Federal Tax Procedure Book Revisions on Section 6110 (9/10/17)

I posted here a new cumulative supplement, dated 9/10/17, for the Federal Tax Procedure Book.  The significant addition for this cumulative supplement is to expand the discussion of Section 6110, here.  I offer just the text (no footnotes) below.   This new material is to be inserted in the Student  Edition at end of p. 56 and in the Practitioner Edition at end of p. 85. See the supplement for the footnotes.

l. Public Access to and Precedential or Persuasive Value of Less Formal IRS Written Determinations.

The more formal IRS interpretations have historically been published so as to be easily accessible to the public.  Regulations are published in the Federal Register; Revenue Rulings and Procedures and some notices are published in the Internal Revenue Bulletins and Cumulative Bulletins. Less formal written interpretations (such as PLRs and TAMs) formerly were not published publicly.  These written determinations usually interpret the substantive law in the context of the taxpayer’s facts.  For example, a PLR or TAM will address a taxpayer’s facts and apply an interpretation of the law to the facts.  These written determinations and the interpretations are not intended to be formal IRS interpretations (such as by regulation or Revenue Ruling) and hence require lower levels of review and procedure.

Notwithstanding that these written determinations are not formal IRS interpretations, IRS personnel could access these determinations and use their interpretations to influence the IRS actions involving other taxpayers.  Furthermore, the taxpayers and practitioners involved in the process of the written determinations would often know of the interpretations (e.g., they would have copies of the TAMs and PLRs) and could use the interpretations in the future to their benefit in other matters before the IRS.

By the mid-1970s, responding to suits for access to these written determinations, courts reached different conclusions but raised concerns about a secret body of law. In this environment, in 1976, Congress enacted § 6110.  That section starts with the command that “the text of any written determination and any background file document relating to such written determination shall be open to public inspection.”  § 6110(a).  A written determination includes a “ruling, determination letter, technical advice memorandum, or Chief Counsel advice.”  § 6110(b)(1).

Pursuant to this command, the IRS routinely makes available the text of written determinations less formal that Revenue Rulings and Revenue Procedures.  The IRS must redact the portion of the written determination that discloses certain matters where nondisclosure is warranted (such as taxpayer identification (cf. § 6013), information otherwise exempt from disclosure by statute or executive order relating to national defense or foreign policy, trade secrets or financial information and certain other sensitive matter).  § 6110(c).  The text that is disclosed even as redacted will show the IRS’s informal interpretations of the law.

The IRS makes these written determinations available on its FOIA Electronic Reading Room web site.  Also, many tax publishers publish these informal written determinations as the IRS makes them available.  In a tax practice, these written determinations made public under § 6110 must be consulted in researching tax issues, particularly with respect to transactions, return reporting, and litigation.  For example, a taxpayer considering an important transaction may want to know the IRS’s position, and written determinations may be the only source available for issues presented.  That taxpayer may want to seek a PLR if these written determinations indicate that the IRS may rule favorably or may not want to seek a PLR if these written determinations indicate that the IRS may not rule favorably.

New Cumulative Supplement for Tax Procedure Book (9/10/17)

I have posted here a new cumulative supplement to the Federal Tax Procedure Book.

Authority to Compromise Tax Liabilities After a DOJ Referral (9/4/17)

On Saturday, I posted a blog entry on the Federal Tax Crimes Blog regarding the Tax Court's application of the civil fraud penalty for multiple years after the taxpayer pled guilty to tax evasion involving only one of the years.  See Taxpayer Held Liable for Civil Fraud Penalty after Plea to Tax Evasion for One of the Years (Federal Tax Crimes Blog 9/2/17), here, discussing Cantrell v. Commissioner, T.C. Memo. 2017-170, here.

I thought some fans of tax procedure might be interested in the blog entry since the civil fraud penalty and collateral estoppel are important issues for tax procedure.  The application of the civil fraud penalty and collateral estoppel for the year of conviction in Cantrell is fairly routine.

What was not routine, and what tax procedure enthusiasts may not fully appreciate is the treatment of offers in compromise after a tax evasion conviction.  Cantrell dealt with one aspect of that issue and I expound further on it in the blog entry.  There are many nuances, so I refer readers to the blog entry linked above, where I discuss some of them.

At the inception, readers will want to read § 7122(a), here, titled Compromises, which seems to be very simple:

The Secretary may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense; and the Attorney General or his delegate may compromise any such case after reference to the Department of Justice for prosecution or defense.

