Does the Form 872 Statute Extension to Date Certain Control If Normal 3-Year from Return Date Is Later? (8/17/21)

In United States v. Davitian (D. D.C. 8/13/21), here, the Court identified but did not decide an interesting tax procedure issue.

The issue is whether, if a taxpayer provides a Form 872, Consent to Extend the Time to Assess Tax, here (authorized under § 6501(c)(4)), to a date certain and thereafter filed a delinquent return after the stated end-time in Form 872, does the § 6501(a) three-year statute after return filing apply or the statute expiration date in the Form 872.

The relevant facts highly summarized are:

• Tax year 2003.
• Taxpayer signed Form 872 extending assessment date to April 15, 2009.
• Taxpayers filed 2003 return on September 26, 2007.
• The IRS then assessed tax (presumably the tax reported on the return which would not require the notice of deficiency or SFR procedures).

The district court said (p. 5 n.1):

   n1 The court notes that Defendants have not argued that, even if they had filed a return in September 2007 as Plaintiff claims, such filing as a matter of law would not have restarted the assessment period under 26 U.S.C. § 6501(a) because Defendants previously had agreed to extend the period to a date certain and had not agreed to a further extension of time. See 26 U.S.C. § 6501(c)(4)(A) (“Where, before the expiration of the time prescribed for the assessment of any tax imposed by this title, . . . both the Secretary and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.”). The court takes no position on this legal question.

District Court Offers Good Discussion of Claim for Refund Time Requirements in § 6511(a) & (b) (8/17/21)

In Libitzky v. United States, 2021 U.S. Dist. LEXIS 148037 (N.D. Cal. 8/6/21), CL here, the Court offers a good discussion of the dual statutes of limitations for refunds in § 6511.  The opinion is well written, so I recommend it and merely offer the highlights in bullet points:

• The return must be filed within three years from the date the return was filed or two years from the date the tax was paid, whichever is later, and, if no return is filed, within two years from the date of payment.  § 6511(a).  Also, if read literally, the statute means that a taxpayer can file a return 40 years late and qualify under this first rule.  The Libitzkys met this requirement.
• If the first period is met so that the refund claim is timely, the IRS may only refund the amount of tax paid either (i) within three years plus the period of any extension, or (ii) within two years immediately preceding the date of the claim.  § 6511(b)(2).  The Libitzkys did not meet this requirement.
• Informal claim for refund may fix the problem.  The Libitzkys may prevail if they can invoke the informal claim for refund doctrine to make the claim timely under the second rule.  The Court said that it could not decide that issue on summary judgment, so it was to be tried.

I have revised a footnote in the Federal Tax Procedure (Practitioner Edition 2021) for the second limitation (p. 217 n. 1008:

It is said that the limitations period is jurisdictional.  Zeier v. United States Internal Revenue Service, 80 F.3d 1360, 1364 (9th Cir. 1996).  In a practical sense, I think this may mean that the statute is not subject to equitable tolling and that compliance with the limitations period may not be waived.  In cases where the limitations period has arguably expired, taxpayers may want to see if there is some basis for urging that a timely informal claim was filed.  Libitzky v. United States, 2021 U.S. Dist. LEXIS 148037 (N.D. Cal. 2021) (citing and quoting Stevens v. United States, No. 05-03967 SC, 2006 WL 1766794, at *3 n.3 (N.D. Cal. June 26, 2006) (“accepting that Section 6511(b)(2)(A) creates a jurisdictional bar to Plaintiff’s case, Plaintiff may clear that bar with proof that the estate submitted an adequate informal claim, the same thing it will need to prevail on the merits.”).

2021 Federal Tax Procedure Editions Now Available for Download on SSRN (8/8/21)

I have posted to SSRN the 2021 editions of my Federal Tax Procedure Book.  I have not been formally notified by SSRN that they have been accepted (whatever that means; the author paper page shows them as “Submitted;” when accepted the status will change to “Distributed.”).  Nevertheless, it appears that they are available for the community to download.

 The links to download are here:

• Federal Tax Procedure (2021 Student Ed.), SSRN here.
• Federal Tax Procedure (2021 Practitioner Ed.), SSRN here.

Looking toward the next editions in August 2022, I am constantly revising the 2021 edition which became the working draft for the 2022 editions.  I make hundreds of changes during the year, some to add new "stuff," others to correct or better state the old "stuff," and still others for reasons that feel right at the time.  For the significant changes, I post the changes on the Federal Tax Procedure Blog page to the right titled "Federal Tax Procedure Book 2021 Editions Updates (8/9/21)", here.  Each time I make post a significant change, I reset the date in parentheses.

