view, governs here: AGH's third amended
claim sought a refund on a basis that was not "germane" to its
earlier claim. To put it in the terms of <i>Parker Hannifin</i>, the third amended
return did not "clarify" the second amended return or "make it
more specific." Rather, it completely changed the basis for the refund
claim. The Court also notes that the third amended return cannot fairly be
considered responsive to the IRS's October 2019 letter, which sought correction
(or clarification) of why figures in AGH's second amended return differed from
the corresponding figures in its original return. The third amended return did
not do that but instead sought a refund based on a completely different
accounting method, albeit in the same amount that AGH had previously claimed.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;"> Because the
current lawsuit is based on the third amended return, and because the claim in
that return was not filed within the three-year period mandated by 26 U.S.C. §
6511(a), that provision's prerequisite of a timely claim for refund was not
satisfied. The Court therefore dismisses the case for lack of subject matter
jurisdiction and need not reach the question of the timeliness of the lawsuit,
which was the alternative basis cited by the government in support of
dismissal.</span></p></blockquote><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;"><b>JAT Comments:</b></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">1. I encourage tax procedure fans to read <i>American Guardian</i>.
It is a very good presentation of the issues.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">2, I am adding <i>American Guardian</i> to the footnote in the working
draft for the 2024 Practitioner Edition will should be “published” on SSRN in early
August.</span></p><p class="MsoNormal"><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-18683855111956762942024-02-14T09:52:00.006-05:002024-02-14T09:53:40.138-05:00Sixth Circuit Affirms Summary Judgment on FBAR Willful Penalty on Conduct Objectively Reckless (2/14/24)<p><span style="font-family: inherit;">I report this morning on</span><span style="font-family: inherit;"> </span><i style="font-family: inherit;">United States v. Kelly</i><span style="font-family: inherit;">, ___ F.4th ___ (6th Cir. 8/8/24), CA6</span><span style="font-family: inherit;"> </span><a href="https://www.opn.ca6.uscourts.gov/opinions.pdf/24a0024p-06.pdf" style="font-family: inherit;">here</a><span style="font-family: inherit;"> </span><span style="font-family: inherit;">and GS</span><span style="font-family: inherit;"> </span><a href="https://scholar.google.com/scholar_case?case=17742725558686162187" style="font-family: inherit;">here</a><span style="font-family: inherit;">.</span><span style="font-family: inherit;"> </span><i style="font-family: inherit;">Kelly</i><span style="font-family: inherit;"> </span><span style="font-family: inherit;">affirms the district court's approval of the FBAR willful penalty on motion for summary judgment.</span></p><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p><p class="MsoNormal"><span style="font-family: inherit;">I first offer the <b>MS CoPilot</b> (MS’s version of AI) explanation of the case:</span></p><p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><p class="MsoNormal"><span style="font-family: inherit;">Case Title: <i>United States v. James J. Kelly, Jr.</i></span></p><p class="MsoNormal"><span style="font-family: inherit;">Background:</span></p><p class="MsoNormal"><span style="font-family: inherit;">• James J. Kelly, Jr., a U.S. citizen, opened an interest-bearing account at Finter Bank in Zurich, Switzerland in 2008.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-family: inherit;">• He designated the account as “numbered” to keep his name off the statements and requested that Finter retain account-related correspondence instead of mailing it to him.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-family: inherit;">Legal Context:<o:p></o:p></span></p><p class="MsoNormal"><span style="font-family: inherit;">• Under the Bank Secrecy Act, individuals with foreign bank accounts containing $10,000 or more must annually file a Report of Foreign Bank and Financial Accounts (FBAR) with the U.S. Department of the Treasury.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-family: inherit;">• Failure to file an FBAR by the deadline can result in civil penalties. The penalty amount depends on whether the failure was accidental or willful.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-family: inherit;">Case Details:<o:p></o:p></span></p><p class="MsoNormal"><span style="font-family: inherit;">• The government sued James Kelly, alleging that he willfully failed to timely file FBARs for the years 2013, 2014, and 2015.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-family: inherit;">• The district court granted summary judgment in favor of the government.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-family: inherit;">• Kelly’s failure to file was deemed a willful violation of the Bank Secrecy Act.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-family: inherit;">Outcome:<o:p></o:p></span></p><p class="MsoNormal"><span style="font-family: inherit;">• The court affirmed the judgment, emphasizing that Kelly’s actions constituted a willful violation of the law.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-family: inherit;">• In summary, James Kelly’s failure to file FBARs for his foreign bank account led to civil penalties due to willful non-compliance with the Bank Secrecy Act.<span></span></span></p><a name='more'></a><p></p></blockquote><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p><p class="MsoNormal"><span style="font-family: inherit;">CoPilot gets it right in high level summary. Lawyers and students need a bit more of the key reasoning of the case, so I offer some bullet points below:</span></p><p align="center" class="MsoNormal" style="text-align: center;"></p><ul><li><span style="font-family: inherit;">The fact pattern is a variation on the theme of FBAR willful penalty cases (secret foreign bank accounts (Switzerland and Liechtenstein) and incomplete OVDP filings, with also incomplete Form 433-A filing, resulting in removal from OVDP).</span></li></ul><p class="MsoNormal"><span style="font-family: inherit;">Key holdings are:<o:p></o:p></span></p><p class="MsoNormal"></p><ul><li><o:p> </o:p><span style="font-family: inherit;">“[W]e hold that, for purposes of an FBAR civil penalty, a willful violation of the FBAR reporting requirements includes both knowing and reckless violations. In so holding, we join every other circuit to have addressed this issue.”</span></li><li><span style="font-family: inherit;">The objective evidence on the motion for summary judgment shows that Kelly’s conduct was at least reckless, the requirement for the civil FBAR willful penalty. </span></li><li><span style="font-family: inherit;">"The undisputed facts show that Kelly knew about his foreign account, undertook considerable efforts to keep it secret, did not consult with any professionals about his tax obligations, and then failed to ensure that the FBARs were submitted after learning he had not met these reporting requirements in the past. Given all of this, Kelly’s failure to satisfy his FBAR requirements for the years 2013, 2014, and 2015 was a willful violation of the Bank Secrecy Act."</span></li></ul><div>Willfulness can be a classic case of a fact-intensive issue, with some courts holding in the particular facts of the cases that summary judgment is not appropriate. But where the relevant facts show clearly that the objective reckless standard is met, summary judgment is appropriate.</div><div><br /></div><div>This blog entry is cross-posted on the Federal Tax Crimes Blog <a href="https://federaltaxcrimes.blogspot.com/2024/02/sixth-circuit-affirms-summary-judgment.html">here</a>.</div>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-27023269028836102542024-02-12T19:43:00.000-05:002024-02-12T19:43:12.389-05:00Experts in Technical Area (FDA) Caution Supreme Court About Problems in Overruling Chevron Deference (1/12/24)<p><span style="font-family: inherit;">I recently wrote a blog on the bad effects of eliminating
Chevron deference in a specific context—the § 6751(b) regulations bringing
clarity to the legal mess created by the courts. <u>Musings on Proposed §
6751(b) Regulations and the Potential Demise of Chevron Deference</u> (Federal
Tax Procedure Blog 1/8/24; 1/15/24), <a href="https://federaltaxprocedure.blogspot.com/2024/01/musings-on-proposed-6751b-regulations.html">here</a>.
A team of multi-disciplinary authors has published a similar blog relating to
the Federal Drug Administration (“FDA”). Nikhil Chaudhry, Reshma Ramachandran,
& Joseph Ross, <u>Overruling Chevron and FDA Decision-Making</u> (Yale J.
on Reg.: Notice & Comment 2/9/24), <a href="https://www.yalejreg.com/nc/overruling-chevron-and-fda-decision-making-by-nikhil-chaudhry-dr-reshma-ramachandran-and-dr-joseph-ross/">here</a>.
The authors credentials are:</span></p><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote>Nikhil Chaudhry is a Postgraduate Associate at the Yale
Collaboration for Regulatory Rigor, Integrity, and Transparency. Dr. Reshma
Ramachandran is an Assistant Professor of Medicine at the Yale School of
Medicine and Co-Director of the Yale Collaboration for Regulatory Rigor,
Integrity, and Transparency. Dr. Joseph Ross is a Professor of Medicine at the
Yale School of Medicine, Professor of Public Health at the Yale School of
Public Health, and Co-Director of the Yale Collaboration for Regulatory Rigor,
Integrity, and Transparency.</blockquote><p></p><p class="MsoNormal"><span style="font-family: inherit;">The authors make essentially the same point I made—abandoning
</span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> in technical areas, like tax and the FDA, so that judges rather
than experts make key interpretations will (quoting the Conclusion):</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><p class="MsoNormal"><span style="font-family: inherit;">Overruling Chevron would drastically increase uncertainty
and make public health agencies like the FDA less predictable and less
effective. There is a high likelihood that decades of precedent would be undone
by individual challenges to regulatory decisions, leading to great disorder—for
Congress, for the agency, and for physicians and patients across the United
States. The highest court should at the very least create a carve out for
deference to scientific agencies, although it’s unclear how this would be
operationalized. Regardless of how this court decides, with an array of complex
public health and medical decisions arising in the 21st century, we need an
effective government and more regulatory oversight, not less.</span></p></blockquote><p class="MsoNormal"></p>
<p class="MsoNormal"><span style="font-family: inherit;">Among these authors’ arguments is the following:<span></span></span></p><a name='more'></a><span style="font-family: inherit;"><o:p></o:p></span><p></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><p class="MsoNormal"><span style="font-family: inherit;">The Federal
Food, Drug, and Cosmetic Act is the prime example of a complex statute that
requires delegation to the expert agency, and the Chevron opinion was
explicitly written with an understanding that certain agencies fundamentally
regulate based on their technical expertise. Most Article III courts lack the
necessary expertise to make precedent-setting public health decisions, as
judges have wisely acknowledged by utilizing Chevron in lower court cases
challenging the FDA. Abandoning Chevron would be abandoning a doctrine of
humility as Justice Kagan described in oral argument.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Practicing so
called “armchair epidemiology” would essentially be interpreting the technical
nature of the FDCA, regulating public health without any scientific expertise.
This is clearly out of reach for many courts as demonstrated in <i>Otsuka
Pharm. Co v. Price</i>, where courts were found to be not competent to evaluate
if “a company created a new ‘active moiety’ by joining a previously approved
moiety to lysine through a non-ester covalent bond.” Similarly, as show in the <i>Mylan
Laby’s, Inc. v. Thompson</i> opinion in the D.C. Circuit, there is an inherent
complexity in the “evaluation of scientific data,” outlining the necessity of
interpreting “statutory phrase[s]… in the context of the kind of drug at
issue.” The FDA is responsible for developing scientifically sound solutions to
complex public health problems, where the understanding of a given medical
product and the context of the problem are constantly in flux.</span></p></blockquote><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">The last paragraph’s discussion of moiety reminded me of discussions
of active moiety at oral arguments and then in the opinion in </span><i style="font-family: inherit;">Kisor v.
Willkie</i><span style="font-family: inherit;">, 589 U.S. ___, 139 S. Ct. 2400 (2019)l. I discuss the </span><i style="font-family: inherit;">Kisor</i><span style="font-family: inherit;"> oral
argument and opinion on moieties in </span><u style="font-family: inherit;">Even More on Skidmore (Including
Equipoise as to Interpretation)</u><span style="font-family: inherit;">(Federal Tax Procedure Blog 7/7/19), </span><a href="https://federaltaxprocedure.blogspot.com/2019/07/even-more-on-skidmore-7719.html" style="font-family: inherit;">here</a><span style="font-family: inherit;">.
Readers wanting to consider how the Supreme Court might address the moiety question
(and technical issues like it) in considering whether to abandon <i>Chevron</i>.</span></p><p class="MsoNormal"><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-7980499493438865712024-02-08T14:34:00.002-05:002024-02-08T14:34:21.799-05:00ATL Article on Tax Structuring on Sale of MLB Team (2/8/24)<p>I picked this up today involving the type of planning that
may keep well-paid tax controversy specialists busy in the future. Steven
Chung, <u>The Upcoming Baltimore Orioles Sale Is Structured To Avoid Capital
Gains Taxes</u> (Above the Law 2/7/24), <a href="https://abovethelaw.com/2024/02/the-upcoming-baltimore-orioles-sale-is-structured-to-avoid-capital-gains-taxes/?utm_campaign=Above%20the%20Law%20Daily&utm_medium=email&_hsmi=293289237&utm_content=293289237">here</a>.
The sale is described:</p><blockquote><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">But it is not a straightforward sale. Rubenstein and his
group will initially purchase 40% of the team. The remaining 60% will be sold,
reportedly for tax reasons, after 94-year-old Angelos passes away. Angelos
purchased the team in 1993 for $173 million. If the sale were to take place
now, Angelos would face an estimated $250 million capital gains tax on the
approximately $1.5 billion profit. But by waiting until after his passing, the
basis step-up rule would increase his cost basis to current market value
instead of his original purchase price. If the team is sold immediately
thereafter, there will be little to no capital gains tax on the sale.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">Rubenstein and his group [the buyers] would also enjoy some tax benefits
as the new owners. According to Forbes, if the buyers are able to structure
this as an asset sale, they will be able to take advantage of any losses
incurred to offset other income. However, investors who do not materially
participate in the team management can only use their losses to offset passive
income such as real estate rental income.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>What is not clear is who will control the Orioles after
Rubenstein’s initial 40% purchase. On one hand, the Angelos family could still
control the team through its majority ownership. On the other hand, the Angelos
family could allow Rubenstein to control the team after the initial purchase.
If this happens, the IRS may try to reclassify the transaction as if 100% of
the team was sold while Peter Angelos was still alive and thus trigger the
capital gains tax. The IRS could argue that this two-step transaction was
purely tax motivated, specifically to avoid the capital gains tax.</p></blockquote><p class="MsoNormal"></p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>The article goes on to discuss the tax issues familiar to and
loved by all tax controversy afficionados-- “substance over form,” “codified economic
substance doctrine,” and “step transaction doctrine.” And the article notes:</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"></p><blockquote>Even if the sale avoids capital gains tax, Peter Angelos’s
estate will be subject to federal estate taxes which is as high as 40% at the
top bracket. Also, Maryland also has its own estate tax.</blockquote><p></p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">So, the IRS will certainly share in the success of this venture,
with the only issue being how large its overall share will be.<span></span></p><a name='more'></a><p></p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">Of course, a lot of this genre of planning—both good and bad—invokes
<i>Frank Lyon Co. v. United States</i>, 435 U.S. 561 (1978), one of the worst
Supreme Court tax opinions (on my list of many worst Supreme Court opinions
(such as <i>Gitlitz</i>)). Confession, about 8 years after <i>Frank Lyon</i>, I
was consulted to assist in a similar transaction. I recommended that the parties
clone the <i>Frank Lyon</i> document set and implementation and do not stray too
far from that deal; I even recommended tongue in cheek that, if possible, they
change the name of the bank involved to Worthen Bank (the <i>Frank Lyon</i>
bank). After <i>Frank Lyon</i>, many lawyers and tax shelter promoters read
<i>Frank Lyon</i> a lot more expansively than I did and many, imagining
themselves within the spirit of <i>Frank Lyon</i>, went well over the line.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">As a side note on worst Supreme Court tax opinions, I sometimes told my students (also somewhat, but not much, tongue in cheek) that
tax cases are too important for the Supreme Court to handle. See <u>Some
Justices' Aversions to Tax Cases</u> (Federal Tax Procedure Blog 8/4/23;
9/6/23), <a href="https://federaltaxprocedure.blogspot.com/2023/08/some-justices-aversions-to-tax-cases.html">here</a>.</p><p class="MsoNormal"><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-76897278842372945222024-02-06T10:47:00.006-05:002024-02-08T11:12:41.519-05:00Tax Court Denies Petitioner Summary Judgment on Transferee Liability (2/6/24)<p>In <i>Meyer, Transferee v. Commissioner</i>, T.C. Memo. 2024-15
(2/5/24), TC Dkt Entry # 44, <a href="https://dawson.ustaxcourt.gov/case-detail/1077-22">here</a>, TN <a href="https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/irs-properly-recast-midco-transaction-transferee-liability-case/7j54n">here</a>, and GS <a href="https://scholar.google.com/scholar_case?case=11991958117347578013">here</a>, the Court denied the
petitioner’s motion for summary judgment in a transferee liability case. The petitioner argued that (i) the
statute of limitations for the IRS’s transferee liability claim was not timely under the statute of limitations,
(ii) collateral estoppel precluded the IRS claim, and (iii) judicial estoppel
precluded the IRS claim. The estoppel claims denials are straightforward. I
focus here on the first claim about the statute of limitations.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">The underlying transaction at issue was a typical Midco abusive
tax shelter transaction (I have often called abusive tax shelter transactions
bullshit tax shelters). I assume readers are familiar with Midco transactions.