I discuss in an addendum to the Federal Tax Crimes Blog post linked above some of the nuances caused by this statutory division of authority to compromise.  Federal tax procedure enthusiasts my want to read the blog, particularly the addendum.

Good summary of Chevron (8/30/17)

In Sinclair Wyoming Refining Co. v. EPA, 2017 U.S. App. LEXIS 15192 (10th Cir. 2017), here, a nontax case, Chief Judge Tymkovich offers the following general discussion of Chevron.  This discussion does not require changes to the Federal Tax Procedure Editions, but it is a good summary so I offer it here.

When a court reviews an agency's legal determination, it generally applies the analysis set out by the Supreme Court in Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984). Under Chevron, reviewing courts apply a two-step analysis. Chevron step one asks "whether Congress has directly spoken to the precise question at issue." Id. at 842-43. If Congress's intent is clear, then both the court and the agency "must give effect to the unambiguously expressed intent of Congress." Id. at 843. Courts determine Congress's intent by employing the traditional tools of statutory interpretation, beginning—as always—with an examination of the statute's text. See New Mexico v. Dep't of Interior, 854 F.3d 1207, 1223-24 (10th Cir. 2017). But, if Congress has "not directly addressed the precise question at issue"—if "the statute is silent or ambiguous with respect to the specific issue"—the court must determine at Chevron step two "whether the agency's answer is based on a permissible construction of the statute." Chevron, 467 U.S. at 843-44. 

In some circumstances, however, a court never reaches the Chevron analysis. In such cases, we do not need to answer the step one or step two questions. As the Supreme Court explained in United States v. Mead Corp., 533 U.S. 218, 121 S. Ct. 2164, 150 L. Ed. 2d 292 (2001), the initial step of the Chevron inquiry is actually to determine whether Chevron should apply at all. See Cass R. Sunstein, Chevron Step Zero, 92 Va. L. Rev. 187, 247 (2006) (conceptualizing the inquiry of whether Chevron applies as "Chevron step zero"); see also Gutierrez-Brizuela v. Lynch, 834 F.3d. 1142, 1157 (10th Cir. 2016) (Gorsuch, J., concurring) (discussing the step zero inquiry and the confusion created by Mead). n3
   n3 We note that neither party discussed the Supreme Court's decision in City of Arlington v. Federal Communications Commission, 569 U.S. 290, 133 S. Ct. 1863, 185 L. Ed. 2d 941 (2013), in their supplemental briefs. We have not previously addressed the effect—if any—City of Arlington might have on our application of the Mead inquiry. But we do note that Justice Scalia, writing for the majority in City of Arlington, reaffirmed that courts must determine whether Chevron or Mead controls at step zero. See 133 S. Ct. at 1874 ("The dissent is correct that United States v. Mead requires that, for Chevron deference to apply, the agency must have received congressional authority to determine the particular matter at issue in the particular manner adopted. No one disputes that." (emphasis added)).

Public Interest Entity Fails in FOIA Attempt to Force IRS to Disclose President Trump's Tax Returns (8/29/17)

In Electronic Privacy Information Center, v IRS, 2017 U.S. Dist. LEXIS 131911 (D. D.C. 2017), here, the court rejected the EPIC's attempt to obtain the tax returns of President Donald J. Trump.  I have added the following footnote to p. 144 of the Practitioner Edition after the sole paragraph in (there is no change to the Student Edition), but provide the entire text paragraph (for context) and the footnote:

Ch. 4.  Confidentiality and Disclosure of Return Information.
IV.  Exceptions–Must be Congressionally Approved.
H. Other Permitted Disclosures

Section 6103 contains a plethora of other permitted disclosures. All are grounded in some perception of national priority that trumps the general need for secrecy. I do not expect you to know these other exceptions for this class.  You should, however, know that, when you practice in this area, you simply have to slug through the various and many permitted disclosures to assess risks of disclosure for your client and remedies that may be available for wrongful disclosure.  Your intuition based on the foregoing examples should also give you a sense of when a national priority exists for which Congress might have provided an exception.  But you still must read the statute, because sometimes Congress' sense of national priorities may be different than what you think it is or should be. fn. 611a 

fn. 611a.  There is one disclosure authority within this general grouping that is worth a passing mention because of its topical interest in 2017 when this footnote was prepared.  Section 6103(k)(3) permits the IRS, upon approval of the JCT, to disclose return information “with respect to any specific taxpayer to the extent necessary for tax administration purposes to correct a misstatement of fact published or disclosed with respect to such taxpayer’s return or any transaction of the taxpayer with the Internal Revenue Service.”  Notice the qualifiers for this authority: (i) approval by the JCT; and (ii) necessity for tax administration.   See § 6103(b)(4) (defining tax administration).  Merely some national emergency does not fit this exception; rather the necessity must arise from tax administration and it is solely to correct a misstatement of fact.  It is hard to imagine this authority being invoked with these limitations, and so far as I am aware, it has never been invoked.  See for a failed attempt to require the IRS to exercise this authority to release President Donald J. Trump’s tax returns, Electronic Privacy Information Center, v IRS, ___, 2017 U.S. Dist. LEXIS 131911 (D. D.C. 2017) (calling this exception a “rara avis” and also stating that the Court is aware of no instance of its actual use, but (i) noting two instances where preliminary moves were made to obtain the required permission but the permission from the JCT were not granted and (ii) other citings in cases appear to have been errors).  This case also held that, under the APA or otherwise, there is no requirement that the IRS seek the approval of the JCT to make the disclosures.

I also revised footnote 555 on p. 135 as follows and offer the sentence in the text and the footnote:

The IRS generally “may” also disclose return information to the taxpayer or his or her representative or designee unless it determines that the disclosure would “seriously impair Federal tax administration.” fn 555

fn. 555 § § 6103(c) (as to taxpayer’s representative) and § 6103(e)(7) (as to taxpayer and others otherwise having access).  Regs. § 601.702(c)(5)(iii)(C) (“In the case of an attorney-in-fact, or other person requesting records on behalf of or pertaining to other persons, the requester shall furnish a properly executed power of attorney, Privacy Act consent, or tax information authorization, as appropriate.”).  For an interesting application of this limitation where the FOIA suit was dismissed because the requester seeking the returns of President Donald J. Trump did not provide President Trump’s consent to the disclosure, see Electronic Privacy Information Center, v IRS, ___, 2017 U.S. Dist. LEXIS 131911 (D. D.C. 2017).

Yin Article on Codification and Emergence of JCT (8/21/17)

George Yin, Professor at the University of Virginia School of law (faculty bio here), has posted to SSRN this article (in SSRB's suggested format):  Yin, George K., Codification of the Tax Law and the Emergence of the Staff of the Joint Committee on Taxation (August 1, 2017). Virginia Law and Economics Research Paper No. 2017-20; Virginia Public Law and Legal Theory Research Paper No. 2017-39. Available at SSRN: https://ssrn.com/abstract=3008878.  George was previously chief of staff of the Joint Committee on Taxation and is well situated to review its history and role.

As I note in my Federal Tax Procedure Book (both editions), the Joint Committee on Taxation plays a key role in tax legislation.  This new article provides interesting insight into how the JCT assumed the important role it plays today.

The SSRN Abstract is as follows:

In 1926, Congress created the Joint Committee on Taxation (JCT) and its staff. This article explains how, partly by design but largely by happenstance, the JCT staff helped change the nature of the legislative process. By serving at or near the intersection of three great divides in government — those between the parties, the houses of Congress, and the legislative and executive branches — the staff demonstrated the value of unelected professionals assisting directly in the formation of legislation and led Congress to rely more on its own resources in the legislative process rather than those of the executive branch. This article describes the emergence of the JCT staff from a modest conception much different from its eventual role. The staff’s work on a lengthy and highly technical project — a dozen-year effort to codify the tax statutes — contributed to the growth of its influence and the changes that would take place in the legislative process.

George's article led me to revise some portions of the working draft for the 2018 editions of the Federal Tax Procedure Book.  I have incorporated George's article particularly into the discussion of the U.S. Code system in the page at the right titled On the Internal Revenue Code (Title 26) and Statutes (8/21/17), here.

Also, George has previously written or spoken on the JCT and tax legislation in the following articles (which I cite in the Federal Tax Procedure Book:

• George K. Yin, Preventing Congressional Violations of Taxpayer Privacy, 69 Tax Law. 103 (2015).
• George K. Yin, James Couzens, Andrew Mellon, The "Greatest Tax Suit in the History of the World," and the Creation of the Joint Committee on Taxation and its Staff, 66 Tax L. Rev. 787 (2013).
• George K. Yin, Let's Get the Facts of the Couzens Investigation Right!, 2013 TNT 165-12 (8/26/13).
• Interview with George K. Yin, 25 ABA Tax Section News Quarterly 14, 17(Winter 2006).

These articles and other of George's articles can be found on George's SSRN author page, here.

2017 Editions to Townsend on Federal Tax Procedure Available for Download (8/8/17)

My 2017 editions of my Federal Tax Procedure Book are now posted on SSRN and available for download as follows:

• Federal Tax Procedure (2017 Student Ed.), 2017. Available at SSRN: https://ssrn.com/abstract=3011373
• Federal Tax Procedure (Practitioner Ed. 2017), 2017. Available at SSRN: https://ssrn.com/abstract=3011403

I offer these for all to use.  I originally prepared this for students in my Federal Tax Procedure class at the University of Houston Law School.  I have now retired from teaching that class (last semester was Fall 2015).  But, I keep these editions up with annual publications in August.  I have tried to include in the text the substantive materials for a law school class in tax procedure.  The Practitioner Edition is the same as the Student Edition except that it contains footnotes that, I hope in most cases, support or expand on what is in the text, with some flights of fancy.  The Student Edition strips out the footnotes so that students do not get bogged down in minutia and irrelevances.

I would appreciate hearing from readers about things that need correction or improvement (either in substance or presentation).  I am constantly revising the editions in advance of the next publication (August 2018) and readers can materially help in making that next edition better.

Also, I will be posting material updates, corrections and other matters related to both Editions on my this blog.

Schematic of IRS Civil Program for Referral of Fraud Cases to CI (3/27/17)

I have recently revised my discussion of Criminal Penalties in Chapter 8 of the Federal Tax Procedure Book.  In the revised discussion, I cover the IRS's civil division fraud referral program under which civil revenue agents and collection officers identify "firm indications of fraud" and refer cases to IRS's Criminal Investigation ("CI").  In a recent TIGTA report, A More Focused Strategy Is Needed to Effectively Address Egregious Employment Tax Crimes (Ref # 2017-IE-R004 3/21/17), here, TIGTA included a graphic (Appendix V) that shows how that program works.  I include that graphic below (click on it to enlarge it for easier readability) and will link to this graphic in the revised version of the book, currently scheduled to be published in pdf format in August 2017.

Interpretive and Legislative Regulations and the Relationship to Chevron (2/26/17)

I have been struggling with the APA distinction between legislative and interpretive regulations and how that distinction might be impacted by the Chevron doctrine.  I link here my latest revision to my Federal Tax Procedure Book currently due to publish in August 2017 (and will be available for free download on my SSRN account, here, then).  (Note that the linked current status of the revision may not be final, but I think it is fairly close to final subject to comments from this blog entry.)

Basically, I conclude that the historic distinction between legislative and interpretive regulations remains even after Chevron and its progeny, although some loose thinking / language about Chevron has muddied the water as to the historic distinction.  I will state the historic distinction and refer readers to the linked documents for more details (both pro and con).

The historic distinction is (from Kenneth Culp Davis, Administrative Rules - Interpretative, Legislative, and Retroactive, 57 Yale L.J. 919, 928 (1948) (footnotes omitted)):

According to the theory, legislative rules are the product of a power to create new law, and interpretative rules are the product of interpretation of previously existing law.  Legislative rules may change the law but interpretative rules merely clarify the law they interpret.

Then I say in  my text (footnotes omitted):

To illustrate this discussion, I use examples at the extremes of a spectrum.  Such examples  can offer key insight even though much of the play in the real world is between the extremes where things become less certain.  Here are the extremes on the issue at hand.  Code § 162(a)(2) allows deductions for expenses incurred while “traveling ... away from home in the pursuit of a trade or business.”  The regulation, adopted under the general authority stated in § 7805(a), interpreted “traveling ... away from home” text to require that the taxpayer must sleep or rest, sometimes called the overnight rule.  The Supreme Court sustained the regulations’ interpretation of the statutory text. The regulation was an interpretive regulation.  By contrast, § 1502 delegates to the IRS the authority to adopt regulations that the IRS “may deem necessary” for consolidated reporting among an affiliated group of corporations.  The regulations do so in mind numbing detail, in regulation after regulation.  The consolidated return regulations are legislative regulations.

The Chevron doctrine may be summarized as a rule of interpretation of a statute that defers to an agency interpretation under this analysis:  Step One, if the text is plain (not ambiguous), that meaning applies, end of analysis; do not go past Step One; and Step Two, if the text is not plain (ambiguous), the agency interpretation applies unless unreasonable.  Under my analysis (perhaps not mainstream), Chevron only applies to agency regulations that are interpretive and does not apply to legislative regulations.

The linked text relates to the foregoing with more detail.

I address in this blog the current movement to eliminate or throttle back on Chevron deference.  There are speculations about at least judicial throttling back when Judge Neil Gorsuch is confirmed as a justice on the Supreme Court.  And, there is pending legislation that would eliminate Chevron deference.  The proposed legislation would take away the authority of the judiciary to apply Chevron.  Although not mentioning Chevron by name, the proposed legislation would require courts do the following with respect to agency rulemaking:  (i) "decide de novo all relevant questions of law, including the interpretation of constitutional and statutory provisions, and rules made by agencies" and (ii) take away from courts the authority to interpret a statutory "gap or ambiguity as an implicit delegation to the agency of legislative rule making authority and [to] rely on such gap or ambiguity as a justification either for interpreting agency authority expansively or for deferring to the agency’s interpretation on the question of law."

First, note that this speaks only as to interpretive issues related to Chevron, not legislative rulemaking authority.

Second, I just pose this practical question.  If the Supreme Court or the legislation would eliminate the Chevron doctrine, what would that mean for legislative regulations?  Under my interpretation (summarized above and detailed in the linked document), Chevron is a rule of interpretation applying only to statutory interpretations.  Chevron is not a rule that can apply to a legislative regulation under the traditional definition of legislative regulation (a regulation establishing the substantive rule).

If as some claim, Chevron applies to legislative regulations, what would happen to, for example, the consolidated return regulations under § 1502 after the demise of Chevron (either judicial demise or legislative demise)?

Tax Procedure Book Errata - FBAR Filing Date (2/26/17)

Book Outline Section	Nature of Update	Location for current editions
Ch. 19.  Foreign Bank Account Reports (FBARs) And Related. III. Requirements for Filing the FBAR.	Update on FBAR Filing Date Requirements	Student Ed. p. 604 (substitute for first full paragraph on page) Practitioner Ed. p.  890 (substitute for last paragraph on page)

A reader posted a reminder under another blog entry that the due date for the FBAR report, FinCEN 114, here, is now due April 15 for the prior year's report.  When the filing date falls on a weekend day or on a holiday, the filing date is the next succeeding business day (a weekday that is not a holiday).  Accordingly, the due date for the 2016 year is April 18, 2017 (per the IRS web site here).  And, FinCen is providing an automatic extension (no filing required to obtain the extension) until October 15 (which, for the 2016 report, will be October 16, 2017, because October 15 is a Sunday).

Here is my discussion in the current draft for the next revision (due August 2017) of my Federal Tax Procedure Book (note that the footnote numbers are not the ones that will be in the final text)):

The FBAR was historically required to be filed on June 30 for the prior year.  In 2015, Congress changed the filing date to April 15 (contemporaneously with the individual income tax return due date for calendar year taxpayers, which can be the next succeeding business day if April 15 falls on a weekend or holiday) with the ability to obtain a 6-month extension to October 15 (also contemporaneous with the extended due date for individual income tax returns and also extended to the next succeeding business day if October 15 falls on a weekend or holiday). n1 Under the current instructions, FinCEN grants an automatic extension from April 15 to October 15; the automatic extension applies without any action on the filer’s part other than not filing by the original due date.  n2
   n1 § 2006(b)(11), the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (P.L. 114-41).  The effective date of this FBAR filing provision is the filing year 2016 (i.e., the 2016 FBAR is due April 15, 2017 (actually, on the next succeeding business day), subject to the automatic extension to October 15, 2017 noted in the text).
   n2 FinCEN web page, titled New Due Date for FBARs (12/16/16), viewed 2/1/17, providing in relevant part after noting the statutory due date of April 15 (emphasis supplied):
To implement the statute with minimal burden to the public and FinCEN, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year.  Accordingly, specific requests for this extension are not required.  (Please note: The due date for FBAR filings for foreign financial accounts maintained during calendar year 2016 is April 18, 2017, consistent with the Federal income tax due date.)
One might even say that, as thus formulated, the real filing due date is October 15.

Some helpful web pages (including the one mentioned in fn. 2 above are:

• New Due Date for Filing FinCEN Form 114 -- 12-JAN-2017, here.
• Individuals Filing the Report of Foreign Bank and Financial Accounts (FBAR), here.
• BSA Electronic Filing Requirements For Report of Foreign Bank and Financial Accounts (FinCEN Form 114), here.