In Kaufman v. Shulman, ___ F.3d ___, 2012 U.S. App. LEXIS 14858 (1st Cir. 2012), here, the First Circuit reversed the Tax Court's acceptance of the IRS regulations' interpretation of the requirements for claiming a charitable contribution for a facade easement. The substantive issue was whether the statute's requirement that the easement be granted "in perpetuity" (§ 170(h)(2)(C)) was not met if there was a remote chance that the charity could abandon the easement. The substantive issue is more nuanced than that, but is not critical for a discussion of the procedure issues. I focus here on the two procedure issues I think important in the case: First, the Court rejected the IRS's interpretation of its regulations. This is a Chevron issue in the case (Chevron is not mentioned but the Mayo interpretation of Chevron is, Mayo Found. for Med. Educ. & Research v. United States, 131 S. Ct. 704, 711-13 (2012)). Second, the Court had cautionary warnings for taxpayers claiming aggressive valuations fore easements.
Regarding the IRS's proferred interpretation of the regulations, the Court noted the absurdity of the position which, if traced to the logical extreme, would defeat almost all charitable contributions of easements that Congress clearly intended to allow. The Court then noted:
We normally defer to an agency's reasonable reading of its own regulations, e.g., United States v. Cleveland Indians Baseball Co., 532 U.S. 200, 220 (2001), but cannot find reasonable an impromptu reading that is not compelled and would defeat the purpose of the statute, as we think is the case here. Cf. Grunbeck v. Dime Sav. Bank of N.Y., FSB, 74 F.3d 331, 336 (1st Cir. 1996).
In rejecting the interpretation, the First Circuit aligned itself with the D.C. Circuit in Commissioner v. Simmons, 646 F.3d 6, 10 (D.C. Cir. 2011). The Court then reasoned:
