District Court in ND Alabama Holds the Corporate Transparency Act Unconstitutional (3/4/24)

In Nat'l Small Business United v. Yellen et al. (N. D. Ala. No. 5:22-cv-1448-LCB Dkt 52 3/1/24), CL here, 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 here. The judgment in the case is here.

The Court starts its opinion with the following: 

            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.

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:

This opinion is dumb, stupid.

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.

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.

Added 3/5/24 8am Eastern Time:

District Court Holds Indicatively While Case on Appeal That Remand of FBAR Willful Penalty to IRS Did Not Vacate the Timely Assessments (2/27/24)

  In United States v. Kerr (D. AZ Dkt O. 2:19-CV-05432 Order dtd 2/23/24), TN here and CL here, the district court ruled indicatively 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.

Links to items related to this blog are:

• FRCP 62,1, titled Indicative Ruling on a Motion for Relief That is Barred by a Pending Appeal, here,
• FRAP 12.1, Remand After an Indicative Ruling by the District Court on a Motion for Relief That Is Barred by a Pending Appeal, here,
• Kerr docket entries for this civil case (FBAR penalty enforcement case): CL, here.
• Ninth Circuit Order staying Ninth Circuit proceedings pending the district court’s indicative ruling, here.

Prior blogs involving Mr. Kerr are (reverse chronological order):

NJ Fed District Court Finds No Jurisdiction to Recognize Claim of Universal Vacatur of Notice 2007-83 for 6th Circuit Decision (4/29/23)

In OOM Inc., et al. v. United States (D. N.J. Dkt 22-2762 Opinion & Order dtd 4/24/23 Not for Publication), CL here and GS here, the court granted the Government’s Motion to dismiss the First Amended Complaint (“FAC”), here, seeking “a declaratory judgment ordering, among other things, that the reporting requirement was vacated by the Sixth Circuit [in Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 2021)] and that they are entitled to rescission or refund of the assessed penalties.”

The basis for the FAC is the claim that Mann Construction was what is sometimes referred to as a universal or nationwide vacatur, vacating Notice 2007-83 upon which plaintiffs’ § 6707A penalty was based. As I have discussed before, the concept of the universal vacatur of administrative action is a hot-button issue now. Accordingly, some courts vacated administrative action take different approaches—

(i)          vacatur for the parties in the action,

(ii)        if a district court opinion, vacatur affecting all persons in the district including parties and nonparties in the case,

(iii)      if a circuit court opinion, vacatur affecting all persons in the district including parties and nonparties in the case, and

(iv)       if a district or circuit court opinion, applying nationwide, including parties and nonparties.

The OOM Inc. plaintiffs asserted that Mann Construction effected vacatur under (iv).

The problem was that penalties are treated as taxes, subject to the usual predicates applicable to tax refunds and other types of tax relief. For example, to the extent that the OOM Inc. plaintiffs were seeking a refund of the penalties, they had not met the predicates for a refund suit. To the extent that they were seeking to obliterate the unpaid assessments, they ran squarely into § 7421(a). To the extent they were seeking a declaratory judgment, they ran squarely into 28 U.S.C. § 2201(a).

On Remand from 6th Circuit, District Court Orders Vacatur of Listed Transaction Notice (1/19/23)

I have previously written on the Sixth Circuit’s invalidation of an IRS listed transaction Notice (as opposed to regulation).  Sixth Circuit Invalidates Notice Identifying Listed Transaction Requiring Reporting and Potential Penalties (Federal Tax Procedure Blog 3/3/22), here, discussing  Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 3/3/22) CA6 here and GS here.

On remand, on 1/18/23, the district court held that the 6^th Circuit’s holding required vacatur of the Notice, thus applying nationwide rather than just vacatur as to the plaintiff or some other subset of taxpayers more limited than nationwide (e.g., in the Sixth Circuit).  Mann Construction, Inc. v. United States, 651 F.Supp.3d 871 (E.D. Mich. 1/18/23), CL here and GS here.

The only thing worth commenting on is the vacatur holding applying like a nationwide injunction.  I can’t add anything beyond what I have already written.  On vacatur generally see Law Prof Article on the APA Tax Revolution and My Extended Comments (12/1/22; 12/3/22), here.  On alternative judicial approaches, see District Court Holds IRS Tax Shelter Notice Imposing Obligations Invalid as a Legislative Rule Without Notice-and-Comment But Limits Holding to Parties (Federal Tax Procedure Blog 11/20/22), here; Fifth Circuit En Banc Reverses the Bump Stock Regulation By Wobbling Around Statutory Interpretation Issues (Including Chevron) (Federal Tax Procedure Blog 1/8/23), here (discussing vacatur in paragraph 12); and Law Prof Article on the APA Tax Revolution and My Extended Comments (Federal Tax Procedure Blog 12/1/22; 12/3/22), here (discussing original meaning of the APA and vacatur at portion of blog after the section captioned Original Meaning of the APA and Other Post-APA Spinning).