I ask that those desiring a copy of either or both editions download from the SSRN web site.  SSRN maintains statistics on downloads that are useful for scholars.  So, please, rather than sharing a copy of the pdf in each case, direct anyone you think may be interested to the SSRN site page for the publication so that the download metric can be useful.

Also, I urge those using the book to advise me when they think the book can be improved.  Most importantly I would like to know where I have misstated or omitted something of importance.  Also, even for more mundane matters such as wording or syntax that can be improved.  Your input will permit me to make updates on the Federal Tax Procedure Blog and then make the 2022 version better.

Thank you.

This blog entry is cross-posted on the Federal Tax Crimes Blog, here.

On the History of the Chevron / National Muffler Deference Kerfuffle (8/7/21)

Professor Jonathan Choi, here, of Minnesota Law School has published several articles on tax statutory interpretation.  He recently published Legal Analysis, Policy Analysis, and the Price of Deference: An Empirical Study of Mayo and Chevron, 48 Yale J. Reg. 818 (2021), here.

I post a couple of comments that I have corresponded with Professor Choi about.  

1.  Professor Choi says that National Muffler was a less deferential analysis than Chevron.  (See pp.  823 & 828.)

JAT response:  

The background for this comment is that in Mayo Foundation v. United States, 562 U.S. 44 (2011), the Supreme Court held that the Chevron Framework regime for deference applied to tax regulations.  Prior to Mayo and after Chevron was decided in 1984, the Supreme Court analyzed tax regulations under the National Muffler rather than Chevron.  The question in Mayo was which regime applied – the Court held Chevron applied.  A deeper question not resolved in Mayo was whether a different result would have obtained under National Muffler.  Professor Choi assumes that it would have.  Further, he assumes that, until the Court decreed that Chevron controlled, the deference regime for tax regulations was National Muffler, which he believes is a less deferential standard.  I disagree.  I am not convinced that the standards were materially different, although certainly worded differently.  At the end of the day, both standards would sustain reasonable agency interpretations.  As the Seventh Circuit noted in Bankers Life & Cas. Co. v. United States, 142 F.3d 973, 981-982 (7th Cir. 1998) both Chevron and the “traditional rule [National Muffler] * * * both come down to one operative concept--reasonableness” and are “two different formulations of a reasonableness test;” although there may be a “subtle difference”;  “we should be wary of attempts to discern too many gradations of reasonableness,” so that “viewed from this perspective at least, the supposed gap between Chevron and the traditional rule is a distinction without a difference.” 

To be sure, the Mayo Court said that the two standards were different and factors relevant to one standard might not be relevant to another; the Court further rejected adopting a “less deferential” (p. 55) standard for tax regulations with the implication, but implication only, that National Muffler was a less deferential standard. Still, the Mayo Court did not say that a different outcome would have been reached if the National Muffler standard applied.  The district court in Mayo, although rejecting the agency interpretation, found that its result was reached under both standards.  See Mayo Found. for Med. Educ. & Research  v. United States, 503 F. Supp. 2d 1164, 1171 (D. Minn. 2007).  Other courts have found little or no difference between the standards.  Bankers Life & Cas. Co. v. United States, 142 F.3d 973, 981-82 (7th Cir. 1998) (quoting Bell Federal Savings & Loan Association v. Commissioner, 40 F.3d 224, 227 (7th Cir. 1994) (both “approaches apply essentially the same test” and the “difference between the two approaches is negligible at best”); Hefti v. Commissioner, 983 F.2d 868. 872 (8th Cir. 1993) (citing National Muffler (in turn citing Correll) and Chevron as being essentially the same as to the reasonable interpretation holding);  Cent. Pa. Sav. Ass’n v. Commissioner, 104 T.C. 384, 391-392 (1995) (also citing Bell Federal and concluding that, although not necessary to decide, “we are inclined to the view that the impact of the traditional, i.e., National Muffler standard, has not been changed by Chevron, but has merely been restated in a practical two-part test with possibly subtle distinctions as to the role of legislative history and the degree of deference to be accorded to a regulation” (citing cases); Swallows Holding, Ltd. v. Commissioner, 126 T.C. 6, 56 (2006) (reviewed opinion, quoting Cent. Pa. and concluding that result would be the same), vacated, 515 F.3d 162 (3d Cir. 2008); Estate of Gerson v. Commissioner, 127 T.C. 139, 154 (T.C. 2006) (result same under either standard), aff’d 507 F.3d 435 (6th Cir. 2007); and see also and Noel B. Cunningham and James R. Repetti, Textualism and Tax Shelters, 24 Va. Tax Rev. 1, 47 (2004) (“We agree with those who have concluded that there is no significant difference between the standards set forth in Chevron and National Muffler.”).  

DOJ Office of Legal Counsel Advises Treasury that It Should Comply with Ways and Means Chair's Request for Trump Return and Return Information (8/1/21)

DOJ’s Office of Legal Counsel (“OLC”) has released a legal opinion that Treasury must disclose President Trump’s return and return information (including audit histories and work papers) at the request of the Chair of the House Ways and Means Committee.  See Ways and Means Committee’s Request for the Former President’s Tax Returns and Related Tax Information Pursuant to 26 U.S.C. § 6103(f)(1), 45 Op. O.L.C. __ (July 30, 2021), here, referred to as the 2021 OLC Opinion.  Bottom line, OLC concludes that such requests specifically authorized by § 6103(f)(1) without stated conditions has an implicit condition that the request serve a legitimate legislative purpose, that a request for return and return information that facially serves a legitimate purpose should be presumed to be made in good faith, and the presumption may be overcome only in exceptional circumstances not present in this case.  Technically, the OLC opinion relates to a 2021 request that renewed the earlier 2019 request that the Trump Administration Treasury and OLC conclude was pretextual and did not serve a legitimate legislative purpose.  This 2021 OLC Opinion concludes that the 2019 request erred in its analysis and conclusion.

The OLC Opinion is long, so I copy and paste here only the opening summary:

Section 6103(f)(1) of title 26, U.S. Code, vests the congressional tax committees with a broad right to receive tax information from the Department of the Treasury. It embodies a long-standing judgment of the political branches that the tax committees are uniquely suited to receive such information. The committees, however, cannot compel the Executive Branch to disclose such information without satisfying the constitutional requirement that the information could serve a legitimate legislative purpose. 

In assessing whether requested information could serve a legitimate legislative purpose, the Executive Branch must give due weight to Congress’s status as a co-equal branch of government. Like courts, therefore, Executive Branch officials must apply a presumption that Legislative Branch officials act in good faith and in furtherance of legitimate objectives. 

When one of the congressional tax committees requests tax information pursuant to section 6103(f)(1), and has invoked facially valid reasons for its request, the Executive Branch should conclude that the request lacks a legitimate legislative purpose only in exceptional circumstances. The Chairman of the House Ways and Means Committee has invoked sufficient reasons for requesting the former President’s tax information. Under section 6103(f)(1), Treasury must furnish the information to the Committee.

On Footnotes and the Demise of Appendix C from FTPB (7/28/21; 2/25/24)

For the 2021 editions of my Federal Tax Procedure Book (Practitioner and Student editions), I decided the omit Appendix C where I digressed on footnotes.  I originally did that because footnotes in the Practitioner Editions are many and sometimes digressive in nature and wanted to add some humor on the subject.  I think the Appendix has outlived its use, if indeed it ever even had any use.  So, I am omitting the Appendix from the 2021 editions (which, I hope will be out in final by the end of next week.

I thought, however, that for those few misguided souls who liked such things, I would put the Appendix out here both in a cut and paste to the blog and a link to a pdf file, here.  (Those who review the pdf will see that the page number for the current working draft with Appendix C is 1,046, which will decrease to 1,043 when I strip this Appendix.)

APPENDIX C - ON FOOTNOTES

In earlier versions, I included as a footnote a long diversion on footnotes.  The diversion got out of control (certainly too many words).  Accordingly, since I was really liked the thought of a diversion on footnotes, I decided to offer the diversion as an Appendix at the end of the entire text, a destination not to be reached or easily ignored by many readers of the text.

In an earlier article, John A. Townsend, Judge Posner's Opinion in Kikalos, 108 Tax Notes 593 (Aug. 1, 2005) [SSRN link here], I had a footnote on footnotes and offer it here but have significantly revised it. I don’t bother to indent it to show that I am quoting):

It was reported in 1999 that Judge Posner had never used a footnote in a judicial opinion. Lawrence Lessig, The Prolific Iconoclast, The American Lawyer (December 1999). I have not attempted empirical research, but I don't recall having seen a footnote in his opinions. I surmise that Judge Posner thinks that, if the point is worthy of the distraction of a footnote, the point can be concisely made perhaps with less distraction in the text.  Other noted jurists such as Justice Breyer and Circuit Judge Abner Mikva also tend to avoid footnotes.  Justice Neil Gorsuch Is No 'Footnotephobe' (National Law Journal Supreme Court Brief 7/3/19) [no free link available].  And Justice Scalia claimed not to read footnotes, but certainly was not averse to authoring footnotes.  William Jay, Tribute: The Justice who said he hated writing (SCOTUSBlog 3/4/16), here.

Primer on Contesting IRS Third Party Summonses (7/22/21)

In Gaetano v. United States, No. 20-2182, 2021 U.S. App. LEXIS 21139 (6th Cir. July 16, 2021) (unpublished), CA 6 here, the Court rejected the taxpayers’ petition to quash IRS summonses to third parties.  As an unpublished opinion, it has less precedential weight.  Still, it offers a good summary of established law regarding contesting summonses.  

General on the Summons (cleaned up):

In United States v. Powell [379 U.S. 48, 57-58 (1964)] the Supreme Court held that the government can establish a prima facie case for judicial enforcement of an investigatory summons by demonstrating [*3]  that (1) the investigation will be conducted pursuant to a legitimate purpose, (2) the inquiry may be relevant to the purpose, (3) the information sought is not already within the [IRS] Commissioner's possession, and (4) that the administrative steps required by the Internal Revenue Code have been followed.

            The government generally makes this prima facie showing for enforcement through the submission of the affidavit of the agent who issued the summons. If the government makes this showing, the burden shifts to the taxpayer to disprove any of the required elements or to demonstrate that enforcement of the summons would be an abuse of the court's process. n2  Such an abuse would take place if the summons had been issued for an improper purpose."  That said, a taxpayer must provide specific facts and evidence to meet the heavy burden necessary to demonstrate an abuse of process.
   n2 Where, as here, "the IRS issues a summons not to the investigated taxpayer herself, but to a third party who may possess records related to the taxpayer . . . , the named taxpayer is entitled to notice that the summons has been issued, and has the right to intervene in the summons-enforcement proceeding." Byers v. United States, IRS, 963 F.3d 548, 553 (6th Cir. 2020) (citation omitted). No matter whether the IRS issues the summons to the investigated taxpayer or a third party, "[t]he same standards apply." Ibid.

Relevance (cleaned up):

10th Circuit Rejects Constitutional Challenges to Passport Denial or Revocation for Seriously Delinquent Tax Debt ( 7/20/21)

In Maehr v. United States Dep't of State, ___ F.4th ___, 2021 U.S. App. LEXIS 21406 (10th Cir. July 20, 2021), CA 10 here, the Court rejected Maehr’s constitution attack on the 2015 FAST Act’s provisions for denying passport issuance and permitting revocation of previously issued passports.  § 7345; 22 U.S.C. § 2714a(e)(1), (2).

Maehr mounted a credible but ultimately unsuccessful claim that these provisions violated constitutional rights based on the right to international travel.  Basically, the Court held that there was no fundamental right to international travel and thus the review was limited to rational basis review which was easily passed because the Government has an interest in collecting taxes.

Magistrate Judge Recommends Enforcement of IRS Summons to Delaware Dept of Insurance for Information Filed by Micro-Captives (7/19/21)

In United States v. Del. Dep't of Ins., Civil Action No. 20-829-MN-CJB, 2021 U.S. Dist. LEXIS 132716 (D. Del. July 16, 2021), here, the magistrate issued a Report and Recommendation that the IRS summons to the Delaware Department of  Insurance (“DDOI”) be enforced to compel production of documents related to “Artex Risk Solutions, Inc. (“Artex”), Tribeca Strategic Advisors, LLC (“Tribeca”) (which is owned by Artex) and others, in transactions involving micro-captive insurance plans.”  The summons “seeks information pertaining to approximately 200 insurance certificates of authority that DDOI issued to micro-captive insurance companies associated with Artex and Tribeca.”

Readers will recall that the routine for such petitions to enforce summons requires a rather minimal showing of need, called the Powell factors (United States v. Powell, 379 U.S. 48, 57-58 (1964)) as stated by the Court:

(1)  “that the investigation will be conducted pursuant to a legitimate purpose”; (2) “that the inquiry may be relevant to the purpose”; (3) “that the information sought is not already within the [IRS’] possession”; and (4) “that the administrative steps required by the Code have been followed.”

