On Win-Loss Records on Appeal (with War Stories) (5/5/25; 5/6/25)

Note, some of my statistics reported below have been corrected on 5/6/25 11:00am.

I have sprinkled some of my blog entries with war stories from my time with DOJ Tax (1969-1977, with just over 4 years in Appellate and just over 3 years in a refund trial section, called Refund 2, which covered roughly Virginia through Texas. In the Refund 2 trial section, I handled cases in South Carolina, the Northern and Middle Districts of Georgia, Eastern District of North Carolina, and 2 life insurance company cases in Florida and Texas (I forget which districts, but I think Middle District of Florida and Northern District of Texas (because Vester Hughes was opposing counsel) although those cases were not resolved by the time I left DOJ Tax. Today, inspired by the article I quote below, I offer some more war stories through statistics.

The inspiration is a recent article, Stephen K. Cooper, DOJ Tax Chief Touts Winning Court Record On Appeals, 2025 Law360 16-164 (1/16/25) [free link unavailable]. The article covers a talk by Francesca Ugolini, the acting chief of the DOJ Tax Division—there has been no Presidentially appointed and Senate-approved Assistant Attorney General for some time. The article includes the following: 

          The U.S. Department of Justice's Tax Division won an overwhelming majority of appeals in tax cases last year by prioritizing strong legal arguments in disputes that had the potential to significantly affect federal tax administration, the head of the division said Thursday.

          Francesca Ugolini, chief of the DOJ's Tax Division, said in the last fiscal year, the government prevailed in 94% of appeals brought by taxpayers and had an unexpected success rate of 75% for its own appeals.

          "We usually do prevail in over 90% of the taxpayer appeals," Ugolini said at the D.C. Bar Tax Conference, held in Washington, D.C., and online. Regarding the government's appeals, "it's usually over 50%," she said.

          "It's not always as high as 75%, but we have some pretty, pretty good success in the appellate courts," she said.

          Ugolini attributed the higher-than-normal success rate to the division's thorough review process that was used to decide whether to appeal a case the government has lost at the trial level. This includes assessing the strength of the legal arguments, the potential impact on federal tax administration and whether the case presents the best vehicle to address the issue.

          "We don't like to lose on appeal, so we're looking at the strength of the case," she said. "That includes … the strength of our legal argument, what the standard of review is [and] what the precedent is in the circuit.

          "We're more likely to appeal cases that involve legal questions, because those are reviewed de novo on appeal, whereas adverse fact findings are reviewed for clear error, and they're really hard to reverse on appeal."

          The administrative implications of the case are also important to the DOJ in its decision-making process, Ugolini said.

          "We're also looking at what is the broader effect on the federal tax system," she said. "Is this issue important to the IRS administratively? What's the impact on federal tax administration? And then we're also looking at, is this the best case to present the issue?"

War Story-Appellate: My Early Brush (1969) with Administrative Law Meaning of Legislative Regulations (3/16/24)

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", here (the link can be clicked at any time to show all postings).

Today’s War Story-Appellate relates to one of the first cases I handled with DOJ Tax, Davis v. Commissioner, 422 F.2d 401 (6th Cir. 1970), here. 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:

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.

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.

My Davis 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, here, p. 1):

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.

Actually, that question was written by my reviewer, Tom Stapleton. In my draft (here), I stated the question as follows:

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.

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.

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 (§ 7483) three-month requirement.

War Story – Judge Henry J. Friendly (8/31/23)

I am writing an article that, for reasons not relevant to this blog entry, I have to address Judge Henry J. Friendly’s lament about two inconsistent lines of authority for deference in Pittston Stevedoring Corp. v. Dellaventura, 544 F.2d 35, 49 (2d Cir. 1976), here, aff’d sub nom. Northeast Marine Terminal Co. v. Caputo, 432 U.S. 249 (1977). As many, particularly older practitioners, will know, Judge Friendly was a giant among appellate judges, said to be the best of his generation. See, e.g., Pierre Laval (a 2d Circuit Judge), Remarks on Henry Friendly, 15 Green Bag 2d 257 (2012), here (highly recommended for practitioners who are not very familiar with Judge Friendly).

I have a personal Judge Friendly anecdote from an appearance for DOJ Tax Division Appellate Section in my first brief and oral argument. Fishman v. Commissioner, 420 F. 2d 491 (2d Cir. 1970) (Per Curiam with authorship not attributed), here. I was assigned the case on the first day in the Appellate Section in June 1969. The Chief of Appellate, the great and wonderful Lee Jackson, did not assign a difficult case to newbies but he did say that if I lost the case (involving the timely-mailing timely filing, § 7502 regulations), a large part of the edifice of tax administration would fall. (He was trying to infuse importance into a case that would be hard to lose.) He also told me that my opposing counsel was Morton Ginsburg of New York but, since I heard that orally, I could only think of Marty Ginsburg who I had as a Professor of tax law (yes, that Marty Ginsburg, see Wikipedia here) and once testified was the smartest tax lawyer in the universe. (Some hyperbole there, but not much.) After I got over the shock of thinking it was Marty, I settled down to write the brief.

Being my first, the Appellate Section gave me a practice oral argument before three seasoned appellate lawyers, as best I recall Mickey Rothwacks, Bill Friedlander, and Grant Wiprud. At the conclusion, they pronounced that I would be a better oral advocate than brief writer. (I got much better at brief writing but started very low; which surprises me because one of the best lawyers in Section, Tom Stapleton, reviewed the brief and always in my experience brought the brief up to high standards on review.)

At oral argument before the 2d Circuit before Judges Friendly, Smith, and Anderson, though, I had 30 minutes for argument and planned to use no more than 15 minutes unless some of the judges’ questions prompted me to go longer. About 3 minutes into the argument, I concluded that each panel member was reading something other than paying attention to my oral argument (I inferred each was reading either the briefs or clerks’ briefing memoranda for the next case). So, I quickly and succinctly summarized my argument and closed in 5 or 6 minutes total. After I concluded, Judge Friendly thanked me and allowed opposing counsel to rebut. I don’t know whether Judge Friendly’s thanks was courtesy for a fresh but unpolished lawyer, a comment on the quality of the argument (I doubt), or that I quickly brought it to a close in 5 or 6 minutes rather than 15 or 30 minutes wasting everybody's time (I suspect).

Second Circuit NonTax Opinion on Glitches in the Appellate Process with JAT War Story (9/11/22)

Most readers of this Federal Tax Procedure Blog do not have such tunnel vision that developments outside the tax procedure area are ignored. Many readers will have read or heard about a major bank, Citibank, mistakenly making payments to hedge funds aggregating almost $1 billion on not yet due amounts. Some of the hedge funds tried to keep the mistaken payments (about $500 million) because, they claimed, they were eventually entitled to them anyway. Citibank sued those hedge funds to recover. The district court (SDNY) held that the hedge funds were entitled to retain the mistaken payments based on some arcane creditor concepts in New York law and in the Restatement of Restitution. The Second Circuit reversed and held that the funds must be returned to Citibank. Citibank, N.A. v. Brigade Capital Management, 49 F.4th 42, 58 (2d Cir. 2022) (2d Cir. 9/28/22), CA2 here and GS here.  I won’t get into the merits of that resolution. I focus instead on the procedural trajectory of the case in the Court of Appeals.

I pick up this procedural trajectory from David Lat’s Judicial Notice (09.10.22): Weird, Wild Stuff (Original Jurisdiction Notice 9/10/22), here. I excerpt the following:

[T]he intricacies of the discharge-for-value doctrine, ably explored in 131 pages of opinions-a majority opinion by Judge Pierre Leval for himself and Judge Robert Sack, and a concurrence in the judgment by Judge Michael Park-are far less interesting than all the meta-commentary about the judicial process and the breaking of the fourth wall.

            In his concurrence, Judge Park complained that "this is a straightforward case that many smart people have grossly overcomplicated and that we should have decided many months ago." In response, Judge Leval added an addendum to his opinion in which he acknowledged that the judgment "has taken a long time to produce," for which he accepted "sole responsibility."

            Pulling back the curtain on the judicial decision-making process, Judge Leval explained that one reason for the delay was a change in disposition: he and Judge Sack originally decided to certify the question to the New York Court of Appeals, prepared a draft opinion to that effect, but then decided against certification-mainly because it would add another year of delay, and also because they "became increasingly persuaded, despite initial uncertainties," that Citibank deserved to win.

             Judge Leval then went on to discuss the nature of appellate judging:

            A decision of a court of appeals must satisfy two requirements, which pull it in different directions. It should, as rapidly as reasonably possible, tell the parties who wins. At the same time, recognition that the decision serves as precedential law requires that it rest on, and clearly explain, sound legal principles. In a money dispute, the parties ordinarily care little for the precedential effect of the decision; their interest is to get a rapid answer to who gets the money. A court, however, must pay careful attention to the decision's precedential function…. Finding the best accommodation between the objectives of speed and legal soundness is not always easy.

Exxon Strikes Out on Its Tax Refund Claims But Dodges the § 6676(a) Penalty Bullet (8/4/22; 8/8/24)

In Exxon Mobil Corp. v. United States, 43 F.4th 424 (5th Cir. 8/3/22), CA5 here and GS here, Exxon Mobil (“Exxon”) filed a mammoth claim for refund claiming that it had misreported two separate tax matters on its original income tax return.  The first item it misreported (paying more tax than it claims was due) was worth “worth a billion dollars” related to the proper tax treatment of payments arising from an oil and gas transaction.  Related to this first claim, the IRS imposed a § 6676(a) 20% penalty worth about $200 million.  The second item, called by the Court a “purported blunder” (not a good sign to use the purported adjective) “this one worth $300 million,” about how to treat the renewable fuel tax credit.

I have two gut level comments.  

First, Exxon has and has had for a number of years one of the best tax departments ever and certainly the funding to buy the best outside legal talent available.  (General Electric used to claim that it tax department was the best law firm ever, but as those who have been watching, General Electric’s supposed inside best tax firm got them into bullshit tax shelters, so much for the best claim.)  So, why would these supposed legal giants overreport Exxon’s tax liability?  The answer as this new case determines, Exxon did not overreport the tax liability.  

Second, so what is this, shall I call it bullshit, about an amended return claiming that their legal geniuses overreported Exxon’s tax liability by $1.3 billion.  (I am sure those legal geniuses had a sigh of relief over this outcome.) And while many might claim that $1.3 billion for Exxon is pocket change, still that is the stuff that tax department promotions and pay is based on (and for outside counsel litigating aggressive positions, contingency fees).

“Deference” to Judicial Opinions (with War Story) (9/1/21)

Yesterday, I posted Draft Article on Interpretive Regulations and Chevron Deference (Federal Tax Procedure 8/31/21), here, where I solicited review assistance for a draft article.  One of the major topics of the article is judicial deference to agency interpretations, now called Chevron deference.  In the draft article, I differentiated between judicial deference to agency interpretations and judicial deference to opinions of other judges or courts.  I state in the article:  “Care must also be taken when using the term deference because it is employed in other contexts to serve a similar, but not the same, function whereby judges defer or give special respect to (i) other specialized courts for legal interpretations in their areas of expertise” or (ii) to particular judges.  I then offered this footnote with a “war story” (fn 279 in the current draft article):

The footnote (3 paragraphs) is:

   n279 A good example is deference or special respect sometimes accorded Tax Court interpretations in specialized areas of tax law, despite the usual interpretation of § 7482 to require de novo review.  See Amandeep S. Grewal, The Un-Precedented Tax Court, 101 Iowa L. Rev. 2065, 2096 (2016) (Tax Court “even sometimes receives special deference from the appellate courts,” collecting in footnote 211 examples of cases where. because of Tax Court’s special expertise, the courts of appeals give “respect” or even defer to Tax Court legal interpretations); Leandra Lederman, (Un)Appealing Deference to the Tax Court, 63 Duke L.J. 1833 (2014) (collecting authority related to deference or something like it to Tax Court review and concluding that courts of appeals should give de novo review to Tax Court legal interpretations without deference); and Andre L. Smith, Deferential Review of the United States Tax Court: The Chevron Doctrine, 37 Va. Tax Rev. 75 (2017) (arguing for Chevron deference or something like it for Tax Court legal interpretations).

            Another example from personal experience that intersected with then Judge Stevens who later, as Justice Stevens, authored the Chevron opinion.  While with the Department of Justice Tax Division Appellate Section, I handled the appeal in Standard Oil Co. (Indiana) v. Commissioner, 465 F.2d 246 (7th Cir. 1972).  The issue involved an esoteric oil and gas tax concept termed “economic interest.”  Judge Stevens said in the opinion (p. 251, n. 15):  “We give special deference to the views of the Fifth Circuit which has considered the issue on several occasions.” I think that there was an understanding at the time such as Judge Stevens articulated that the Fifth Circuit had special expertise in the area of oil and gas taxation deserving of what he called deference.  I am not suggesting that then Judge Stevens meant deference in exactly the way he later deployed the term deference in Chevron or courts used the term deference to agency interpretations pre- and post-Chevron, but I do think Judge Stevens meant something stronger than Skidmore-type deference (or persuasion).  On what Skidmore means, if anything, see p. 75, n. 307; and Really, Skidmore "Deference?" (Federal Tax Procedure Blog 5/31/20; 2/14/21), here.

            Yet other examples are where the Supreme Court or other courts give some special consideration, even “hints of deference,” given a lower court’s or even a specific judge’s expertise.  Aaron-Andrew P. Bruhl, Following Lower-Court Precedent, 81 U. Chi. L. Rev. 851, 868-869 (2014).

Other Comments (Personal War Story Off-Topic):

Corporate Taxpayer (AIG) "Settles" Tax Shelter Litigation Admitting Tax Shelters Were Shams (10/24/20)

 The SDNY U.S. Attorney (Acting) issued this stunning press release yesterday:  Acting Manhattan U.S. Attorney Announces Settlement Of Tax Shelter Lawsuit Against AIG For Entering Into Sham Transactions Designed To Generate Bogus Foreign Tax Credits (USAO 10/23/20), here.   Key excerpts for this blog entry (most of the release) are:

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, announced today the settlement of a tax refund lawsuit brought by insurance and financial services company AMERICAN INTERNATIONAL GROUP, INC. (“AIG”) involving seven cross-border financial transactions that the United States asserted were abusive tax shelters designed to generate bogus foreign tax credits that AIG improperly attempted to use to reduce its tax liabilities in the United States.  AIG filed this tax refund lawsuit in 2009, seeking to recover disallowed foreign tax credits and other taxes related to the 1997 tax year.  The United States obtained overwhelming evidence that these transactions lacked any meaningful economic substance, were devoid of any legitimate business purpose, and instead were designed solely to manufacture hundreds of millions of dollars in tax benefits to which AIG was not entitled.  According to the terms of the settlement, approved yesterday by United States District Judge Louis L. Stanton, AIG agreed that all foreign tax credits that AIG claimed for the 1997 tax year and all later tax years for these same transactions, totaling more than $400 million, would be disallowed in their entirety.  AIG further agreed to pay a 10% tax penalty.

Acting U.S. Attorney Audrey Strauss said:  “AIG created an elaborate series of sham transactions that were designed to do nothing – and in fact did nothing – other than generate hundreds of millions of dollars in ill-gotten tax benefits for AIG.  Our system of taxation is built upon the premise that all citizens and corporations must pay the taxes they owe, no more and no less.  People and companies who game that system to avoid paying their fair share of taxes undermine public trust in our tax laws.  We will continue to be vigilant in holding accountable those who use economically empty transactions to avoid paying their taxes.”

As alleged in filings in Manhattan federal court:

During the mid-1990s, AIG Financial Products Corp. (“AIG-FP”), a wholly-owned subsidiary of AIG, designed, marketed, and entered into seven cross-border structured finance transactions with various foreign banks.  These complicated transactions, involving hundreds of agreements, numerous shell companies, and intricate cash flows, had no economic substance but rather exploited differences in U.S. and foreign tax laws to create profits from U.S. tax benefits.  In particular, the transactions generated more than $400 million in foreign tax credits that AIG used to reduce its U.S. tax liabilities.  The U.S. has a worldwide tax system that taxes companies on income earned abroad, but also grants credits for foreign taxes paid.  AIG, was able to turn a profit by obtaining credits from the U.S. Treasury for foreign taxes it did not actually pay in full.  AIG obtained more than $61 million in foreign tax credits during the 1997 tax year alone, the tax year resolved by the settlement. 

In 2008, the Internal Revenue Service (“IRS”) issued a Notice of Deficiency to AIG that, among other things, disallowed the foreign tax credits AIG had claimed in connection with the seven transactions and asserted a 20% tax penalty.  In 2009, after paying the deficiency, AIG filed a lawsuit against the United States in Manhattan federal court challenging the IRS’s determination and demanding a refund.  In response, the United States asserted that the IRS had correctly disallowed the tax benefits because the transactions had no economic substance, a basic requirement for seeking tax benefits. 

According to the terms of the Settlement, AIG agreed that all foreign tax credits that AIG claimed in connection with the seven cross-border transactions that were the subject of the litigation would be disallowed in full for the 1997 tax year and all subsequent tax years during which the transactions were operating, totaling more than $400 million.  AIG further agreed to pay a 10% penalty.  The settlement allows AIG to retain certain income expense deductions relating to six of the transactions that were structured as borrowings, as well as remove certain amounts related to the transactions from its taxable income.  In addition, the settlement resolves certain of AIG’s tax refund claims unrelated to the cross-border transactions stemming from AIG‘s restatement of its publicly filed financials.

One nuance not in the press release is that the press release suggests that the penalty is 10%.  The IRS originally proposed a substantial understatement penalty and a negligence penalty.  Both of those penalties are 20% but only one can apply, so that the taxpayer's maximum exposure before the settlement was 20%.  Under the settlement, the taxpayer concedes the substantial understatement or negligence penalties for the bullshit transaction.  (See paragraph 7 of the Stipulation and Order of Settlement.)  That might suggest that the settlement could be read to imply some level of merit in the taxpayer's position, although I suspect that, from the Government's perspective, it was viewed that as simply a nuisance cost to the Government to resolve this bullshit litigation without expenditure of resources required to litigate the matter.

Of course, large corporations who should know better making sham (aka bullshit) tax shelter claims are not particularly unusual as I have noted on this blog.  But this litigation has one nuance that jumped out that I had not really focused on before – that is, the role of counsel bringing suits to sustain tax shelters that are shams.  I guess that problem lurked in all of the other civil litigation involving bullshit tax shelters.  But it just hit me here.  (I never personally had to face that issue because over my career of practice, I declined to represent taxpayers or promoters in civil tax cases involving bullshit tax shelters; although I do have an anecdote about that which I recount at the end of the blog.  See JAT Comments par. 2)

The question I ask is how exactly does an attorney sign the initial pleading and otherwise participate in a suit, either in the Tax Court or in one of the refund forums (district court or Court of Federal Claims), alleging that a sham tax shelter is entitled to the claimed tax benefits?  OK, I know, the argument is that sham is in the eye of the beholder so long as the technical tax traps appear to be checked off (even when sometimes they are not)?  The question I ask and cannot answer here is what is the role of the lawyers making such claims in litigation?  But, just think about how much energy (creative and  otherwise), time and resources were spent unnecessarily in creating the sham tax shelter to start with and then marshaling it through the administrative audit process (audit and appeals) and litigation before the taxpayer admitted the whole deal was a sham.  Isn’t there some better way to deploy our resources?

Timely-Mailing, Timely-Filing - Tax Court Case Reminder of Requirements (9/11/12)

In my Tax Procedure class last Thursday, we covered return filings.  A key component of the discussion was the timely mailing, timely filing rule in Section 7502, here.  The Tax Court yesterday decided Scaggs v. Commissioner, T.C. Memo. 2012-258, here.  Scaggs offers an object lesson in how not to qualify for the timely mailing, timely filing rule.  So I will review the rules and then the decision in Scaggs.

I cut and paste my discussion from my Federal Tax Procedure book (no footnotes):

Section 7502 provides a “timely-mailing, timely-filing” rule, which treats the mailing date as the filing date for returns (and other documents) received by the IRS after the due date (either the original due date where there is no extension or the extended due date if there is an extension) but mailed on or before that due date.  The timely-mailing, timely-filing rules (and risks) may be summarized as follows:

1.   The document filed must be a “return, claim, statement, or other document required to be filed.”  I focus here on the “required to be filed” element.  Original tax returns are the quintessential type of document that is required to be file and thus clearly meets this element of the statute.  Tax Court petitions are also required to be filed by the Code in order to meet the jurisdictional requirements for the Tax Court and, in that sense, are required to be filed and thus meet this element of the statute.  What about amended returns?  The standard conceptualization of the amended return is that the Code itself does not require amended returns to be filed.  So, do amended returns qualify?  The answer is that some clearly do and some may not.  Since, as we shall see later, the Code requires claims for refunds to be filed within a statute of limitations period, amended returns making refund claims qualify as returns required to be filed thus permitting the taxpayer to meet this element of the timely mailing, timely filing rule.  But, that analysis does not apply to amended returns reporting additional liability.  The IRS has ruled that amended returns reporting additional liability are not “required” and thus any tax reported on such returns actually filed after the assessment limitations period but otherwise mailed within the assessment period, do not qualify under § 7502.  What this means is that the IRS may not assess and must return any payment remitted with the amended return reporting a liability.