An example with a good discussion is in <u>Tax Court (Judge Lauber) Rejects
Shareholders' Attempts to Reduce Transferee Liability</u> (Federal Tax
Procedure 2/10/22). I will offer a high level overview of the Midco transactions (which have variants but with common result of an empty corporation with a very large tax liability). A Midco transaction involves
a third party purchasing, directly or indirectly, stock of a corporation with
very large built-in gain from shareholders for a price exceeding what they
would obtain if the corporation sold the assets and distributed the cash. After
the purchase, the buyer sells the assets and enters an abusive tax shelter transaction
(such as the Son-of-Boss involved in this case) to supposedly offset the gain,
and then strips out to assets (mostly cash) to leave the corporation empty when
the IRS audits and disallows the tax shelter transaction. The supposed tax “savings”
is shared by the shareholders (through the purchase price) and the promoters,
leaving the IRS (and the country’s taxpayers) holding the bag in the empty
corporation. Remember for the balance of this discussion that all of this
hinges on the fraudulent Son-of-Boss transaction. In other words, the initial
corporate transferor with the unpaid tax liability engaged in fraudulent
reporting.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">In <i>Meyer, Transferee</i>, the IRS asserted transferee
liability under § 6901 by treating the corporate-level transactions as
including a deemed transfer to the petitioner as transferee (rather than as a
seller of the stock to a third party). For an initial transferee, such as the
petitioner, the statute of limitations for transferee liability does not expire
until one year “after the expiration of the period of limitation for assessment
against the transferor.” § 6901(c)(1).</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">As posited by the Court, the first step is to establish when
the statute of limitations expired on the deemed transferor—the sold
corporation engaging in the Son-of-Boss transaction and fraudulently reporting
the transaction to zero out the gain on the return. Normally, the limitations
period is 3 years. And, the Court worked on the assumption that the 3-year
period would have applied and counted certain other extensions or suspensions that
extended the corporate transferor’s limitations period. The Court’s analysis is
fairly straightforward, so I won’t rehash that here.<span></span></p><a name='more'></a><p></p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">I question why the worry about the statute
of limitations was even necessary. Why would not the corporate transferor’s
reporting of that transaction invoke the unlimited statute of limitations in §
6501(c)(1) or (2)? Remember, that the Tax Court recently reaffirmed its holding
in <i>Allen v. Commissioner</i>, 128 T.C. 37 (2007) that fraud on the return is
sufficient to invoke the unlimited statute of limitations whether or not the
taxpayer (here the corporation) committed the fraud. See <u>Tax Court Again Declines to Reconsider Its
Holding that the Preparer's Fraud without the Taxpayer's Fraud Invokes
Unlimited Statute of Limitations</u> (Federal Tax Procedure Blog 1/25/24), <a href="https://federaltaxprocedure.blogspot.com/2024/01/tax-court-again-declines-to-reconsider.html">here</a>.
With an unlimited corporate statute of limitations, the transferee liability
would derivatively be unlimited as well.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">If that is right, then it would appear that all Midco
transactions involving abuse transactions that involve fraud have unlimited
statutes of limitations. I understand that there are some, perhaps many, Midco transactions that escaped because of the wrong focus on the transferor corporation's statute of limitations.</p><p class="MsoNormal"><b>Added 2/6/24 2:30pm: </b></p><p class="MsoNormal">Of course, even if Allen were incorrectly decided and the taxpayer's fraud is required for the unlimited statute of limitations, the taxpayer in these prototypical transactions was controlled by the promoter of the abusive transaction and thus the taxpayer would have had the relevant fraudulent intent. The IRS should open up all of those cases where the statute of limitations would have otherwise lapsed.</p><p class="MsoNormal"><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-42529583303924452312024-02-03T13:01:00.002-05:002024-02-03T13:05:39.570-05:00Tax Lawyer of Some Notoriety Is Again in the News (2/3/24)<p>I previously blogged on a tax lawyer, John Anthony Castro, a
tax lawyer of some notoriety in the tax community. <u>Repeat Tax Player and
Republican Presidential Candidate Loses Unauthorized Return Information
Disclosure Suit on Appeal</u> (Federal Tax Procedure Blog 12/24/25), <a href="https://federaltaxprocedure.blogspot.com/2023/12/repeat-tax-player-and-republican.html">here</a>.
I noted in the blog that Castro was a Republican candidate for President; I reported on a Fifth Circuit disposition of a claim he made against the IRS and his candidacy for President.</p><p>I have two developments to report:</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p>1. N</o:p>ewsweek recently reported that Castro is suing Clarence Thomas
under the Virginia Fraud Against Taxpayers Act, Code of Virginia, Article 19.1
(“VFATA”), <a href="https://law.lis.virginia.gov/vacodefull/title8.01/chapter3/article19.1/">here</a>.
I am not familiar with the VFATA, but it
appears to be a state parallel to a federal qui tam action, a suit to recover for the government. Excerpts from the
article are:</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p><blockquote><p class="MsoNormal"><o:p> </o:p> The
complaint, which was shared with Newsweek, alleges that in violation of VFATA,
"Clarence Thomas knowingly presented or caused to be presented a false and
fraudulent claim (i.e., his 2005 Virginia State Income Tax Return) to the
Virginia Department of Taxation on or about April 15, 2016, that failed to
report income from discharge of indebtedness."</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p> Thomas has
faced immense scrutiny and calls for his resignation after it was reported that
he failed to disclose several transactions, including a $267,230 loan that he
received from wealthy friend Anthony Welters. Last year, an investigation from
the Senate Finance Committee revealed that Thomas never repaid a
"substantial portion" of that loan, raising concerns about whether
the justice properly reported it in his tax filings.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"> "Under
Section 108 of the Internal Revenue Code, he would have had a legal obligation
to report [the loan] as taxable income and the tax alone would have been,
probably $40,000 or $50,000. That's a third of his annual salary," Castro
said on Friday. "And that's when I was like, 'There's no way he reported
that because that'd be financially disastrous for him.'"<o:p></o:p></p>
<p class="MsoNormal"> Castro is
suing Thomas under VFATA, which allows private citizens anywhere in the country
to bring a claim against a Virginia resident for making a knowingly false or
fraudulent claim to the commonwealth for money or property, essentially
empowering regular Americans to take on the role of a de factor agent of the
Virginia attorney general.<o:p></o:p></p>
<p class="MsoNormal"> "It
basically allows you to bring a tax enforcement action against a
taxpayer," Castro said of the law.<o:p></o:p></p>
<p class="MsoNormal"> Castro said
he had planned to file the suit last year but claims that Trump coordinated
with the Internal Revenue Service in retaliation against his activities
"undermining the political objectives of the Trump Administration."<o:p></o:p></p>
<p class="MsoNormal"> "Right
when I'm going to level these accusations against Clarence Thomas for filing
false and fraudulent returns, what happens to me? I get accused of false and
fraudulent returns," Castro said.<o:p></o:p></p>
<p class="MsoNormal"> "They
intentionally devised this plan of, 'Let's accuse him of what he's about to
accuse Clarence Thomas of, it's going to completely discredit him. And if he
brings this claim, nobody's going to believe him," he continued.
"But, of course, I still want to go forward with it."<o:p></o:p></p>
<p class="MsoNormal"> Asked about
whether he thinks his lawsuits against Thomas and Trump will fuel speculations
about whether or not he was a conservative, Castro insisted he was still a
Republican.<o:p></o:p></p>
<p class="MsoNormal"> "I'm a
very, very stubbornly principled person and if I feel that somebody broke the
law, I'm going to hold them accountable," he said. "Just like Trump
for January 6 and Clarence Thomas for this sham loan." </p></blockquote><p class="MsoNormal"></p>
<p class="MsoNormal">Note that Castro claims that Trump and the IRS coordinated this alleged retaliatory indictment. That is an interesting pairing.<span></span></p><a name='more'></a><p></p><p class="MsoNormal">2. That reporting led me to the DOJ Tax announcement of
Castro’s indictment. <u>Mansfield Man
Charged in Fraudulent Tax Return Scam</u> (USAO ND TX Press Release 1/10/24), <a href="https://www.justice.gov/usao-ndtx/pr/mansfield-man-charged-fraudulent-tax-return-scam">here</a>.
The press release says that Castro “was indicted on thirty-three counts of
aiding and assisting in the preparation and presentation of a false and
fraudulent return.” [Note that aiding and assisting is the crime described in §
7206(2); in the preceding paragraph of the Press Release the nature of the charges is described as “33-counts of filing fraudulent
tax returns;” although that is cryptic, it is a misdescription of the aiding
and assisting charges under § 7206(2).]<o:p></o:p></p>
<p class="MsoNormal">Other excerpts from the Press Release are:</p><blockquote><p class="MsoNormal"> According to
the indictment, Mr. Castro owned and operated Castro & Company LLC. a
virtual tax preparation business with locations in Orlando, Florida, Mansfield,
Texas, and Washington, D.C. Starting in 2016, Mr. Castro devised a scheme to
falsely create and submit false tax returns on behalf of unsuspecting
taxpayers. Taxpayers would seek out Castro’s assistance in filing personal tax
returns and Mr. Castro would promise a significantly higher refund than
taxpayers could receive from other prepares and on many occasions offered to
split the additional refund with taxpayers. In order to achieve these larger
refunds, Mr. Castro generated false deductions without the taxpayer’s
knowledge.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"> In 2018, an
undercover agent, posing as a taxpayer, contacted Castro & Company, LLC for
assistance. Castro refused to meet in person unless a $5,000 retainer was paid
but offered to assist the undercover agent virtually. During a recorded telephone conversation, Mr.
Castro stated that he could project the amount of the tax refund the undercover
agent would likely receive from another firm and then compare that figure with
the refund that Mr. Castro would obtain.<o:p></o:p></p>
<p class="MsoNormal"> According to
the indictment, an employee of Mr. Castro’s interviewed the agent over the
telephone regarding deductions. The employee stated that Mr. Castro would make
any decisions regarding what items would be included on the tax filing. The
employee did not identify any deductions that would apply to the agent and in
the course of the interview, the undercover agent denied any facts that would
support deductions. On March 14, 2018, Mr. Castro filed the agent’s tax return
claiming $29,339 in fraudulent deductions. The IRS issued a refund of $6,007,
Mr. Castro received $2,999 for his services and the agent received the
remaining amount of $3,008. As Castro
told the taxpayer, he would have received only a $300 deduction had he used
another tax preparer.<o:p></o:p></p>
<p class="MsoNormal"> Mr. Castro
continued in a similar pattern with dozens of other taxpayers, resulting in
hundreds of thousands of improperly paid claims. <o:p></o:p></p>
<p class="MsoNormal"> An indictment
is merely an allegation of criminal conduct, not evidence. Mr. Castro is
presumed innocent until proven guilty in a court of law.<o:p></o:p></p>
<p class="MsoNormal"> If convicted
on all counts, he faces up to 99 years in federal prison – 3 years per count.</p></blockquote><p>This blog entry is cross-posted on my Federal Tax Crimes Blog, <a href="https://federaltaxcrimes.blogspot.com/2024/02/tax-lawyer-of-some-notoriety-is-again.html">here</a>.</p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-88497142763129703202024-01-25T11:30:00.004-05:002024-03-05T08:29:04.588-05:00Tax Court Again Declines to Reconsider Its Holding that the Preparer's Fraud without the Taxpayer's Fraud Invokes Unlimited Statute of Limitations (1/25/24; 2/5/24)<p class="MsoNormal">Long-time readers of this blog and the parallel blog Federal
Tax Crimes may recall that I have had several postings on the issue of whether §
6501(c) unlimited statute of limitations for fraudulent returns requires (i) the
taxpayer's fraud or (ii) may be a third party's fraud that is incorporated in the
taxpayer's return without the taxpayer's fraud. The classic case is a preparer's
fraud, but could also include fraud on an information return (such as a K-1 for
partnership flow-through reporting).</p><p class="MsoNormal"><o:p></o:p></p><p class="MsoNormal">At the end of this blog, I list significant Federal Tax
Procedure or Federal Tax Crimes postings on the issue. Basically, the state of play
was that the Tax Court held in a precedential decision that the taxpayer's
fraud is not required. <i>Allen v. Commissioner</i>, 128 T.C. 37 (2007). The
Court of Appeals for the Federal Circuit held that the taxpayer's fraud is required.
<i>BASR P'ship v. United States</i>, 795 F.3d 1338 (Fed. Cir. 2015). In <i>Finnegan
v. Commissioner</i>, 926 F.3d 1261 (11th Cir. 2019), the Court affirmed the Tax
Court's <i>Allen</i> holding that the taxpayer waived the statute of
limitations argument in the Tax Court.</p><p class="MsoNormal"><o:p></o:p></p><p class="MsoNormal">In <i>Murrin v. Commissioner</i>, T.C. Memo. 2024-10, <a href="https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/return-preparers-fraudulent-intent-extended-limitations-period/7j48w">here</a>,
decided yesterday, the Tax Court held that <i>Allen</i> was still the
interpretation the Tax Court will apply despite the holding in <i>BASR</i>. The
<i>Murrin</i> opinion is 13 pages long and analyzes why <i>BASR</i> was not
sufficiently persuasive to justify reconsidering its precedential holding in <i>Allen</i>.</p><p class="MsoNormal"><o:p></o:p></p><p class="MsoNormal"><i>BASR</i> is not binding precedent in <i>Murrin</i> under
the Tax Court's <i>Golsen</i> rule because appellate authority is only binding when in the Circuit
to which an appeal would be taken in the case (barring stipulation otherwise).
Mrs. Murrin lived in New Jersey when she filed the Tax Court petition. Thus,
her appeal would be to the Third Circuit which has no authority in point, thus
requiring the Tax Court to apply its own authority under <i>Golsen</i>.<span></span></p><a name='more'></a><p></p><p class="MsoNormal"><o:p></o:p></p><p class="MsoNormal">The IRS assertion of the <i>Allen</i> holding in <i>Murrin</i>
means that it is continuing to assert the <i>Allen</i> holding in other cases,
so as to permit at least one other Circuit to address the issue. The Eleventh Circuit
punted on that opportunity in <i>Finnegan</i>.</p><p class="MsoNormal"><o:p></o:p></p><p class="MsoNormal">As the saying goes, stay tuned.</p><p class="MsoNormal"><b>Added 3/5/24 8:30pm Eastern:</b></p><p class="MsoNormal">See Bryan Camp, <u>Lesson From The Tax Court: Choose Your Return Preparer Carefully </u>(Tax Prof Blog 3/4/24), <a href="https://taxprof.typepad.com/taxprof_blog/2024/03/lesson-from-the-tax-court-choose-your-return-preparer-carefully.html">here</a>, discussing the "agency" theory for treating a return preparer's fraud as sufficient for the unlimited statute of limitations. I encourage readers to look at the comments on Bryan's posting where Bryan and I engage on the scope of the meaning of return preparer for purposes of the unlimited statute of limitations for fraud. And the overall question is whether limiting the unlimited statute to the taxpayer's or a return preparer's (however defined) fraud has some basis in the statute. The statute thus merely requires a fraudulent intent for the return reporting without any limitation to a taxpayer or return preparer fraud. Of course, in most instance, a return preparer will be involved, but one can imagine atypical instances where a return preparer might have done something fraudulent that permits the taxpayer and the return preparer to include the fraud on the return without their personal fraudulent intent.</p><p class="MsoNormal"><o:p></o:p></p><p class="MsoNormal">My significant prior blogs on this issue (some of which are
duplicated in the respect Federal Tax Procedure Blog and Federal Tax Crimes
Blog):</p><p class="MsoNormal"></p><ul style="text-align: left;"><li><u>Taxpayer Waived Argument that § 6501(c)(1) Requires
Taxpayer's Fraud for Unlimited Statute of Limitations</u> (Federal Tax Crimes
Blog 6/14/19), <a href="https://federaltaxcrimes.blogspot.com/2019/06/taxpayer-waived-argument-that-6501c1.html">here</a> (discussing <i>Finnegan</i>).</li><li><u>Major Attorneys Fee Award for BASR Partnership Prevailing
on the Allen Issue in Federal Circuit</u> (Federal Tax Procedure Blog 2/11/17), <a href="https://federaltaxprocedure.blogspot.com/2017/02/major-attorneys-fee-award-for-basr.html">here</a>.</li><li><u>Court of Appeals for Federal Circuit Holds that Fraud of
the Taxpayer (Or Someone Closer to the Taxpayer than the Fraudster) is Required
for Section 6501(c)(1) Unlimited Statute of Limitations</u> (Federal Tax Crimes
Blog 7/30/15; 7/31/15), <a href="https://federaltaxcrimes.blogspot.com/2015/07/court-of-appeals-for-federal-circuit.html">here</a>.</li><li><u>Court of Federal Claims Holds that Unlimited Civil
Statute of Limitations Requires Taxpayer's Fraud</u> (Federal Tax Procedure
Blog 10/3/13), <a href="https://federaltaxprocedure.blogspot.com/2013/10/court-of-federal-claims-holds-that.html">here</a>.</li><li><u>Second Circuit Holds That Fraud on the Return -- Even If
Not the Taxpayer's -- Causes an Unlimited Civil Assessment Statute of
Limitations to Apply</u> (Federal Tax Procedure Blog 2/4/13), <a href="https://federaltaxprocedure.blogspot.com/2013/03/second-circuit-holds-that-fraud-on.html">here</a>.</li><li><u>Does the Preparer's Fraud Invoke the Unlimited Statute of
Limitations?</u> (Federal Tax Procedure Blog 8/5/12), <a href="https://federaltaxprocedure.blogspot.com/2012/08/does-preparers-fraud-invoke-unlimited.html">here</a> (discussing <i>Allen</i>; I
argued erroneously that the <i>Allen</i> holding was incorrect)</li></ul><p class="MsoNormal"><o:p></o:p></p><p class="MsoNormal">This entry is also cross-posted on the Federal Tax Crimes Blog.</p><p class="MsoNormal"><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-52092821792667815662024-01-23T12:26:00.007-05:002024-01-24T13:37:11.135-05:00Scholar Doubles Down on Erroneous Claim that APA § 706 Precludes Deference (1/23/24; 1/24/24)<p><span style="font-family: inherit;">I recently posted to SSRN an article arguing, in part, that
the APA § 706 standard of review for legal questions is a deference standard
via the requirement that agency interpretations be set aside only if “not in
accordance with law.” § 706(2)(E). <u>The Tax Contribution to Deference and APA
§ 706</u> (December 14, 2023 SSRN 4665227), <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4665227">here</a>,
hereafter referred to as <u>Townsend Deference APA</u>). In that article, I asserted
that a prominent leading article missed or misunderstood key indicators of the
meaning of the APA standard of review—“not in accordance with law.” Aditya
Bamzai, <u>The Origins of Judicial Deference to Executive Interpretation</u>,
126 Yale L.J. 908 (2017), <a href="https://www.yalelawjournal.org/article/the-origins-of-judicial-deference-to-executive-interpretation">here</a>.</span></p><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Specifically, Professor Bamzai</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><p class="MsoNormal"><span style="font-family: inherit;">• missed robust deference authority cited in the </span><u style="font-family: inherit;">Final
Report of the Attorney General’s Committee on Administrative Procedure (1941)</u><span style="font-family: inherit;">
which skewed his conclusion of limited deference authority in the </span><u style="font-family: inherit;">Final
Report</u><span style="font-family: inherit;"> and as of 1940.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">• missed the deferential interpretation of “not in
accordance with law” in <i>Dobson v. Commissioner</i>, 320 U.S. 489 (1943),
reh. den., 321 U.S. 231 (1944).</span></p></blockquote><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">I show in the article that the fair interpretation of the APA’s</span><span style="font-family: inherit;"> </span><span style="font-family: inherit;">“not in accordance with law” standard was the
</span><i style="font-family: inherit;">Dobson</i><span style="font-family: inherit;"> interpretation to require deference.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Professor Bamzai has published an article on SSRN that is
scheduled for publication in the George Mason Law Review. Aditya Bamzai, </span><u style="font-family: inherit;">On
the Interpretive Foundations of the Administrative Procedure Act</u><span style="font-family: inherit;">, 31 George
Mason Law Review ___ (Forthcoming) (SSRN 4684895 1/5/24), </span><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4684895" style="font-family: inherit;">here</a><span style="font-family: inherit;">,
hereafter referred to as </span><u style="font-family: inherit;">Bamzai Interpretive Foundations APA</u><span style="font-family: inherit;">.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">In this new article,</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><p class="MsoNormal"><span style="font-family: inherit;">• Professor Bamzai again misses the robust statement of
deference that he missed in his earlier article. (</span><u style="font-family: inherit;">Townsend Deference APA</u><span style="font-family: inherit;">
pp, 5-9.</span><u style="font-family: inherit;">)</u></p>
<p class="MsoNormal"><span style="font-family: inherit;">• more importantly, although he now identifies <i>Dobson</i>
as important to the discussion after ignoring <i>Dobson</i> in the earlier
article, he misinterprets the meaning of <i>Dobson</i>.<span></span></span></p><a name='more'></a><p></p></blockquote><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">I see no point in addressing in detail the first bulleted
item. Professor Bamzai missed the robust deference discussion in the </span><u style="font-family: inherit;">Final
Report</u><span style="font-family: inherit;"> and does not attempt to correct that omission in his new article. Compare</span><span style="font-family: inherit;"> </span><u style="font-family: inherit;">Townsend Deference APA</u><span style="font-family: inherit;"> 6
n. 22 and </span><u style="font-family: inherit;">Bamzai Interpretive Foundations APA</u><span style="font-family: inherit;"> p. 15 n.. 93. Missing the
robust state of deference discussed in the </span><u style="font-family: inherit;">Final Report</u><span style="font-family: inherit;"> is a
foundational error to his argument in his original article. (I am not sure that
Professor Bamzai even realizes that error since he gives no indication of
awareness in his new article.)</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">I focus here on </span><i style="font-family: inherit;">Dobson</i><span style="font-family: inherit;"> which Professor
Bamzai missed in the earlier article. The problem is that Professor Bamzai spins </span><i style="font-family: inherit;">Dobson</i><span style="font-family: inherit;">
in a way that, as spun, he argues is consistent with his earlier </span><i style="font-family: inherit;">Dobson</i><span style="font-family: inherit;">-less
claims.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Suffice it to say, Justice Jackson, speaking for a
unanimous court in </span><i style="font-family: inherit;">Dobson</i><span style="font-family: inherit;">, interpreted the “not in accordance with law” statutory
standard in § 1141(c) for judicial review to require deference to Tax Court
statutory interpretations. In my article, I analyze the development of the APA
from the </span><u style="font-family: inherit;">Final Report</u><span style="font-family: inherit;"> in 1941, through the ABA proposal in 1944, then through the introduction of a proposed bill (the ABA proposal) in 1945, and then through
enactment in 1946 with the “not in accordance with law” standard for
statutory interpretation. The only fair inference from that trajectory is that
the APA use of the same text was informed by </span><i style="font-family: inherit;">Dobson</i><span style="font-family: inherit;">. Admittedly, I could
find nothing in the legislative history that nailed that point with certainty,
but </span><i style="font-family: inherit;">Dobson</i><span style="font-family: inherit;"> was in the air at the time as the authoritative
interpretation of the words and every knowledgeable player in the consideration
and enactment of the APA would have known what those words meant. Those words
were inserted in the statute during congressional consideration and were not created
</span><i style="font-family: inherit;">ex nihilo</i><span style="font-family: inherit;"> for the APA.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Professor Bamzai seeks to buttress his argument by
misinterpreting (pp. 19-22) a snippet from the legislative history of the 1948
amendment requiring judicial review of Tax Court statutory interpretations to
be the same as review of district court interpretations--de novo without
deference. The implication he seeks to draw is that everyone read the APA statutory
text “not in accordance with law” to mean de novo review without deference
despite </span><i style="font-family: inherit;">Dobson</i><span style="font-family: inherit;">’s holding that those words required deference. The
concern leading to 1948 legislation was that, per </span><i style="font-family: inherit;">Dobson</i><span style="font-family: inherit;">’s
interpretation, review of Tax Court statutory interpretations required deference
whereas review of district court tax statutory interpretations did not include
deference. Congress considered fixing that perceived anomaly by moving the Tax
Court into the judicial branch which was a significant departure from its
treatment as an agency. As Congressman Dingell noted, if the scope of judicial
review with deference was the problem, it could be fixed simply by changing § 1141(c)
which had the “not in accordance with law” standard.</span><span style="font-family: inherit;"> </span><span style="font-family: inherit;">(See 93 Congressional Record 8389, “[T]he
desired result can be accomplished by a simple amendment to section 1141(c) of
the Internal Revenue Code without disturbing the present status and functions
of the so-called Tax Court.”). In other words, </span><i style="font-family: inherit;">Dobson</i><span style="font-family: inherit;"> interpreted “not
in accordance with law” in § 1141(c) to require deference, so that, if Congress
did not want deferential review which was the law, it could simply amend § 1141(c).
Professor Bamzai’s attempt to spin <i>Dobson</i> as irrelevant simply is illogical.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">I offer a few more points, perhaps nit-picky, but at
least marginally important in context of the overall argument. I could have
further nit-picked but forego it now.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><p class="MsoNormal"><span style="font-family: inherit;">• Professor Bamzai claims (p. 17) that, with
respect to the scope</span><span style="font-family: inherit;"> </span><span style="font-family: inherit;">of review
provision, the authors of the APA “began with the Final Report’s minority
proposal as a starting point.” As stated, that is not correct. The authors of
the APA legislation started with the ABA 1944 proposal which, with respect to
the scope of review provision was based on the Final Report Minority proposal
but omitted the specific textual authority for deference contained in the
Minority proposal. See </span><u style="font-family: inherit;">Townsend Deference APA</u><span style="font-family: inherit;"> 16-17. This is important,
because just as the Minority proposal with textual deference was merely stating
the law as it was, so too the ABA proposal excluding the textual deference was
merely stating the law as it was. In other words, the specific deference
authority was not needed to carryforward then existing judicial review of agency
statutory interpretation (which as the </span><u style="font-family: inherit;">Final Report</u><span style="font-family: inherit;"> noted and Dobson
held for agency interpretation was with deference).</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">• Professor Bamzai seems to treat various
statements that § 706 requires de novo review, without engaging meaningfully
the use of de novo review to include de novo review with deference or without
deference. See </span><u style="font-family: inherit;">Townsend Deference APA</u><span style="font-family: inherit;"> 3.</span></p></blockquote><p class="MsoNormal"><span style="font-family: inherit;"></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Finally, I should state the reason this is
important. There is some possibility that the Supreme Court in the pending cases involving the future of deference (whether <i>Chevron</i> or otherwise) may latch onto this
type of erroneous reading of § 706 to hold that § 706 requires de novo review
without deference.</span></p><div style="text-align: left;"><span style="font-family: inherit;"><b>Added 1/24/24 @ 11:30am:</b><br /></span><o:p><span style="font-family: inherit;"> <br /></span></o:p><span style="font-family: inherit;">I speculate (probably infer is a better word) based on my
extensive reading into the history of the APA that Carl McFarland knew that §
706 contained the “not in accordance with law” review standard for agency statutory
interpretation and, from his perch in the process, approved it as a deference
standard as interpreted in <i>Dobson</i>.<br /> </span><o:p><span style="font-family: inherit;"> <br /></span></o:p><span style="font-family: inherit;">Why do I feel comfortable making that speculation/inference?
Carl McFarland was actively involved throughout the process. He was one of
three members of the Minority on the <u>Final Report 1941</u> that recommended
specific language describing a form of deference in the scope of review
provision. Certainly, it is a fair, perhaps even compelled inference, that he
was aware of the robust deference described in the <u>Final Report 1941</u> and
approved deference by including it in the Minority recommendation. McFarland then
was a mover and shaker in the ABA, although I could not find that he
participated in the ABA proposed legislation which excluded the words for
deference from the scope of review provision. The ABA proposed legislation was
the starting point for Congress’ consideration starting in 1945 and, as
indicated, did not contain words for deference. Sometime in the process in Congress, the “not
in accordance with law” text was added to the scope of review provision. Since,
McFarland was involved throughout the process, he would certainly have known
the words were inserted. Consider the following from Paul R. Verkuil, <u>The
Administrative Procedure Act at 75: Observations and Reflections</u>, 28 Geo.
Mason L. Rev. 533, 535 (2021) (footnotes omitted).</span><o:p><span style="font-family: inherit;"> <br /></span></o:p><span style="font-family: inherit;"><blockquote> Who is the
real founder [of the APA] then? Aside from politicians like Senator McCarren,
there is only one plausible candidate: Carl McFarland. McFarland was a
complicated figure of the New Deal period. He studied law at the University of
Montana and ultimately received his Doctor of Judicial Science from Harvard Law
School, becoming one of the New Deal acolytes that Felix Frankfurter nurtured.
But practicing law in the District of Columbia and serving as President of the
University of Montana moderated his fervor. Taking over for Dean Pound, he led
the ABA Committee that would finally propose the APA for enactment. In doing
so, he became the catalytic figure who moved the ABA from archly conservative
positions against regulatory administration to support for the procedural
compromises that the APA contained. By turning the Attorney General’s Report’s
minority position into law, McFarland effectively found a third way. He
navigated between broad judicial control over the administrative process
favored by the Walter–Logan ABA-backed coalition and the position advocating
for no need of any new oversight favored by the Gellhorn–Davis majority on the
Attorney General’s Report. While they viewed him as conservative, Walter and
Ken admired McFarland’s work on the APA and his ability to convince Congress to
get it passed. Ken also gave McFarland credit for the drafting, as well as
political achievements, noting “[a]lthough I can’t prove it, I think he was
probably the originator of notice and comment rulemaking.” Coming from Ken that
is no small compliment. When one measures the APA’s true importance, section
553’s informal rulemaking provision may be its most impressive contribution. As
commonly understood today, the real action in administrative law lies in rulemaking
rather than adjudication, the 1930s’ bête noire of the conservatives.<span style="font-family: inherit;"> </span></blockquote></span><span style="font-family: inherit;"><blockquote> In 1946, the
ABA awarded McFarland the American Bar Association Medal, honoring his
accomplishments in enacting the APA.</blockquote></span><span style="font-family: inherit;">Based on this, I speculate/infer that Carl McFarland, having
shown an interest in statutory approval for deference in his Minority recommendation,
knew the words “not in accordance with law” were inserted in the scope of
review and that they meant deference as <i>Dobson</i> had interpreted those words. Indeed,
everyone working seriously in this area knew the <i>Dobson</i> decision and its
interpretation of “not in accordance with law.” Carl McFarland knew the legislation
better than anyone else from introduction in Congress to passage, and having
previously shown a keen interest in the scope of review and deference, would have
known precisely what “not in accordance with law” meant in § 706.<br /> </span><o:p><span style="font-family: inherit;"> <br /></span></o:p><span style="font-family: inherit;">I reviewed Carl McFarland’s papers at the University of
Virginia Law Library Archives where he taught before he died, but found nothing that would confirm this. I also
took a deep dive into the legislative history of the APA from the <u>Final Report
1941</u> to and after enactment in 1946 (through the 1948 amendments to change the <i>Dobson</i>
deference requirement for review of Tax Court statutory interpretations). I
found nothing in those readings that confirmed my speculation/inference that the
“not in accordance with law” was inserted into what is now § 706 with the <i>Dobson</i>
interpretation of those words. However, I am sure that the words were not created
<i>ex nihilo</i> for the APA; any knowledgeable player reading those words in
context in the drafts and final legislation would have known precisely what
they meant.<br /></span><o:p><span style="font-family: inherit;"> <br /></span></o:p><span style="font-family: inherit;">Two asides,
although not relevant to this discussion is that (i) I played Carl McFarland in
UVA Law’s annual “Libel Show” in 1966 or 1967 and in preparation met with him perhaps two times (I don’t recall him mentioning deference); and (ii) Paul Verkuil,
a giant in administrative law, who wrote the article above on McFarland’s role
in passage of the APA was one of my classmates at UVA Law, although he, like me, never had
a class taught by McFarland.</span></div><p class="MsoNormal"><span style="font-family: inherit;">
</span></p><p class="MsoNormal"><o:p></o:p></p><p class="MsoNormal"><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-7527668149044415662024-01-18T19:21:00.017-05:002024-02-06T09:56:40.364-05:00Key Points in Oral Arguments on 1/17/24 in the Supreme Court Cases Considering the Future of Deference (1/18/24)<p class="MsoNormal"><span style="line-height: 107%;"><span style="font-family: inherit;">I have now had the time to read the
transcripts of oral arguments in the cases challenging <i>Chevron</i> deference:<o:p></o:p></span></span></p>
<p class="MsoNormal"></p><ul style="text-align: left;"><li><span style="font-family: inherit;"><i><span style="line-height: 107%;">Loper Bright Enterprises v.
Raimondo (SEC)</span></i><span style="line-height: 107%;"> (Sup. Ct. Dkt.
22-451, </span><span style="line-height: 107%;"><a href="https://www.supremecourt.gov/docket/docketfiles/html/public/22-451.html">here</a>.) (“<i>Loper Bright</i>”), transcript <a href="https://www.supremecourt.gov/oral_arguments/argument_transcripts/2023/22-451_o7jp.pdf">here</a>, <o:p></o:p></span></span></li><li><i style="font-family: inherit;"><span style="line-height: 107%;">Relentless, Inc. v. Department
of Commerce</span></i><span style="font-family: inherit; line-height: 107%;"> (Sup. Ct. Dkt
22-1219, </span><span style="font-family: inherit; line-height: 107%;"><a href="https://www.supremecourt.gov/docket/docketfiles/html/public/22-1219.html">here</a> ) (<i>Relentlesss</i> transcript <a href="https://www.supremecourt.gov/oral_arguments/argument_transcripts/2023/22-1219_e2p3.pdf">here</a>),</span></li></ul><p></p>
<p class="MsoNormal"><span style="font-family: inherit;"><i><span style="line-height: 107%;">Relentless</span></i><span style="line-height: 107%;"> was argued before <i>Loper Bright. </i>I infer that was because<i>
</i>Justice Jackson recused herself in <i>Loper Bright</i>. <o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">I will discuss what I think are the key points of
the oral arguments. There is a lot more in the transcripts, including both somewhat important
points and some nit-picky points. I will consider later posting the transcripts
with pdf highlights with discussion behind the highlights as comments for
readers to review if they wish.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">With apologies for readers
that may not have some introduction into the jargon of administrative law, I
will often just use that jargon without further citation. For example. I refer
to (i) <i>Chevron</i> deference which refers to the deference approved in the
case of that name and (ii) <i>Brand X</i> which is the deference approved in a Supreme Court opinion with that
name. I do not give the cites for these common administrative law shorthand before having any understanding of the issues involved.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">In my discussion, I do not
attempt to predict whether the Court will pronounce the demise of deference
(whether with the <i>Chevron</i> label or not) or the constriction of </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> deference, or whatever. I note, that </span><span style="font-family: inherit;"> </span><span style="font-family: inherit;">the three
Trump appointees (Justices Gorsuch, Kavanaugh, and Barrett) almost certainly
will vote for the demise or substantial restriction of deference (at least in
its traditional formulation), because of their prior anti-</span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> musings
and that anti-</span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> was a litmus test for their respective appointments
as Justices.</span><span style="font-family: inherit;"> </span><span style="font-family: inherit;">See Jeremy W. Peters, </span><u style="font-family: inherit;">Trump’s
New Judicial Litmus Test: ‘Shrinking the Administrative State’</u><span style="font-family: inherit;"> (NYT
3/26/18) (noting administrative state angst with anti-</span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> as a
litmus test for Trump’s judicial, particularly Supreme Court Justice, nominees).
And, Justices Thomas and Alito have expressed disdain for </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">.
Justices Kagan, Sotomayor, and Jackson seem pro-</span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">, although they
might agree to some constriction (such as doubling down on </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">
Footnote 9). I think Chief Justice Roberts can go either way, but being an institutionalist may be inclined to lean toward stare decisis without terminating (but with constricting) <i>Chevron</i> in futuro.</span></p>
<p class="MsoNormal"><b><span style="line-height: 107%;"><span style="font-family: inherit;">What Are the Perceived Evils in <i>Chevron</i>? (Herein of The
Deference Concept)<span></span></span></span></b></p><a name='more'></a><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">Deference is now called </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">
deference, although deference with the same features existed before </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">
and before the APA. I will thus use the common convention of calling it </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">
deference, although that is a mislabeling of the concept causing many to think
that deference was created whole-cloth by the </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> case decided in
1984. </span></p><p class="MsoNormal"><span style="font-family: inherit;">The tenor of the arguments is that outcome-determinative </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> deference
is rampant in the lower courts, although missing from the Supreme Court in
recent cases. Is outcome-determinative </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> deference really rampant
in the lower courts?</span><span style="font-family: inherit;"> </span></p>
<p class="MsoNormal"><span style="font-family: inherit;">In an outcome-determinative
sense, deference means applying the “not-best” agency interpretation over the “best” nonagency interpretation of the statute. Deference does not mean applying the agency
interpretation that the court would apply in the absence of a </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">-entitled
agency interpretation; that agency interpretation is the “best” interpretation.
An agency best interpretation does not need nor does it obtain deference. In
other words, any claimed abuse created by </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> deference only arises
when a court actually defers to--applies to determine the outcome--the agency
interpretation over another nonagency best interpretation. However, as commonly
articulated, </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> deference implies that it applies to agency <b>best</b>
interpretations (or agency interpretations at least in equipoise with other
interpretations). This commonsense understanding that <i>Chevron</i> deference only applies to
agency not-best interpretations seems to have not received the attention of the
parties or the Court.</span></p><p class="MsoNormal"><span style="font-family: inherit;"></span><i style="font-family: inherit;">Loper Bright </i><span style="font-family: inherit;">Counsel, Paul Clement, however, suggested (</span><i style="font-family: inherit;">Loper Bright</i><span style="font-family: inherit;"> Tr. 4) this
phenomenon in claiming that </span><i style="font-family: inherit;">Loper Bright </i><span style="font-family: inherit;">contested only “</span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">’s
methodology” but had “no beef with </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">'s Clean Air Act holding.”
That can be viewed as implying the agency interpretation in <i>Chevron</i> was the best
interpretation. (In this sense, of course, </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">’s adoption of
deference would be dicta, albeit persuasive dicta, and further emphasizes the
point that the methodology was already inherent in deference before </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">;
I develop this in detail in my article </span><u style="font-family: inherit;">The Tax Contribution to Deference and
APA § 706</u><span style="font-family: inherit;"> (December 14, 2023 SSRN), <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4665227">here</a>, which I refer to as “</span><u style="font-family: inherit;">Townsend
Deference APA</u><span style="font-family: inherit;">”).)</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Also, in view of this refinement
of </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> deference, consider a mind game of how often a judge who
determines the nonagency interpretation is best will not find some way to avoid
applying the agency “not-best” interpretation (e.g., by simply finding the
nonagency best interpretation discernible at Step One or unreasonable at Step
Two, or taking another out from </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> deference, such as Major
Questions). And as a further mind-game, consider the same question when the
court is of the conservative/libertarian bent as many now are with some
distrust of the administrative state.</span></p><p class="MsoNormal"><span style="font-family: inherit;">Justice
Gorsuch illustrated his confusion about </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> deference (</span><i style="font-family: inherit;">Relentless</i><span style="font-family: inherit;">
Tr. 21) by saying that </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> means that, in light of ambiguity, the “the
agency always wins. That--that's what I understood </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> to mean at
least coming in here today.” Maybe it is picky, but Justice Gorsuch certainly knows
that statement, with all the </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> avoidance outs from actually
deferring to a “not best” agency interpretation, is false.</span></p>
<p class="MsoNormal"><span style="font-family: inherit; line-height: 107%;">My anecdotal examination of
two large courts of appeals datasets indicates that, in many (probably most) of
the Step Two noisings about <i>Chevron</i>, the courts were really applying the
agency interpretation that was best within the scope of the statute’s ambiguity
or, in any event, was not deferring to an agency “not-best” interpretation. In
other words, the claims of <i>Chevron</i>’s abuses are hyperbole, so that, if
the Court were to eliminate <i>Chevron</i> deference, outcomes likely would not
be materially different except that conservative and libertarian judges will
feel emboldened to find nonagency interpretations not-best to strike at the evils
of the administrative state. See <u>Chevron Step Two Reasonableness and Agency
Best Interpretations in Courts of Appeals</u> (2/9/23), </span><span style="font-family: inherit; line-height: 107%;"><a href="https://federaltaxprocedure.blogspot.com/2023/02/chevron-step-two-reasonableness-and.html">here</a>; and <u>Is Chevron on Life Support; Does It Matter?</u>
(Federal Tax Procedure Blog 4/2/22; 4/3/22), <a href="https://federaltaxprocedure.blogspot.com/2022/04/is-chevron-on-life-support-does-it.html">here</a>.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Justice Kavanaugh asked (</span><i style="font-family: inherit;">Loper
Bright</i><span style="font-family: inherit;"> Tr. 41-42) a question of Paul Clement </span><i style="font-family: inherit;">Loper Bright</i><span style="font-family: inherit;"> Counsel: “do
judges really rely on </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">?” Clement answered that courts often get
to Step Two and cited Cato Institute statistics that were in the datasets I
analyzed above. (See also Martinez argument </span><i style="font-family: inherit;">Relentless</i><span style="font-family: inherit;"> Tr. 32-34.) But, getting to Step Two doesn't mean that courts then apply the not-best agency interpretation. Within the class of Step Two resolutions are agency best interpretations of the statute. Resolution at Step Two merely means that the court applied the agency interpretation, not that it deferred to the agency not-best interpretation. </span><span style="font-family: inherit;">My analysis of that dataset
discussed above is that they do not actually defer as much as those statistics purport
to show (the old statistics as lies, damned lies and statistics thing; of
course, my conclusions are statistics based on my own interpretation of the
data underlying those statistics).</span></p><p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><span style="font-family: inherit;"><b>Added 1/18/24 10pm: </b>Based on my intuition that judges would usually avoid having to apply a not-best agency interpretation and my analyses of the datasets, I earlier suggested that the assumption of rampant real deference to not-best agency interpretations was grossly overstated and recommended that a good interim measure before tossing deference altogether would be to get a better fix on when real deference occurs in the courts. The Court thus could require that lower courts in invoking <i>Chevron</i> Step Two (or seeming to do so) state specifically whether they have determined that the agency interpretation is not best and are applying it anyway (that's the only real deference). That would likely encourage courts to find an out in the current <i>Chevron</i> framework (probably stopping at Step One or finding the agency interpretation unreasonable at Step Two). (I think the Court could also limit <i>Chevron</i> to the range of uncertainty where, within the range, the court cannot determine that the nonagency interpretation is the best; where it can determine outside the uncertainty range that the nonagency interpretation is the best, then it could apply the nonagency best interpretation rather than the not-best agency interpretation. (Actually that should be a Step One determination that would not be deference.)</span></blockquote><p></p><p class="MsoNormal"><span style="font-family: inherit;">Finally, I should say
something about the potential role of legal interpretive equipoise in </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">.
Equipoise means that the court cannot determine a “best” interpretation (with
the agency and a competing interpretation equally persuasive) and could use </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">
deference as a tie-breaker to resolve the case. The tie-breaker role is not
deferring to the agency interpretation over another best interpretation. At the
oral arguments, some of the discussion seemed to state the tie-breaker role for
<i>Chevron</i>. For examples:</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Relentless counsel (Tr. 13, bold-face supplied):</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><span style="font-family: inherit;">I don't think <i>Chevron</i> is a
doctrine that </span><b style="font-family: inherit;">only</b><span style="font-family: inherit;"> applies to
tie-breaker 50/50 scenarios.</span></blockquote><span style="font-family: inherit;"></span><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">Justice Sotomayor (Tr. 18), in
which she adopts some type of range for tie-breaker rather than 50-50
equipoise:</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote>And if the Court can—can disagree
reasonably and comes to that tie-breaker point, and it could be 51/49, it could
be 52/53, if it's that close, why shouldn't the person with all of the
qualities you spoke about, the entity with all of the qualities, expertise,
experience, on-the-ground execution, knowledge of consequences, why shouldn't
deference be given to that entity? [JAT Note: she treats equipoise in this
example as a range rather than 50-50.]</blockquote><p></p>
<p class="MsoNormal"><i style="font-family: inherit;"><span style="line-height: 107%;">Loper Bright</span></i><span style="font-family: inherit; line-height: 107%;"> Counsel Paul Clement:</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote><span style="font-family: inherit;">There is no justification for
giving the tie to the government or conjuring agency authority from silence. (</span><i style="font-family: inherit;">Loper
Bright</i><span style="font-family: inherit;"> Tr. 4)</span></blockquote><span style="font-family: inherit;"></span><p></p>
<p class="MsoNormal"><span style="line-height: 107%;"><span style="font-family: inherit;"> </span></span><i style="font-family: inherit;"><span style="line-height: 107%;">Loper Bright</span></i><span style="font-family: inherit; line-height: 107%;"> Counsel Paul Clement and Justice Kagan:</span></p><blockquote><p class="MsoNormal"><span style="font-family: inherit;">Clement: “I would say at that
point let's give the tie to the citizen. Let's not give the tie to the agency.”
(</span><i style="font-family: inherit;">Loper Bright</i><span style="font-family: inherit;"> Tr. 16.)</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Justice Kagan:</span><span style="font-family: inherit;"> </span><span style="font-family: inherit;">“you would give the tie to the citizen and I
would give the tie to the agency.” (</span><i style="font-family: inherit;">Loper Bright</i><span style="font-family: inherit;"> Tr. 16.)</span><span style="font-family: inherit;"> </span></p></blockquote><p class="MsoNormal"></p>
<p class="MsoNormal"><span style="line-height: 107%;"><span style="font-family: inherit;">My only point here is that <i>Chevron</i>
as interpretive tie-breaker is not deferring to an agency interpretation over a
best nonagency interpretation.<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="line-height: 107%;"><span style="font-family: inherit;"> </span></span><b><span style="line-height: 107%;"><span style="font-family: inherit;"><i>Chevron</i> Strawman--Policy Preferences</span></span></b></p>
<p class="MsoNormal"><span style="font-family: inherit; line-height: 107%;">Much ink has been spilled on
the issue of making policy via interpretation. The issue was discussed at in
the oral arguments. E.g. Relentless Transcript 3-4 “it forces courts to adopt
inferior agency constructions that are issued for political or policy reasons. In
doing so, <i>Chevron</i> blocks judges from serving as faithful agents of Congress.”
But, in that ambiguity <i>Chevron</i> space where there is no discernible direction
from Congress, isn’t there the possibility that courts can use interpretation for
their only policy preferences rather than "faithful agency;" are courts’ policy
preference through interpretation better or more judge-appropriate than agencies’
policy preferences through interpretation? <b>That’s
the bogeyman</b>. I am not sure this is a topic that deserves any discussion
other than to state it, for it ends up going nowhere to contribute to the
discussion. I suggest, though, that in the tax arena, many tax regulations take
confusing statutory text and give some coherency to it in a way that Congress
could do but won’t and courts cannot do at all. <u>Musings on Proposed §
6751(b) Regulations and the Potential Demise of Chevron Deference</u> (1/8/24;
1/15/24), </span><span style="font-family: inherit; line-height: 107%;"><a href="https://federaltaxprocedure.blogspot.com/2024/01/musings-on-proposed-6751b-regulations.html">here</a>.</span></p>
<p class="MsoNormal"><b><span style="line-height: 107%;"><span style="font-family: inherit;">Deference and Ranges of Interpretive Confidence</span></span></b></p>
<p class="MsoNormal"><span style="font-family: inherit;">I have argued before that
legal equipoise—inability to determine a best interpretation—comes in ranges of
certainty or confidence as to the interpretation. For example, I first
encountered this issue in the ubiquitous abusive tax shelter context where
aggressive taxpayers bought penalty insurance by enablers paying handsomely for
more likely than not (MLTN) legal opinions. The MLTN opinion in theory states that the author was at least 51% certain of the legal interpretation or
even 50.000001% certain. <b>This state of certainty is a fantasy</b>. It just doesn’t
happen. There is a range on either side of 50% that confidence in the
interpretation is not sufficiently certain to render a MLTN opinion. For
anyone to say that they had a 51% (or 50.000001%) confidence in the outcome is
not truthful in the legal environment in which abusive shelters were
promoted. For example, I would think
that given the uncertainty in outcome, the MLTN could be rendered only if the
professional was above 66% (or some other high percentage) confident; otherwise
in the 35%--67% confidence level range there is sufficient uncertainty that there
would be effective equipoise in the legal interpretation. I think that has to be the type of analysis for
any deference discussion. There has to be some range of confidence in which a “best”
interpretation cannot be found, whether the range is 51/49, 55/45, 60/40,
65/35, 66/34 or some other. Within that range, a tie-breaker rule is required
and </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> could be that rule, for as I have noted, there is no
deference to a lesser agency interpretation when there is no discernible best
interpretation.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">While arguing that <i>Chevron</i> is
not a tie-breaker (say 50-50 likelihood either interpretation is correct),
Martinez seems to invoke the range concept (Tr. 13-14)):</span></p>
<p class="MsoNormal"><span style="line-height: 107%;"><span style="font-family: inherit;"></span></span></p><blockquote><p class="MsoNormal"><span style="line-height: 107%;"><span style="font-family: inherit;">this is a really hard case, it's a really close statute. Fifty-two percent likely, I think --you
know, I have 52 percent confidence that X is right -<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="line-height: 107%;"><span style="font-family: inherit;">JUSTICE KAGAN: I'll give you -<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="line-height: 107%;"><span style="font-family: inherit;">MR. MARTINEZ: --48 percent
likely –</span></span></p></blockquote><p class="MsoNormal"><span style="line-height: 107%;"><span style="font-family: inherit;"><o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="line-height: 107%;"><span style="font-family: inherit;">But they do not follow through on the range concept. <o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Between 40 and 60% (or some other range) confidence
levels, I would argue that a court is not sufficiently confident that either
interpretation is right and therefore defaults to the agency interpretation
under </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">. </span></p><p class="MsoNormal"><span style="font-family: inherit;">Consider Justice Sotomayor's range discussion (<i>Relentless</i> Tr. 17-18):</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote>But putting
that aside --but putting that aside, in those situations, there are two
plausible --not nearly plausible. There are two best answers. And the question
is who makes the choice or helps you make the choice.<span style="font-family: inherit;"> </span></blockquote><blockquote>And if the Court
can --can disagree reasonably and comes to that tie-breaker point, and it could
be 51/49, it could be 52/53, if it's that close, why shouldn't the person with
all of the qualities you spoke about, the entity with all of the qualities,
expertise, experience, on-the-ground execution, knowledge of consequences, why
shouldn't deference be given to that entity?</blockquote><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">I am sorry that this facet of </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">
deference did not receive more attention in the briefs or oral arguments.</span></p>
<p class="MsoNormal"><b><span style="line-height: 107%;"><span style="font-family: inherit;">Deference and the APA</span></span></b></p>
<p class="MsoNormal"><span style="font-family: inherit;">With that predicate
understanding of what real deference is, I now start first with the APA issue—whether
APA § 706 precludes, permits, or requires deference? I rely significantly in my comments on this
issue on </span><u style="font-family: inherit;">Townsend Deference APA</u><span style="font-family: inherit;"> (linked above).</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">All seemed to agree that § 706
requires de novo review, but did not deal meaningfully with the refinement of
whether de novo review includes deference or not. </span><i style="font-family: inherit;">Loper Bright’</i><span style="font-family: inherit;">s and </span><i style="font-family: inherit;">Relentless</i><span style="font-family: inherit;">’
respective counsel assumed that de novo review required by § 706 did
not include deference. Solicitor General Prelogar (“SG”) assumed that de novo
review could include deference. (See <i>Loper Bright</i> Tr. 57-58.) Tellingly no one
mentioned that key point of </span><u style="font-family: inherit;">Townsend Deference APA</u><span style="font-family: inherit;"> that, in fact, § 706
includes language permitting set aside of the agency interpretation only if it
is “not in accordance with law,” a statutory standard interpreted to require
deference to Tax Court legal interpretations in </span><i style="font-family: inherit;">Dobson v. Commissioner</i><span style="font-family: inherit;">,
320 U.S. 489 (1943), reh. den., 321 U.S. 231 (1944). In </span><u style="font-family: inherit;">Townsend Deference
APA</u><span style="font-family: inherit;">, I trace the history of the ”not in accordance with law” standard
applied in </span><i style="font-family: inherit;">Dobson</i><span style="font-family: inherit;"> ; that statutory standard was inserted into § 706 during
Congress’ consideration in 1945 and 1946; that standard was drawn from the
statutory standard applied in </span><i style="font-family: inherit;">Dobson</i><span style="font-family: inherit;"> which interpreted that text to
include deference.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">The SG does mention the long
history of deference before </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> and the APA. (<i>Loper</i> Bright Tr. 58-59).
As I note in </span><u style="font-family: inherit;">Townsend Deference APA</u><span style="font-family: inherit;">, that long history included many
statements of deference that were the same as </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> deference—(i)
ambiguous statute and (ii) reasonable agency interpretation without the scope
of the ambiguity. (See also the descriptions of deference in the <u>AG Final
Report 1941</u>.) Further, in enacting § 706, Congress was informed that during
consideration of the APA that § 706 was merely a restatement of then-existing
law (which included deference), and that was the description of § 706 in the </span><u style="font-family: inherit;">Attorney
General’s Manual on the Administrative Procedure Act</u><span style="font-family: inherit;"> (1947), said to be the
most authoritative discussion of the APA.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">A key point I make with
respect to the APA is that the leading article on deference Aditya Bamzai, </span><u style="font-family: inherit;">The
Origins of Judicial Deference to Executive Interpretation</u><span style="font-family: inherit;">, 126 Yale L.J.
908 (2017) missed key deference authority in setting up his claim that there
was limited deference preceding the APA in 1946, from which he extrapolated
beyond the evidence (particularly the evidence he missed) that § 706 excludes
deference. Specifically, Professor Bamzai missed the key tax deference
authority cited in the <u>Fi</u></span><u style="font-family: inherit;">nal Report of the Attorney General's Committee on
Administrative Procedure</u><span style="font-family: inherit;">, S. Doc. 77-8, (1941) ("</span><u style="font-family: inherit;">AG Comm Final
Report 1941</u><span style="font-family: inherit;">") which is the start of the legislative history of the
APA. So at least the players in the enactment of the APA knew that robust </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">-like
deference was the law when the APA was enacted. This probably explains why §
706 was not an issue in deference cases from enactment of the APA until well
after </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> decided in 1984.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"><b>Straw man argument</b></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Martinez sets up a straw man
argument by saying that the same dilemma of the uncertain interpretive
confidence levels happens in court cases requiring a legal interpretation where
that is no agency interpretation. (See </span><i style="font-family: inherit;">Relentless</i><span style="font-family: inherit;"> Tr. 14-15.)
Conceptually, the controlling statute could have the same type of ambiguity
required for </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> deference and, in order to resolve the case, has to
make a determined the best interpretation regardless of uncertainty. Of course, the court has
to take its best shot to resolve the case. If the courts can do that in the
absence of an agency interpretation, why not with an agency interpretation? </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">
assume courts’ ability to interpret granularly in the absence of an agency
interpretation, but that is not an argument to forego the benefits that gave
rise to deference.</span></p>
<p class="MsoNormal"><b><span style="line-height: 107%;"><span style="font-family: inherit;">Deference and Stare Decisis</span></span></b></p>
<p class="MsoNormal"><span style="font-family: inherit;">Much of the discussion
concerned stare decisis and, if <i>Chevron</i> deference were overruled, the systemic
effect would be to cases and issues of law settled under the Chevron deference
regime. (E.g., <i>Relentless </i>Tr. 38-39; 52; 59-62; 80-81; 118-120; <i>Loper Bright</i>
Tr. 4-5; 20; 22-24; 34-36 (Kagan discussing court humility and stare decisis);
49 (SG arguing “I think all of the stare decisis factors counsel in favor of
retaining </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">.”); 76 (SG arguing that Congress has not changed </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">).
Questions thus were asked whether those who lost by application of </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">
or even those affected by a loss of </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> can now find a basis for reversing their losses if <i>Chevron</i> deference is terminated . (Statutes of limitations or some such time or laches limitations may
limit most of these, but there might be situations where the statute of
limitations might be open.) My sense is that there was not sufficient substantive
engagement on this subject. Hopefully, if the Court decides to terminate deference, it will deal in a more satisfactory way with this issue</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Although not discussed, the same issue would also affect the pre-<i>Chevron</i> deference regime(s) which had the essential
characteristics of <i>Chevron</i> deference—statutory ambiguity and reasonable agency
interpretation within the scope of the statutory ambiguity; although that has
not been part of the discussion, I think it would be folly to ignore it.</span></p>
<p class="MsoNormal"><b><span style="line-height: 107%;"><span style="font-family: inherit;">What is ambiguity?</span></span></b></p>
<p class="MsoNormal"><span style="font-family: inherit;">There was much discussion
about ambiguity and how the ambiguity concept itself is ambiguous—meaning that
it cannot be stated in a formulaic way to resolve all or many cases. That comes with the turf for concepts such as
ambiguity, reasonableness, etc. Cf. Jon O. Newman, </span><u style="font-family: inherit;">On Reasonableness: The
Many Meanings of Law’s Most Ubiquitous Concept</u><span style="font-family: inherit;">, 21 J. App. Prac. &
Process 1, 83 (2021) (the article is on reasonableness generally, but the cited
page discusses its application in </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> Step Two).</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">During opening argument by
Roman Martinez, counsel for Relentless </span>(Tr. 4-5.)<span style="font-family: inherit;">:</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"></span></p><blockquote> The government says that even if all nine of you agree with
us that the agency's construction is worse than ours, you should nonetheless
defer to that construction and uphold their program under <i>Chevron</i>. </blockquote><p></p>
<p class="MsoNormal"><span style="font-family: inherit;"><u>JAT Comment</u>: This is wrong
because unanimous interpretation would stop at </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> Step One with no
deference to the agency interpretation.</span></p>
<p class="MsoNormal"><b><i><span style="line-height: 107%;"><span style="font-family: inherit;">Brand X.</span></span></i></b></p>
<p class="MsoNormal"><span style="font-family: inherit;"><i><span style="line-height: 107%;">Brand X</span></i><span style="line-height: 107%;"> came into predictable scorn from conservative/libertarian Justice for its blessing of deference to agencies changing
interpretations and even overriding judicial interpretations. However, as the
SG said (Relentless Tr. 94-95), <i>Brand X</i> is a logical outgrowth of the interpretive
discretion agencies have under <i>Chevron</i>. As Justice Thomas, the author of <i>Brand
X</i> and now a <i>Chevron</i> opponent surely knows, the bogeyman is not <i>Brand
X </i>but <i>Chevron</i>). As an aside, one can imagine that conservative or
libertarian judges who imagines his or her own amazing abilities of interpretation would chafe
at the notion that an agency might interpret differently and override their
judicial opinions. I don’t know that I can add anything material here on that
subject.<o:p></o:p></span></span></p>
<p class="MsoNormal"><b><span style="line-height: 107%;"><span style="font-family: inherit;">On <i>Skidmore</i>.</span></span></b></p>
<p class="MsoNormal"><span style="font-family: inherit;">As I have argued in my blogs, <i>Skidmore, </i>although commonly labeled deference, is not deference because the Court must be
persuaded that the agency interpretation is the best interpretation at Step
One. E.g., </span><u style="font-family: inherit;">Really, Skidmore "Deference?</u><span style="font-family: inherit;">" (5/31/20; 2/14/21), </span><a href="https://federaltaxprocedure.blogspot.com/2020/05/really-skidmore-deference-53120.html" style="font-family: inherit;">here</a><span style="font-family: inherit;">
(including comments by Justices Gorsuch, Roberts and Kavanaugh). The oral argument comments
about </span><i style="font-family: inherit;">Skidmore</i><span style="font-family: inherit;"> seem to echo that theme. (See e.g., </span><i style="font-family: inherit;">Relentless</i><span style="font-family: inherit;">
Tr. 16, 25 (arguing some consideration
of agency interpretation but does not require a court to “defer to an
interpretation that is not persuasive.”), 52-54 (including Kavanaugh “</span><i style="font-family: inherit;">Skidmore</i><span style="font-family: inherit;">
was about the power to persuade, not the power to control”); </span><i style="font-family: inherit;">Loper Bright</i><span style="font-family: inherit;">
Tr. 30-32 (Kavanaugh, Gorsuch and Kagan agreeing </span><i style="font-family: inherit;">Skidmore</i><span style="font-family: inherit;"> is not
deference). </span></p><p class="MsoNormal"><span style="font-family: inherit;"><b>One other note</b>: Missing from the discussion was any attempt to grapple with the difference between legislative and interpretive regulations, although the focus of the discussion was all about interpretations.</span></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-65685657877023777222024-01-16T14:29:00.010-05:002024-01-17T19:31:05.664-05:00Oral Argument on 1/17/24 in Supreme Court Cases on the Future of Deference (1/16/24)<p class="MsoNormal">Oral argument in the cases (<i>Loper Bright</i> and <i>Relentless</i>, combined for oral argument)
challenging <i>Chevron</i> deference is Wednesday, January 17. The relevant links are:</p><p class="MsoNormal"></p><ul style="text-align: left;"><li>Oral Argument Live, <a href="https://www.supremecourt.gov/oral_arguments/live.aspx">here</a> (these are the only cases docketed for oral argument, so the oral argument should begin at 10am EST).</li><li>Recording of Oral Argument, <a href="https://www.supremecourt.gov/oral_arguments/argument_audio/2023">here</a> (listed under 22-451 <i>Loper Bright Enterprises, Inc. v. Raimondo, Sec. of Comm</i>. and 22-1219 <i>Relentless, Inc. v. Dept. of Commerce</i>.</li><li>Transcripts of Oral Arguments (these are subject to change):</li><ul><li><i>Loper Bright</i>, <a href="https://www.supremecourt.gov/oral_arguments/argument_transcripts/2023/22-451_7l48.pdf">here</a>.</li><li><i>Relentless</i>, <a href="https://www.supremecourt.gov/oral_arguments/argument_transcripts/2023/22-1219_c07d.pdf">here</a>.</li></ul></ul><p></p><p class="MsoNormal">I thought I would use this blog to alert readers to some
hyperbolic claims likely to appear in the oral argument (as they have proliferated
in the press). (George Will, no fan of the administrative state or of <i>Chevron</i>,
has said that “Hyperbole [is] the default setting in today’s discourse.” George
F. Will, <u>How the Supreme Court could end the ‘Chevron deference’ foolishness</u>
(WAPO 1/12/24), <a href="https://www.washingtonpost.com/opinions/2024/01/12/chevron-deference-supreme-court-case/">here</a>
(the claims he makes in his article prove the ubiquity of hyperbole).</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">Before addressing the hyperbole likely to appear in oral
argument, I think it is helpful to establish what deference is:</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"></p><blockquote>Deference is commonly stated as a court applying an agency
interpretation that reasonably interprets ambiguous statutory text within the scope
of the ambiguity. Deference is more subtle than that. Deference is neither
required nor applicable if the agency interpretation is the best interpretation
(best interpretations are per se reasonable, after all). Rather deference only
occurs when the agency’s reasonable interpretation is not the best; only then
can a court <b>defer</b> to that not-best agency
interpretation. (This does not address the phenomenon of the state of interpretive
equipoise which I discuss in paragraph 4 below,)</blockquote><p></p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>Now, to the hyperbole:</p><p class="MsoNormal">1. <b>The hyperbole</b>: Deference
was the creation of the <i>Chevron</i> case decided in 1984. George Will says, “first
propounded by the court in 1984.” That statement is not only hyperbole, it is
false. Deference to reasonable agency interpretations of ambiguous statutory text
has been a feature of authoritative judicial decisions since at least the 1920s.
All <i>Chevron</i> did was to (i) articulate an additional rationale for deference
in the executive branch’s more direct accountability to the citizens than
courts with lifetime appointments and no constituency and (ii) permit the famous
2-Step, which later courts found implicit in <i>Chevron</i>. (Since deference
was the same as prior deference, the 2-Step formula was implicit in pre-<i>Chevron</i>
deference.)<span></span></p><a name='more'></a><p></p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">2. <b>The hyperbole</b>: Deference
confers “vast discretion barely circumscribed by Congress.” George Will, supra.
The reasonable requirement circumscribes the agency’s discretion; the
requirement of reasonableness hardly permits vast discretion. If a
court determines that the best interpretation is not the agency interpretation,
query what are the chances that the court will nevertheless apply the not-best
agency interpretation? As formulated, Chevron seems to permit the not-best
agency interpretation to prevail so long as it is reasonable. But, in order to apply
the best interpretation rather than the not-best agency interpretation, all the
court has to determine is that the agency interpretation is not reasonable. (There
are other outs from deference, such as major questions and so-called <i>Chevron</i> Footnote 9 rigorous analysis at Step One.) Think about that and imagine in the real world judging
how often a court would defer to the not-best agency interpretation because the
agency interpretation is reasonable. My anecdotal review of two large sets of
Courts of Appeals opinions in recent years indicates that there is far less
actual deference going on than the commotion about <i>Chevron</i> would indicate.
I urge readers to be skeptical about claims that <i>Chevron</i> real deference
is ubiquitous.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">3. <b>The hyperbole</b>: APA
§ 706 requires courts to interpret statutes de novo without deference. False. I
have covered that issue in an article. <u>The Tax Contribution to Deference and
APA § 706</u> (December 14, 2023 <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4665227">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4665227</a>).</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><b>My suggested deference refinement without hyperbole:</b></p><p class="MsoNormal"><o:p></o:p></p><p>If the Court revises the deference construct, I recommend it do so as follows which
focuses on the work deference should do: </p><p></p><blockquote>A court should apply a reasonable agency
interpretation of ambiguous statutory text (Step Two) if it cannot determine
affirmatively that an alternative interpretation is the best; if it can determine
that an alternative agency interpretation is the best, apply the alternative best interpretation
rather than the not-best agency interpretation. </blockquote><p></p><p>This would allow deference where the
agency interpretation is the best or is in a state of interpretive equipoise
(in which case a court is not deferring to a not-best agency interpretation). I
think that courts deferring to best agency interpretations and equipoise agency
interpretations explains by far the bulk of Step Two resolutions, with only the
rare, very rare (if any) Step Two outcome actually deferring to an agency not-best interpretation.
(As I see it, equipoise in legal interpretation is a range of interpretive
certainty, say from 40% to 60% certainty.) </p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-23807888443129875352024-01-15T16:52:00.004-05:002024-01-15T16:55:53.403-05:00NTA 2023 Annual Report and 2024 Purple Book (1/15/24)<p><span style="font-family: inherit;">The National Taxpayer Advocate has issued her 2023 annual
report (<a href="https://www.taxpayeradvocate.irs.gov/reports/2023-annual-report-to-congress/full-report/">here</a>
allowing download of the Full Report, the Executive Summary, and the NTA Purple
Book Compilation of Legislative Recommendations, and Research Reports). The
Full Report and its components have much that tax procedure enthusiasts will want
to consider. I bullet point here some of the items that caught my eye on a
quick overview. I may come back with more detail later.</span></p><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNormal"></p><ul style="text-align: left;"><li><b style="font-family: inherit; text-indent: -0.25in;">MOST
LITIGATED ISSUES – NATIONAL TAXPAYER ADVOCATE RECOMMENDATIONS TO MITIGATE
DISPUTE</b><span style="font-family: inherit; text-indent: -0.25in;">, pp. 169-171, beginning </span><a href="https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2024/01/ARC-2023_FullBook_FINAL.pdf#page=197" style="font-family: inherit; text-indent: -0.25in;">here</a><span style="font-family: inherit; text-indent: -0.25in;">.</span></li><li><span style="font-family: inherit; text-indent: -0.25in;">The 2024 Purple Book: Compilation of Legislative
Recommendations, </span><a href="https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2024/01/2024_PurpleBook_FINAL.pdf" style="font-family: inherit; text-indent: -0.25in;">here</a><span style="font-family: inherit; text-indent: -0.25in;">.</span></li></ul><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">Some of these are repeats of carryover issues from earlier years.
For example, her recommendations on § 6751(b), which I discuss in <u>Musings on
Proposed § 6751(b) Regulations and the Potential Demise of Chevron Deference</u>
(Federal Tax Procedure Blog 1/8/24; 1/15/24), <a href="https://federaltaxprocedure.blogspot.com/2024/01/musings-on-proposed-6751b-regulations.html">here</a>.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;"><b>My only comments are</b>:<span></span></span></p><a name='more'></a><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">1. The TA continues emphasize so-called assessable
penalties which, under the law now, do not require a procedure like the notice
of deficiency procedure to permit judicial contest before assessment. She requests
legislation to permit pre-assessment review in the Tax Court. I certainly am
not against prepayment remedies. The only case she mentions is <i>Farhy v.
Comm’r</i>, 160 T.C. No. 6 (Apr. 3, 2023), on appeal to 6<sup>th</sup> Circuit
(No. 23-1179) where the taxpayer in fact got a prepayment (but not preassessment) remedy for his
complaint. Of course, if <i>Farhy</i> were correctly decided (meaning
that the IRS can determine the subject penalties but has no authority to assess
them), the IRS would or should be the one clamoring for legislation to fix the assessment authority issue (which presumably would be fixed in future by the TA's proposed legislation). As
best I can tell, the IRS is not and is rather appealing on the basis that <i>Farhy</i>
was incorrectly decided (as I think it was). See <u>Tax Court Holds that IRS
Has No Authority to Assess § 6038(b) Penalties for Form 5471 Delinquencies</u>
(Federal Tax Procedure Blog 4/3/23; 4/23/23), <a href="https://federaltaxprocedure.blogspot.com/2023/04/tax-court-holds-that-irs-has-no.html">here</a>;
and <u>Regulations Interpreting Pre-1996 Code Provisions; Fixing Farhy</u> (Federal
Tax Procedure Blog 5/11/23; 5/12/23), <a href="https://federaltaxprocedure.blogspot.com/2023/05/fixing-farhy-by-interpretive-regulation.html">here</a>.
(Note that the latter "fix" depends on the continued viability of <i>Chevron</i> which is
being argued in two cases—<i>Loper Bright</i> and <i>Relentless</i>—in the Supreme Court this Wednesday, January 17.)</span><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-24004788151839786542024-01-08T14:46:00.013-05:002024-02-25T12:50:11.912-05:00Musings on Proposed § 6751(b) Regulations and the Potential Demise of Chevron Deference (1/8/24; 1/15/24)<p><span style="font-family: inherit;">Section 6751(b)(1) provides:</span></p><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNormal"><b style="font-family: inherit; text-indent: -19.5pt;">(1)<span style="font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; font-weight: normal; line-height: normal;"> </span></b><b style="font-family: inherit; text-indent: -19.5pt;">In general</b></p>
<p class="MsoNormal" style="margin-left: 16.5pt;"><span style="font-family: inherit;">No penalty under this title shall
be assessed unless the initial determination of such assessment is personally
approved (in writing) by the immediate supervisor of the individual making such
determination or such higher level official as the Secretary may designate.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Penalties cannot be assessed unless they have written
supervisor approval by some magical moment; stated otherwise, an assessment or
a step predicate to assessment of penalties without prior written approval is
invalid. The only magical moment in the statute is the “initial determination
of the assessment.” That statutory language on its face is nonsense
because there is no “initial determination of the assessment,” at least other
than the assessment itself. The courts have made hash of the language of the
statute, which, through its fuzziness coupled with a snippet in the legislative
history, lends itself to fuzzy thinking about the tax system we have and to disparate outcomes. In short, the interpretation and application of § 6751(b)
is a mess.</span><span style="font-family: inherit;"> </span></p>
<p class="MsoNormal"><span style="font-family: inherit;">I </span><span style="font-family: inherit;"> </span><span style="font-family: inherit;">discuss the mess in
my </span><u style="font-family: inherit;">Federal Tax Procedure</u><span style="font-family: inherit;"> (current 2023.2 Practitioner Edition SSRN </span><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4546046" style="font-family: inherit;">here</a><span style="font-family: inherit;">) at
pp. 385-393. Because of the mess, which has been brewing for several years, I
have noted in recent versions of my </span><u style="font-family: inherit;">Federal Tax Procedure Practitioner Edition</u><span style="font-family: inherit;">
(e.g., 2023.2 Edition p. 387 n. 1645):</span></p><p class="MsoNormal"><o:p><span style="font-family: inherit;"></span></o:p></p><blockquote><o:p><span style="font-family: inherit;"> </span></o:p><span style="font-family: inherit;"> </span><span style="font-family: inherit;"><b>n1645</b> This appears to me to be a classic case where a well-considered
statutory amendment or, failing that, comprehensive interpretive regulations
could clean up the mess. The courts have already found the statute ambiguous, the
condition required for “reasonable” interpretive regulations. </span><i style="font-family: inherit;">Chevron
U.S.A., Inc. v. Natural Resources Defense Council, Inc.</i><span style="font-family: inherit;">, 467 U.S. 837
(1984). By adopting well-considered interpretive regulations, the IRS could
essentially moot out the plethora of prior and future court machinations to
deal with the problem. See </span><i style="font-family: inherit;">National Cable & Telecommunications Assn. v.
Brand X Internet Services</i><span style="font-family: inherit;">, 545 U.S. 967, 981 (2005) (permitting the agency
to adopt interpretive regulations contrary to prior judicial interpretations so
long as the prior judicial interpretations are not compelled by the text of the
statute, which would not be true here because the statute is ambiguous). I
don’t think reversal of the court interpretations of § 6751(b) would be
foreclosed under Brand X by prior judicial precedent that foreclose the agency
new interpretation as occurred in </span><i style="font-family: inherit;">United States v. Home Concrete &
Supply, LLC</i><span style="font-family: inherit;">, 566 U.S. 478 (2012). An interpretive regulation, with notice
and comment, by Treasury, the expert on IRS processes and the big picture,
would likely produce a more holistic set of interpretations than courts can do
anecdotally as unique cases arise. The problem with the regulations approach is
that final regulations could take a very long time, perhaps a couple of years.
But since the regulations would be interpretive, Treasury could adopt a
Temporary Regulation and, provided that the final Regulation is adopted within
three years, the Temporary Regulation could be effective immediately (§
7805(e)) and the final Regulation could be effective from the date of the
Temporary Regulation (§ 7805(b)). And, perhaps even, the Temporary and Final
Regulations might be persuasive authority under </span><i style="font-family: inherit;">Skidmore v. Swift & Co.</i><span style="font-family: inherit;">,
323 U.S. 134 (1944) for application retroactively to the date of the statute
for any case still in pipeline or getting there involving conduct prior to the
effective date of the Temporary Regulation. Such retroactive application beyond
the limits imposed by § 7805 is a long subject, I think that the interpretation
might apply retroactively with the only limit being that the </span><span style="font-family: inherit;"> </span><span style="font-family: inherit;">interpretation be within the scope of §
6751(b)’s ambiguity from the enactment of the statute.</span></blockquote><span style="font-family: inherit;"></span><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">Separately, the Taxpayer Advocate proposed a legislative
solution. See Legislative Recommendations 32 and 36 in Taxpayer Advocates
Legislative Recommendations for 2023 and 2022, respectively as follows:</span><span style="font-family: inherit;"> <span></span></span></p><a name='more'></a><p></p>
<p class="MsoNormal" style="margin-left: 0.5in;"><span style="font-family: inherit;">Amend IRC § 6751(b)(1) to clarify
that no penalty under Title 26 shall be assessed or entered in a final judicial
decision unless the penalty is personally approved (in writing) by the
immediate supervisor of the individual making such determination or such higher
level official as the Secretary may designate prior to the first time the IRS
sends a written communication to the taxpayer proposing the penalty as an
adjustment.</span></p>
<div style="text-align: left;"><span style="font-family: inherit;"><b>Added 1/15/24 4:00pm:</b> The<span style="font-family: inherit;"> TA continues this legislative recommendation in the 2024 Purple Book Recommendation #33, <span style="line-height: 107%;"><a href="https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2024/01/2024_PurpleBook_FINAL.pdf#page=85">here</a></span>.</span></span></div><div style="text-align: left;"><span style="font-family: inherit;"><span style="font-family: inherit;"><br /></span></span><span style="font-family: inherit;"><span style="font-family: inherit;">There is no indication that an</span>y legislative solution will be
forthcoming.</span></div>
<p class="MsoNormal"><span style="font-family: inherit;">In April 2023, Treasury issued Proposed Regulation 301.6751(b)–1
to deal with many of the issues raised by the § 6751(b) mess. See NRPM 88 FR
21564, </span><a href="https://www.federalregister.gov/documents/2023/04/11/2023-07232/rules-for-supervisory-approval-of-penalties" style="font-family: inherit;">here</a><span style="font-family: inherit;">.
Written comments have been submitted (collected </span><a href="https://www.taxnotes.com/research/federal/other-documents/public-comments-on-regulations/collected-comments-on-proposed-regs-supervisory-approval-of-penalties/7h8hn?highlight=%22REG-121709-19%22+%2288+F.R.+49397%22" style="font-family: inherit;">here</a><span style="font-family: inherit;">),
and a hearing held (transcript </span><a href="https://www.taxnotes.com/research/federal/other-documents/public-comments-on-regulations/irs-hearing-transcript-available-on-penalty-approval-regs/7h8x1?highlight=%22REG-121709-19%22+%2288+F.R.+49397%22" style="font-family: inherit;">here</a><span style="font-family: inherit;">).
Consistent with her Legislative Recommendations, the Taxpayer Advocate indicated
disagreement with the Proposed Regulation’s approach. See NTA Blog: </span><u style="font-family: inherit;">Reconsidering
the IRS’s Approach to Supervisory Review</u><span style="font-family: inherit;"> (8/29/23) (last updated 12/8/23) </span><a href="https://www.taxpayeradvocate.irs.gov/news/nta-blog-reconsidering-the-irs-approach-to-supervisory-review/" style="font-family: inherit;">here</a><span style="font-family: inherit;">,
stating in conclusion:</span></p>
<p class="MsoNormal" style="margin-left: 0.5in;"><span style="font-family: inherit;">The IRS’s approach to supervisory
review of penalties is heavy-handed and burdensome on taxpayers. Among other
things, supervisory review should occur before applicable penalties are
communicated to taxpayers in writing. Negligence penalties should also be
presumptively subject to supervisory review and not automatically assessed by a
computer program. The proposed regulations under IRC § 6751 provide the IRS
with an excellent chance to reconsider its approach to supervisory review. This
is an opportunity that the IRS has so far declined to embrace, but there is
still time. I urge the IRS to reexamine its policy and I request that Congress
consider clarifying the law to protect taxpayers’ rights.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Since we don’t know what the final regulations might provide,
if and when adopted, I don’t propose to review the Proposed Regulations’
resolution of the interpretive choices that have so befuddled the courts into
making a total mess of § 6751(b).</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Rather, I address here the alternatives for resolution
of the § 6751(b) mess. The choices are: Legislation, regulations, or the
courts. Further thrashing around in the courts seems likely in the absence of
legislation. Legislation seems unlikely. So, as I said earlier, resolution of
the mess through regulations seems to be systemically the best solution.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">There is a potential glitch on the horizon with a regulation’s
solution. The Proposed Regulations would be entitled to </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> and
probably need deference to quiet courts further thrashing around. However, in the
October 2023 Term, the Supreme Court is considering the following questions:</span></p>
<p class="MsoNormal" style="margin-left: 0.5in;"><span style="font-family: inherit;">Whether the Court should overrule <i>Chevron</i>
or, 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.<o:p></o:p></span></p>
<p class="MsoNormal"><o:p><span style="font-family: inherit;"> </span></o:p><i style="font-family: inherit;">Loper Bright Enterprises v. Raimondo (SEC</i><span style="font-family: inherit;">) (Sup. Ct.
Dkt. 22-451) (“Loper Bright”); and </span><i style="font-family: inherit;">Relentless, Inc. v. Department of
Commerce</i><span style="font-family: inherit;"> (Sup. Ct. Dkt 22-1219). Many think deference (whether called </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">
deference or not) will be rejected in the pending cases. I ask readers to
consider what eliminating deference might do to the Final Regulation that
might be forthcoming under § 6751(b)? (I set aside so-called </span><i style="font-family: inherit;">Skidmor4e</i><span style="font-family: inherit;"> deference
which is not deference at all. See </span><u style="font-family: inherit;">Really, Skidmore "Deference?"</u><span style="font-family: inherit;">
(Federal Tax Procedure Blog 5/31/20; 2/14/21), </span><a href="https://federaltaxprocedure.blogspot.com/2020/05/really-skidmore-deference-53120.html" style="font-family: inherit;">here</a><span style="font-family: inherit;">.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">Several circuits have already announced different “best”
interpretations of § 6751(b). (See the discussion in the NPRM.) If the Final §
6751(b) Regulation is given no deference, at least in theory, that would mean
that these past interpretations are the law in the respective circuits and is
an open de novo issue in circuits (and their lower courts, including the Tax
Court) that have not pronounced. (Note that, under <i>Golsen</i>, the Tax Court would
have to apply the respective Circuit authority if different than its own
interpretation.) </span><span style="font-family: inherit;"> </span><span style="font-family: inherit;">There are likely to be
conflicts all over the lot (so to speak), that the Supreme Court only could resolve in order to meet the national imperative, sometimes articulated and
less often respected, for uniform interpretation of tax law. In other words,
only Congress or the Supreme Court will be able to fix the mess, and even their
ability to fix retroactively may be circumscribed. And the Supreme Court’s fix
would likely be episodic rather than comprehensive as in the Proposed
Regulations.</span></p>
<p class="MsoNormal"><o:p><span style="font-family: inherit;"> </span></o:p><span style="font-family: inherit;">I have just picked out one area of tax law that would be
affected by elimination of </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;"> deference. There are myriad other
contexts that would be affected. Would the type of result in </span><i style="font-family: inherit;">United States v.
Correll</i><span style="font-family: inherit;">, 389 U.S. 299 (1967) now be off the table? In </span><i style="font-family: inherit;">Correll</i><span style="font-family: inherit;">, by interpretive
§ 7805(a) regulation, Treasury adopted an administrable interpretation of the “away
from home” statutory requirement. Other interpretations were possible. The
Court said: “The role of the judiciary in cases of this sort begins and ends
with assuring that the Commissioner’s regulations fall within his authority to
implement the congressional mandate in some reasonable manner.” </span></p><p class="MsoNormal"><span style="font-family: inherit;">Are all regulations
interpretations not clearly mandated by the statute now open game for courts to
thrash around with disparate results?</span></p>
<p class="MsoNormal"><span style="font-family: inherit;">This is the same type of issue that Justice Robert H. Jackson
addressed in his unanimous opinion in </span><i style="font-family: inherit;">Dobson v. Commissioner</i><span style="font-family: inherit;">, 320 U.S.
489 (1943), <a href="https://scholar.google.com/scholar_case?case=12924538742233582334">here</a>, reh. den. 321 U.S. 231 (1944), <a href="https://scholar.google.com/scholar_case?case=14659986741590764016">here</a>, which compelled deference
under the statutory standard of review for Tax Court interpretations of law—“not in
accordance with law.” I discuss Justice Jackson’s unanimous </span><i style="font-family: inherit;">Dobson</i><span style="font-family: inherit;">
decision in detail in </span><span style="font-family: inherit;"> </span><span style="font-family: inherit;">John A. Townsend, </span><u style="font-family: inherit;">The
Tax Contribution to Deference and APA § 706</u><span style="font-family: inherit;"> (SSRN 4665227 December 14,
2023), </span><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4665227" style="font-family: inherit;">here</a><span style="font-family: inherit;">,
where I note that the same statutory review standard—“not in accordance with law”—interpreted
in </span><i style="font-family: inherit;">Dobson</i><span style="font-family: inherit;"> to require deference was adopted as the review standard in APA
§ 706(2)(A), just 3 years later, thus perhaps requiring deference.</span></p><p class="MsoNormal"><span style="font-family: inherit;">I suppose that one way to wiggle out of this conundrum is to limit deference (let's call it <i>Loper</i> deference) to statutory equipoise. Statutory equipoise is a big issue. See </span><u>What is the Best Interpretation for Purposes of Determining a Not Best Interpretation for Chevron Deference?</u> (Federal Tax Procedure Blog 10/21/22; 11/8/22), <a href="https://federaltaxprocedure.blogspot.com/2022/10/what-is-best-interpretation-for.html">here</a>; <u>Chevron and Equipoise In Statutory Interpretation</u> (Federal Tax Procedure Blog 5/26/22), <a href="https://federaltaxprocedure.blogspot.com/2022/05/chevron-and-equipoise-in-statutory.html">here</a>. But imagine that equipoise is a range, say a range from 40% to 60% where certainty of the interpretation is outside the range and equipoise is within the range. Then deference would work as it does now. </p><p class="MsoNormal"></p><ul style="text-align: left;"><li>On the concept of equipoise as a range, I think the range analysis is necessary, because it would be quite impossible to determine that a legal interpretation is exactly 50-50. Cf. John A. Townsend, <u>Burden of Proof in Tax Cases: Valuation and Ranges—An Update</u>, 73 Tax Lawyer 389 (2020) (SSRN <a href="https://ssrn.com/abstract=3489925">here</a>. </li><li>Of course, there were practitioners in the various cycles of tax shelters who claimed the ability to determine and opine that a bogus tax shelter was 51% more likely than not; during that tax shelter commotion, I always believed that determining more likely than not in either direction could not be done on a 51%-49% basis but would likely require a belief well above 51%, say 60% or 65%, in order to be able to opine that the position is more likely than not.</li></ul><div><b>Note the bulleted items were separated from the body of the paragraph and revised and enlarged on 1/9/24 at 3:00pm.</b></div><p></p><p class="MsoNormal"><span style="font-family: inherit;">One further comment on the Proposed Regulations. There is
much commotion in the legal community (judges and scholars) as to the use of
legislative history and purpose in interpreting statutes. As is common for Treasury
Proposed and Final Regulations, the explanations in the § 6751(b) Proposed
Regulations rely on legislative history and</span><span style="font-family: inherit;">
</span><span style="font-family: inherit;">purpose. See for example:</span></p>
<p class="MsoNormal"></p><ul style="text-align: left;"><li><o:p><span style="font-family: inherit;"> </span></o:p><span style="font-family: inherit; text-indent: -0.25in;">“The proposed regulations are intended to
clarify the application of section 6751(b) in a manner that is consistent with
the statute and its </span><b style="font-family: inherit; text-indent: -0.25in;">legislative history</b><span style="font-family: inherit; text-indent: -0.25in;">,
has nationwide uniformity, is administrable for the IRS, and is easily
understood by taxpayers.”</span></li><li><span style="font-family: inherit; text-indent: -0.25in;">“The Treasury Department and the IRS have
concluded that an earlier deadline for approval of an initial determination of
a penalty would not best serve the </span><b style="font-family: inherit; text-indent: -0.25in;">legislative
purpose</b><span style="font-family: inherit; text-indent: -0.25in;"> of section 6751(b).”</span></li><li><span style="font-family: inherit; text-indent: -0.25in;">“Read in light of the statute’s </span><b style="font-family: inherit; text-indent: -0.25in;">legislative purpose</b><span style="font-family: inherit; text-indent: -0.25in;"> and the structure
and operations of the IRS, it is appropriate to understand that term as
referring to an official at a higher level than the individual making the
initial penalty determination. To do otherwise would be to exclude a large
group of individuals the IRS has assigned to review proposed penalties. This
approach is consistent with the </span><b style="font-family: inherit; text-indent: -0.25in;">legislative
history</b><span style="font-family: inherit; text-indent: -0.25in;"> and allows IRS employees to operate within the scope of their
assigned duties.”</span></li></ul><p></p>
<p class="MsoNormal"><span style="font-family: inherit;">My question is whether, if a court applies deference to
Treasury (or other agency) Regulations) invoking legislative history and statutory
purpose, the interpreted law applied by the courts (with deference) relies in
part on legislative history and purpose. Justice Scalia, long a fan of </span><i style="font-family: inherit;">Chevron</i><span style="font-family: inherit;">
deference but not a fan of legislative history and legislative purpose (see </span><u style="font-family: inherit;">FTP</u><span style="font-family: inherit;">
above pp. 13-15), seemed to have handled those competing contradictions without any
concern. (But then, as Ralph Waldo Emerson said “A foolish consistency is the
hobgoblin of little minds, adored by little statesmen and philosophers and
divines." See Paul Rosenzeig, </span><u style="font-family: inherit;">A Foolish Consistency is the Hobgoblin of
Little Minds -- The Metadata Stay</u><span style="font-family: inherit;"> (LawFare 12/19/13), </span><a href="https://www.lawfaremedia.org/article/foolish-consistency-hobgoblin-little-minds-metadata-stay#:~:text=%40RosenzweigP-,Ralph%20Waldo%20Emerson%20once%20wrote%3A%20%E2%80%9CA%20foolish%20consistency%20is%20the,intuition%20could%20trump%20yesterday's%20conclusions." style="font-family: inherit;">here</a><span style="font-family: inherit;">.)</span></p><p class="MsoNormal"><b>Added 1/10/24 12:00pm:</b></p><p class="MsoNormal">Eugene Scalia, son of the late Justice Scalia and Trump's Secretary of Labor, has an op-ed in the Wall Street Journal today on the Chevron issue to be argued next week in the <i>Loper</i> and <i>Relentless</i> cases. Eugene Scalia, <u>Chevron Deference Was Fun While It Lasted</u> (WSJ 1/9/23), <a href="https://www.wsj.com/articles/chevron-deference-was-fun-while-it-lasted-legal-scotus-partisan-regulation-changes-bddbfe27?st=vsnszilgycbpiox&reflink=desktopwebshare_permalink">here</a>. Scalia notes at the beginning:<br /><span style="white-space: normal;"><span style="white-space: pre;"></span></span></p><blockquote><span style="white-space: pre;"> </span>I’m less hostile than many conservatives toward Chevron v. NRDC (1984), the Supreme Court decision that instructs judges to defer to certain agency interpretations of statutes they administer, which the justices will reconsider next week. My ambivalence springs in part from filial loyalty—my father, Justice Antonin Scalia, was Chevron’s foremost champion before souring on such deference doctrines in his last years.</blockquote><p></p><p class="MsoNormal">Scalia's main points as I derive them are:</p><p class="MsoNormal">1. He has an anecdotal data set of two rules he describes as:</p><p class="MsoNormal"></p><blockquote>It [they] strengthened my department’s hand and our ability to implement the president’s agenda. It could also help bring uniformity to the law, and I adopted two rules partly for this reason. One rule distinguished independent contractors from employees for purposes of the wage and hour laws. The other delineated when two companies are the so-called joint employers of a worker, so that each company must ensure the minimum wage and overtime are paid.</blockquote><p></p><p class="MsoNormal"><span style="white-space: normal;">2. Both "were important legal issues the Supreme Court hadn’t addressed in decades. In the lower courts, the legal test being applied varied by circuit. My rules were intended to bring clarity and consistency, in a way that I thought reflected the right view as a matter of both law and policy." [<b>JAT Note</b>: this same phenomenon applies to the </span>§ 6751(b) and the Proposed Regulations.]</p><p class="MsoNormal">3. In approving regulations, he [Scalia] did interpret but often agency heads (particularly those who are not lawyers) do not but rather seek to implement the administration's policy agendas. </p><p class="MsoNormal">4. The role of the final "decider"--the agency head--is to assist in the policymaking that would enter the regulations. Policymaking and related political factors may affect how the final rules appear. He claims: "Some rules get adopted against the advice of the lawyers—the actual interpreters."</p><p class="MsoNormal">5. This role, he claims:</p><p class="MsoNormal"></p><blockquote>punctuates this peculiarity of <i>Chevron</i> deference: that courts at times defer to “interpretations” that the agency’s interpreters thought were wrong, and which were adopted because the decider was contemptuous of the law’s meaning. A court never knows when this is how an interpretation was adopted.</blockquote><p></p><p class="MsoNormal"></p><p class="MsoNormal">6. Finally, as to his anecdotal data set of the two rules, he offers this:</p><p class="MsoNormal"><span style="white-space: pre;"></span></p><blockquote><span style="white-space: pre;"> </span>A coda regarding those two rules I adopted in hopes of bringing consistency to the law: My successor as secretary set about undoing both. In the case of independent contractors, the department on Tuesday adopted a new rule with a diametrically opposed approach. Expect litigation to commence immediately over which rule should remain in place, the one I adopted or the new one.</blockquote><p>JAT Comments on Scalia's article:</p><p>1. I don't know how the Department of Labor does its job in considering, proposing and finalizing regulations, but the process he describes may not be indicative of how other agencies--and the Treasury/IRS in particular--do it. </p><p>2. He seems to claim that <i>Chevron</i> gave him (and other agency heads) too much policymaking discretion to avoid being faithful to the statute, presumably within the scope of the ambiguity in the statute. He claims that somehow the fact that the Biden administration set about to undo the rules he approved is proof of his anti-<i>Chevron</i> stance. But, he should consider the possibility that the Biden changes were necessary to correct Trump rules from their over-policymaking not faithful to the statute and the considerations that normally go into interpreting a statute.</p><p>3. Let's use the § 6751(b) Proposed Regulations as an anecdotal example. I ask readers to parse the statute, the mess that courts have created from the statute, and the regulations to see if the proposed rules fairly reconcile the statutory and court mess. More importantly, do they reflect overt or sub silentio policy choices not consistent with the statute? Again, without considering whether the Proposed Regulation should be adopted, is there any doubt that those participating in the Proposed Regulations knew the topic well, knew that their goal in interpretation was to be the faithful agent of Congress, and produced work product that, in a fair range, implemented their goal. Of course, the notice and comment process is designed to flush out where they may not have achieved the goal.</p><p>4. See also Aaron Saiger, <u>Agencies' Obligation to Interpret the Statute</u>, 69 Vand. L. Rev. 1231 (2016), <a href="https://scholarship.law.vanderbilt.edu/vlr/vol69/iss5/3/">here</a> ("In circumstances where a reviewing court is expected to defer to agency interpretation, the agency bears a legal and ethical duty to select the best interpretation of its governing statute.").</p><p></p><p class="MsoNormal"><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-80894267314455249362023-12-24T12:01:00.008-05:002024-01-29T19:48:13.071-05:00Repeat Tax Player and Republican Presidential Candidate Loses Unauthorized Return Information Disclosure Suit on Appeal (12/24/25)<p><span style="font-family: inherit;">As I close out my postings for the year, I decided to report
on <i>Castro v. United States</i>, </span>2023 WL 8825316 <span style="font-family: inherit;">(5th Cir. 12/21/23), unpublished (CA 5 </span><a href="https://www.ca5.uscourts.gov/opinions/unpub/23/23-10630.0.pdf" style="font-family: inherit;">here</a><span style="font-family: inherit;">; GS </span><a href="https://scholar.google.com/scholar_case?case=11955835048215792123" style="font-family: inherit;">here</a><span style="font-family: inherit;">).
The Fifth Circuit panel did not think it worthy of publication, so I initially
decided to forego making it a topic of a blog. But then I learned that the
plaintiff, John Anthony Castro, has been “player” in a series of tax
cases is a presidential candidate, a Republican seeking to take Trump’s place
as the frontrunner and ultimate nominee. See Castro’s Wikipedia page </span><a href="https://en.wikipedia.org/wiki/John_Anthony_Castro" style="font-family: inherit;">here</a><span style="font-family: inherit;"> (i) offering
significant discussion of his playing in tax cases and (ii) noting that his status as a licensed attorney may be in doubt. So, I’ll discuss the recent
5</span><sup style="font-family: inherit;">th</sup><span style="font-family: inherit;"> Circuit opinion, for its discussion of settled law that do not justify
a precedential opinion. In this opinion, Castro appears as plaintiff rather than as attorney (although, I suppose, he could be pro se attorney for himself).</span></p><p class="MsoNormal"><span style="font-family: inherit;"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit;">In order avoid recreating the wheel with new discussion (with
no temptation to plagiarize or make up new words without value) and given that brevity of the relevant discussion in the opinion, I just quote the opinion
(using the </span><a href="https://federaltaxprocedure.blogspot.com/p/cleaning-up-quotes-and-cites-for.html" style="font-family: inherit;">cleaned
up technique</a><span style="font-family: inherit;"> to eliminate parts that are not relevant to the point I want
to make).</span></p>
<p class="MsoNormal"></p><blockquote><p class="MsoNormal"><span style="font-family: inherit;">During an IRS criminal investigation into Castro, criminal
investigative agent Tuan Ma (“Agent Ma”) contacted two potential witnesses to
obtain information in furtherance of his investigation. The parties dispute
whether Agent Ma disclosed to the two potential witnesses that Castro was under
criminal investigation but that the investigation did not target the two
potential witnesses. For the purpose of summary judgment, we assume that Agent
Ma did in fact disclose such information to the two potential witnesses. The
two potential witnesses submitted affidavits indicating that they spoke with
Agent Ma after he reassured them that they were not under investigation.</span></p>
<p class="MsoNormal"><span style="font-family: inherit;"> </span><span style="font-family: inherit;">Even
accepting as true that Agent Ma made the alleged disclosures in violation of
§6103 of the Internal Revenue Code, a safe harbor provision shields the
Government from liability if the agent's disclosure was based on “a good faith,
but erroneous, interpretation of section 6103[.]” 26 U.S.C. §7431(b)(1) (“No
liability shall arise under this section with respect to any inspection or
disclosure . . . which results from a good faith, but erroneous, interpretation
of section 6103[.]”). This circuit uses an objective standard to evaluate the
applicability of this “good faith” exception to liability under the Internal
Revenue Code.<span></span></span></p><a name='more'></a><p></p>
<p class="MsoNormal"><span style="font-family: inherit;"> </span><span style="font-family: inherit;">Here, Agent
Ma reasonably and in good faith believed that — based on case law, statutory
authority, regulations, and the IRS Manual (“IRM”) — the disclosures were
“necessary in obtaining information, which was not otherwise reasonably
available[.]” 26 U.S.C. §6103(k)(6). Treasury Regulation § 301.6103(k)(6)-1
defines “necessary” as “appropriate and helpful” and clarifies that an agent is
not required to first seek information from the taxpayer as an otherwise
reasonably available source. The IRM further instructs agents that they may
identify themselves as members of the criminal investigation unit of the IRS
and disclose the criminal nature of investigations when “necessary” because the
witness is “disinclined to cooperate.” Moreover, this circuit has stated that
§7431‘s good faith exception protects an agent's disclosure of “the nature of
their official duties as a criminal tax investigation.” <i>Gandy v. United States</i>,
234 F.3d 281, 286–87 (5th Cir. 2000) (reasonable agents “had a good faith
belief that they could disclose the criminal nature of the investigation”).
Castro did not present any evidence suggesting that Agent Ma's interpretation
of the relevant authorities was unreasonable under these circumstances. Agent
Ma's disclosure thus fell within §7431(b)(1)‘s “good faith” exception to
Government liability.</span></p></blockquote><p>Note: although not mentioned in the 5th Circuit opinion, Castro's action was apparently brought under § 7433, <a href="https://www.law.cornell.edu/uscode/text/26/7433">here</a>, authorizing a suit for damages from unauthorized disclosure of return information.</p><p><b>Added 12/24/23 1:00pm:</b></p><p><b>Fun Fact</b>: Castro has an as-yet still live suit in South Carolina to have Trump eliminated from the ballot "arguing the former president’s candidacy violates Section 3 of the 14th Amendment." See Alexander Thompson, <u>After Colorado court bars Trump from ballot, similar South Carolina case awaits ruling</u> (Post & Courier Palmetto Politics 12/21/23), <a href="https://www.postandcourier.com/politics/after-colorado-court-bars-trump-from-ballot-similar-south-carolina-case-awaits-ruling/article_a27a7400-9f5c-11ee-9d21-ff5673b23b46.html?utm_medium=email&utm_campaign=Weekly%20wwwpostandcouriercom%20-%20RSS%20Results%20of%20type%20article&utm_content=Weekly%20wwwpostandcouriercom%20-%20RSS%20Results%20of%20type%20article+CID_8b76c7b84bae94188b7ab2e36f70c886&utm_source=CampaignMonitor&utm_term=After%20Colorado%20court%20bars%20Trump%20from%20ballot%20similar%20South%20Carolina%20case%20awaits%20ruling">here</a>. The article further says:<br /></p><p></p><blockquote><p>In November, a federal magistrate recommended that U.S. District Judge Mary Geiger Lewis dismiss the parts of the lawsuit related to Trump and the 14th Amendment, writing that Castro does not have standing to sue over the issue.</p><p>Federal judges have tossed similar lawsuits Castro filed in four other states.</p><p>A ruling in South Carolina is likely in the coming weeks.</p></blockquote><p>The case is <i>Castro v. Donald John Trump</i> (D. S.C. 3:23-cv-04501). The CourtListener Docket Entries may be viewed <a href="https://www.courtlistener.com/docket/67774462/castro-v-donald-john-trump/">here</a>.</p><p></p><p class="MsoNormal"><span style="font-family: inherit;"></span><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0tag:blogger.com,1999:blog-1733489835001040576.post-73087151314826935692023-12-14T18:04:00.006-05:002024-02-20T12:39:36.775-05:00Article on The Tax Contribution to Deference and APA § 706 Posted on SSRN (12/14/23)<p>I have just posted this article to SSRN <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4665227">here</a>.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">The recommended SSRN cite is: Townsend, John A. and
Townsend, John A., The Tax Contribution to Deference and APA § 706 (December
14, 2023). I don’t know why SSRN doubles up on my name, but have just not tracked
it down. (If anyone knows how to fix that, please send me an email.)</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>The abstract is at the link and then links to the pdf version. Here is my abstract of the SSRN
abstract.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"></p><blockquote><p class="MsoNormal">The tax authorities supporting APA to include deference are
compelling. These tax authorities have been marginalized in the discussion. The law at the time of the APA in 1946 was settled to include
deference when (i) the statute was ambiguous and (ii) the agency interpretation within
the scope of the ambiguity was reasonable. That was <i>Chevron </i>deference before <i>Chevron</i>. That alone would support interpreting
APA § 706 to include deference. But, there is more, § 706 states the standard
of review for interpretations “not in accordance with law” which the Supreme Court
interpreted in <i>Dobson</i>, a 1943 tax case, to mean review with deference rather
than review de novo.</p></blockquote><p class="MsoNormal"></p>
<p class="MsoNormal">There is a lot of tax history in this rather short article. One key matter of interest is the roles in the tax system occupied by Justice Robert H. Jackson, Wikipedia <a href="https://en.wikipedia.org/wiki/Robert_H._Jackson">here</a>. He served successively in the following positions: Chief Counsel of the IRS, Assistant Attorney General Tax Division, Solicitor General, Attorney General, and Supreme Court Justice. He moved into all of those positions in a period of less than 10 years. Later, he also took a leave of absence from the Supreme Court to be the chief prosecutor at the Nuremburg war crimes trial. Jackson features prominently in the article as author of the <i>Dobson</i> decision, a unanimous decision, which authoritatively interpreted the Tax Court standard of review "not in accordance with law" to mean deference--hence <i>Dobson</i> deference--much like <i>Chevron</i> deference. The standard "not in accordance with law was incorporated in APA § 706.</p><p class="MsoNormal">I would appreciate any comments anyone would care to make to
me. My email address is <a href="mailto:jack@tjtaxlaw.com">jack@tjtaxlaw.com</a>.<o:p></o:p></p>
<p class="MsoNormal"><u>Fun Fact</u>: The original draft of this article was over
140 pages long. I then bumped it down to 47 pages. It now is 32 (including appendix
with the versions as it moved from the AG Final Report in 1941 to enactment in
1946).</p><p class="MsoNormal"><o:p></o:p></p>Jack Townsendhttp://www.blogger.com/profile/14469823736335455874noreply@blogger.com0