The Government handily met that Powell showing and DDOI failed to rebut it (as is usually the case for persons opposing IRS summonses).

The material dispute the Court resolved related to so-called reverse pre-emption.  The State insurance code provided secrecy protections to micro-captive insurance companies submitting documents and information to the DDOI.  Normally, the federal law permitting IRS summonses would pre-empt such a state law.  However, the McCarran-Ferguson Act (“MFA”) permits state statutes to trump federal law in certain circumstances.  The MFA reserves to the states the “regulation and taxation by the several States of the business of insurance.”  The statute, 15 U.S.C. §§ 1012(b), provides that

 (b) Federal regulation
No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance: Provided, [t]hat . . . the Sherman Act, . . . the Clayton Act[] and . . . the Federal Trade Commission Act . . . shall be applicable to the business of insurance to the extent that such business is not regulated by State law.

The Court says (cleaned up):

Does Treasury Comply with Administrative Law, Including the APA? I Say Yes. Others Say No. (7/17/21)

In United States v. Kahn, 5 F.4th 167 (2d Cir. 7/13/21), here, the Court held that the FBAR willful penalty in 31 USC § 5321(a)(5), as amended in 2004 to increase the maximum amount of the penalty to 50% in the account(s), is not limited by the FINCen’s failure to update the underlying regulations (adopted in 1987) which, consistent with pre-2004 law, capped the willful penalty at $100,000.  This holding is currently the strong consensus.  I doubt there will be further aberrations on that issue. 

I generally discuss FBAR willful civil penalty issues principally on my Federal Tax Crimes Blog and did so in this case.  See Second Circuit Continues the Strong Consensus Rejecting the Argument that FINCen Regulations Under Pre-2004 Law Limit the Maximum Willful Penalty Prescribed under the 2004 Statutory Amendment (Federal Tax Crimes Blog 7/14/21), here.

I said in the Tax Crimes Blog posting that I might address Judge Menashi’s dissenting opinion which, in my view, is ideologically tinged repeating mantras in legal jargon that serve as proxies against the evils of the administrative state that play so well to the right.  Chevron is a chief bogeyman that Judge Menashi and other judges of similar bent use for the purpose.  Judge Menashi’s Wikipedia entry is here.

Judge Menashi’s analysis, in summary, is that an administrative agency, here FINCen with administration authority delegated to the IRS, should abide by its own regulations regardless of intervening changes in the statute.  Judge Menashi cites a rule called the Accardi principle (sometimes called a doctrine) after United States ex rel. Accardi v. Shaughnessy, 347 U.S. 260 (1954).  FINCen is part of Treasury, but a different part than the IRS.  That issue then permits Judge Menashi to launch into administrative law.

What set me off particularly about Judge Menashi’s dissent is that, although not relevant to his analysis, he repeats Professor Hickman’s claims about the IRS not following administrative law, including the APA.   Judge Menashi thus asserts (p. 3) “The Treasury Department has sometimes evaded standard administrative law principles when enforcing the tax laws” citing in footnote 3 Kristin E. Hickman, Administering the Tax System We Have, 63 Duke L.J. 1717, 1718 (2014) (describing “tax departures from general administrative-law norms”).  Readers of this Federal Tax Procedure blog will recognize that type of claim by Professor Hickman.  The Court of Appeals in CIC Servs., LLC v. IRS, 925 F.3d 247. 258 (6th Cir. 2019), reh. en banc den. 936 F.3d 501 (6th Cir. 2019), rev’d and remanded 583 U.S. ___, 141 S.Ct. 1582 (2021) quoted Professor Hickman and a colleague as claiming that Treasury and the IRS “do not have a great history of complying with APA procedures, having claimed for several decades that their rules and regulations are exempt from those requirements.”  The quote is from Kristin E. Hickman & Gerald Kerska, Restoring the Lost Anti-Injunction Act, 103 Va. L. Rev. 1683, 1686 (2017)).  Fortunately, in the Supreme Court in CIC Servs. the parties submitting briefs (including Professor Hickman as amicus curiae) did not repeat that claim, and the Supreme Court did not make the claim.  Perhaps they steered away from the claim prominently made by the Court of Appeals because the claim is irrelevant to the issue presented (just as it was in the Court of Appeals) and, in my view, the claim is not true.  (I synthesize my conclusions on this at the end of this blog.)  And the claim is not relevant to the issue resolved in Kahn, but despite the claim's irrelevance, Judge Menashi makes the claim.