Fifth Circuit En Banc Reverses the Bump Stock Regulation By Wobbling Around Statutory Interpretation Issues (Including Chevron) (1/8/23)

In Cargill v. Garland, 57 F.4th 447 (5th Cir. 2023) (en banc), CA5 here and GS here, the Fifth Circuit reversed the prior panel opinion and held that the ATF bump stock regulation interpreting the term "machinegun" to include a so-called bump stock. The holding, one of statutory construction, may be stated as follows: 

• "A plain reading of the statutory language, paired with close consideration of the mechanics of a semi-automatic firearm, reveals that a bump stock is excluded from the technical definition of "machinegun" set forth in the Gun Control Act and National Firearms Act." (Slip Op. 3)
• But, even if the statutory term machinegun were not unambiguous, the statutory term "machinegun" is not ambiguous enough to include bump stocks as a permissible interpretation because of the rule of lenity when criminal consequences might attend, requiring ambiguities to be resolved in favor of the citizen potentially subject to those criminal consequences.

In the course of these core holdings, the en banc majority, concurring and dissenting opinions delve into many topics that I have discussed in connection with the bump stock cases related to Chevron and Chevron-related issues (in a broad sense). I collect at the end of this blog in paragraph 16 some of my earlier Federal Tax Procedure blogs on these issues arising in prior cases involving the bump stock regulations.

I address several key points in the various opinions (the en banc majority, the concurring, and the dissenting opinions).

1. I state at the outset that I believe this commotion about bump stocks is inherently political. Those judges fearing the administrative state (at least in their rhetoric landing them a place on a court) are more likely to reach the decision the en banc majority reached. Those judges whose rhetoric does not include fear of the administrative state and believe that administrative agencies can enrich our society and make it work better are less likely to reach the decision the en banc majority did. Both sides can pull up soundbites masquerading as reasoned decisionmaking to justify the result they prefer. At the end of the day, I think the real issue is whether there can be a symbiotic relationship between Congress, the Executive, and the Courts which together act reasonably to make our system work.

2. The en banc majority main holding is that the meaning of the statutory term "machinegun" is plain and unambiguous. In the Chevron framework, that would be a Step One determination that stops the Chevron analysis. There have been many words spent in addressing precisely what is meant by plain meaning and unambiguous to avoid the Chevron framework (or, equivalently, stopping the Chevron analysis at Step One), but I think the en banc majority's claim is that the other courts finding ambiguity means that those other just missed the meaning of the term that is so plain to this en banc majority. Everyone can agree that, when enacted in the 1930s, the statutory term machinegun did not include a bump stock which did not then even exist. But once they began to exist around 2000, I don't think it is so plain that the statutory term machinegun should not include bump stocks. This seems to be an eye of the beholder thingy, with political implications (which is what originalism is about).

3. At least in less political analysis, determining whether the statute is plain requires the use of the normal tools of statutory construction. Rhetoric aside, the normal tools of statutory construction include Skidmore respect for an agency interpretation. Skidmore v. Swift & Co., 323 U.S. 134 (1944). None of the en banc opinions cite Skidmore. (Note in this regard that Skidmore is not deference as many so-called smart judges and scholars mislabel it.  See Really, Skidmore "Deference?" (Federal Tax Crimes Blog 5/31/20; 2/14/21), here.

Law Prof Article on the APA Tax Revolution and My Extended Comments (12/1/22; 12/3/22)

Readers of this blog may be interested in a recent article by Professor Reuven S. Avi-Yonah (Michigan Law bio here), The APA Tax Revolution, 177 Tax Notes Fed. 981 (Nov. 14, 2022), here. He says there is an APA Tax Revolution, I think principally started by Professor Kristin Hickman (bio here). Professor Avi-Yonah pronounces: "Hickman has won the debate, and the APA revolution in tax law is here to stay." The debate is grounded in her claim that there are no interpretive Treasury regulations and extensions of that claim (including that Treasury's Temporary Regulations have historically violated the APA, hence Treasury has routinely in the past violated the APA). Professor Hickman and I disagree on that point. See The Report of the Death of the Interpretive Regulation Is an Exaggeration  117-118 (SSRN December 14, 2021), here. Professor Hickman's claim is bottomed on various developments post-Chevron that, she claims, eliminate the interpretive regulation category. (I find Professor Hickman somewhat elusive about those developments; I deal in my article with those rabbit trails I could identify.)

To be sure, there is a lot of commotion on the point, with many scholars and courts accepting Professor Hickman's premises. For the reasons noted in my article, I think they do so without fully thinking through the point from historical perspective as to the meaning of the APA. (See my concluding points about APA original meaning below.)

Most importantly, the Supreme Court has not spoken in a precedential holding on the key issue of whether there are interpretive regulations, so we don't know what the Supreme Court would say on that issue. (See also my concluding points about APA original meaning below.)

There have been contrary Supreme Court voices on that issue. I go into detail in my article. I won't repeat that detail here but ask readers to consider the background and two examples:

Background: As I note in my article, Professor Hickman claims that there are no longer any interpretive Treasury regulations which, if true, would mean there are no other agency interpretive regulations. (Remember her drumbeat claim that tax is not exceptional.) At our ABA Tax panel presentation in October, I asked Professor Hickman whether the regulation considered in Chevron was a legislative regulation. She said yes, an answer I knew she would have to give because she has said too often that there are no longer interpretive regulations. (To be fair, in most of our discussions, Professor Hickman claims that post-Chevron developments are the bases for her claim, but she did say on the panel that Chevron was a legislative regulation under her claim.)  Consider her answer against the following:

Illustrative examples of important voices claiming Interpretive regulations exist: