Overlap Between Chevron Deference and Skidmore Respect; Chevron Deference Masking Skidmore Respect (3/25/23)

 I have argued in various postings on this blog that:

1. Chevron means that, for ambiguous statutory text, the court may apply reasonable agency regulations interpretations. (Please note that in this opening statement I do not call Chevron a deference regime.) Further, reasonable agency interpretations include (i) interpretations that are the better interpretation of the statute (by definition a reasonable interpretation) and (ii) interpretations that are not the better interpretation of the statute but still reasonable (whatever that means). Finally, based on my anecdotal but I think representative review of the cases where courts of appeals invoke Chevron to apply the reasonable agency interpretation but do not declare which of the subcategories the agency reasonable interpretation falls into, most of the time the court is at category (i) which is not deference. If that is right (I think it is), courts are not deferring to the agency interpretation in subcategory (i). Chevron deference applies only in subcategory (ii).

a. Chevron deference generally applies only to regulations promulgated with notice and comment. For this discussion, I assume that the Chevron-qualified notice and comment regulations were properly promulgated (i.e., no foot-faults in the procedures to promulgate notice and comment regulations).

2. Skidmore is not deference, because it does not permit a court to adopt an agency interpretation that is not the better of the possible reasonable interpretations. Rather, Skidmore only requires consideration of the agency interpretation in determining the better interpretation of the statute. Skidmore does not require or even permit the court to defer to an agency interpretation that is not persuasive as the better reading of the statute. Skidmore is not even weak deference, as often claimed. Hence careful judges and scholars avoid referring to Skidmore as a deference authority. Even Justices when discussing Skidmore recently have noted that Skidmore is not deference. See Really, Skidmore "Deference?" (Federal Tax Procedure Blog 5/31/20; 2/14/21), here, where I quote the Justices’ discussion in oral argument in Kisor v. Wilkie, 588 U.S. ___, 139 S.Ct. 2400 (2019), with a link to the transcript of and local page citations to the oral argument.

a. Skidmore respect generally applies only to subregulatory agency interpretations not entitled to Chevron deference. (I use the term subregulatory guidance as agency guidance other than in a procedurally properly promulgated notice and comment regulation.) However, logically, Skidmore respect can apply at Chevron Step One if the agency interpretation is determined the better interpretation, thus pre-empting Chevron Step Two which is the only step in the Chevron Framework where a court can defer to an agency interpretation. (Caveat: my anecdotal reading of the cases and inferences therefrom is that courts rarely invoke Skidmore at Chevron Step One but probably do some type of Skidmore-type analysis without naming it at Step Two where they determine the agency regulation interpretation is reasonable and thus seem to defer (of course, the better interpretation is reasonable and needs no deference; I’ll come back to this later.)

b. I noted that Skidmore can apply at Chevron Step One. It may also apply before the Chevron Framework is invoked--i.e. before Step One. If the agency interpretation is the better interpretation of the statute, it might even resolve ambiguity which is the predicate to the Chevron Framework. 

I now extend those arguments.

Promoters of Abusive Conservation Easement Deductions Enjoined from Similar Conduct (3/23/23)

The Court entered Final Judments of Permanent Injunctions against promoters of abusive conservation easement tax shelters (a genre of bullshit tax shelters). The promoters enjoined are Ecovest Capital,   Ecovest Capital, Inc., Alan N. Solon, Robert M. McCullough, and Ralph R. Teal, Jr and Claud Clark III. The Final Judgments are (i) for Claud Clark III here; and (iii) for the remaining defendants here.  The Courtlistener docket entries with links to the pertinent documents most of the key documents in the proceeding are here. The terms summarized are:

(i)  enjoined from participating in any way in a plan or arrangement that involves a deduction for a qualified conservation contribution under 26 U.S.C. § 170(h)”,

(ii)  provide annual statements under penalty of perjury to the IRS and DOJ Tax for the next six years that they have not so participated,

(iii) contact all persons for whom appraisals were provided and all employees or other persons participating in the appraisals, provide them a copy of the Final Judgment of Permanent Injunction, and provide a list of such persons to DOJ Tax;

(iv)  prominently display on the website a copy of the Final Judgment of Permanent Injunction and

(v)  allow, through the Court’s retained jurisdiction, DOJ Tax to take civil discovery to monitor compliance.

I have not focused on the relief requested in the amended complaint (Doc 225 in the docket entries), but I did note that DOJ Tax sought disgorgement in Court V and Relief Sought ¶ m.  The Final Judgment of Permanent Injunction does not address disgorgement. Further in the complaint, the request for the injunction was to enjoin conduct subject to certain IRC penalty provisions (§ 6700, § 6695A, § 6694).  Those specific references are not included in the Final Judgment of Permanent Injunction but the description of the enjoined conduct probably covers conduct under the sections. There is no admission of liability for the penalties.

 A similar consent judgment was previously entered for Nancy Zak. (See Doc 271 and Doc 167 Attachment  1.) 

Petition for Writ of Certiorari in NonTax Case Raising Issue of Continued Viability of Chevron (3/19/23; 4/30/23))

On March 24, 2023, the Supreme Court will consider in conference the petition for certiorari in Loper Bright Enterprises, Inc. v. Raimondo, 45 F. 4th 359 (D.C. Cir. 2022), here. The docket entries on the Supreme Court site are here and on the SCOTUSblog site are here.  

Revised 4/30/23 2:00pm: The order list for 4/24/23, here, did not include any action on the petition for Loper Enterprises. The petition has now been distributed for conference five times -- the original time on 3/31/23 and then by relisting for conferences on 4/3/23, 4/14/23, 4/21/23, and 4/28/23. Supreme Court pundits would jump to speculations about four conference considerations without action, but I am not a Supreme Court pundit and, in any event, don't like speculations on such scant data coupled with scant expertise. However, those wanting to view the data and potential correlation of relists of petitions and eventual grant of certiorari should read Ralph Mayrell & John Elwood, The statistics of relists over the past five terms: The more things change, the more they stay the same (SCOTUSblog 1/4/22), here, which summarizes the data:

While the justices grant only the tiniest percentage of petitions – about 1% of all petitions and about 4% of petitions filed by paying petitioners – relisted cases fare far, far better. For the court’s 2016 to 2020 terms, between 31% and 43% of petitions that were relisted at least once were eventually granted review. And between 66% and 75% of all cases granted certiorari were relisted at least once. The odds vary a bit from year to year, and grants among relists are recently on an upswing, but the basic truth remains: The justices mostly grant cases that they have relisted, and relisted cases are far more likely to be granted.

The questions presented by Loper in its petition, here (with JAT insertions in brackets to help understand them):

          1. Whether, under a proper application of Chevron, the MSA [the statute] implicitly grants NMFS [the agency] the power [by regulation] to force domestic vessels to pay the salaries of the monitors they must carry [to insure compliance with  regulations].

          2. Whether the Court [(i)] should overrule Chevron or, [(ii)] at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency. 

In the Solicitor General’s Brief in Opposition, here, the Questions as stated by the Petitioner are conflated into a single Question Presented with some :

          Whether the court of appeals erred in holding that the National Marine Fisheries Service was acting within the scope of its delegated statutory authority under the [Act] when the agency adopted a rule in 2020 under which certain vessels fishing in the Atlantic herring fishery may be required to hire third-party observers, who are carried on the boats to collect data for fishery conservation and management purposes.

I will not try to plumb the depth of the nuance the SG introduced with its framing of the Question Presented because it is not necessary for this blog entry.

Although I have no special knowledge about that agency’s rulemaking processes, the agency’s Final Rule went through notice and comment and apparently was a regulation or regulation-equivalent for Chevron purposes. At least the lower courts felt it qualified the for Chevron Framework which generally requires notice and comment regulations.

So the question was whether the alleged silence in the statute permitted the courts to assume a delegation to the agency of interpretive rulemaking authority. Note that I call it interpretive rulemaking authority rather than legislative rulemaking authority. The briefs do not directly raise the question of whether the rule was interpretive or legislative, but the SG’s brief infers interpretive rulemaking authority in arguing the Chevron reasoning of political accountability (p. 27):

Tax Court Sustains IRS WBO Denial of Whistleblower Claim for Award Based on All OVDI Collected Proceeds (3/13/23)

In Shands v. Commissioner, 160 T.C. 388 (2023), TC here and TN here, the Tax Court sustained the IRS Whistleblower Office ("WBO") denial of a § 7623(b) claim for nondiscretionary minimum of 15% of collected proceeds with discretionary increases to 30%. (Actually, as described by the Tax Court, his claim was for 30%, but the statute requires only 15% as a nondiscretionary award; I guess he could have thought his contribution was so great that the IRS must exercise its full discretion.) As best I understand, Shands claimed that, based on information he gave federal agents related to the arrest and cooperation of one Renzo Gadola, a misbehaving Swiss banker (misbehaving is perhaps redundant), the IRS created the OVDI program and collected proceeds from many taxpayers, most or even all of whom were unknown to Shands. In his claim letter dated 6/6/12, Shands was unable to name those taxpayers but said he was nevertheless entitled to the § 7623(b) award based on collected proceeds from those taxpayers entering OVDI. "Neither the [Shands] OVDI claim letter nor petitioner's Motion papers claim a share of collections from associated enforcement actions, such as seizures of taxpayer assets or follow-up audits of OVDI participants, taxpayers who opted out of OVDI, or taxpayers not in compliance that the IRS discovered through OVDI disclosures."

The basis for denial was that the creation of OVDI was not an administrative or judicial proceeding as defined in "Treasury Regulation § 301.7623-2(a) [which] defines both terms for claims open as of August 12, 2014. See Treas. Reg. § 301.7623-2(f).” (Emphasis supplied by JAT.) Shands' claim had not been acted on by August 12, 2014, so relying on the regulation seems to be appropriate.

But Shands had another trick up his sleeve. He claimed that the IRS WBO had already decided to deny his claim and in the normal course would have except (he claimed), the IRS improperly delayed issuing the denial until the proposed regulation on August 12, 2014 in order to subject his claim to the Regulation's interpretation of administrative or judicial proceeding. His argument was that the Administrative Procedure Act ("APA" does not permit an agency to effectively make the decision on action (here a denial) and withhold the formal notice of the action pending issuing proposed regulations as a basis for the action.

Proposed Legislation to Enact "IRS Whistleblower Program Improvement Act of 2023" (3/12/23)

Senator Grassley (for himself and for Senators Wyden, Wicker, and Carden) has introduced a bill titled ‘‘IRS Whistleblower Program Improvement Act of 2023,’’ here. Senator Grassley’s press release about the bill is here. If enacted, which I speculate is likely, the following significant changes to the WB Program will apply (note that Senator Grassley’s press release is light on details):

• amend § 7623(e)(7) to change the standard for review of whistleblower awards to de novo based upon “the administrative record established at the time of the original determination and any additional newly discovered or previously unavailable evidence.’’ Bill § 2. This standard and scope of review are the same as for innocent spouse Tax Court review under § 6015(e)(7), which has recently been interpreted in relevant part as to evidence outside the administrative record. Thomas v. Commissioner, 160 T.C. ___ No. 4  (2023), here. The effective date is for cases "pending on, or filed after, the date of enactment."

• exempt whistleblower awards from sequestration by adding 2 U.S.C. § 905(k). Bill § 3. This provision applies to any sequestration order issued after December 31, 2022. The IRS website for Whistleblower Award Sequestration, here, says that the sequestration rate for 2023 is 5.7% that applies “unless and until a law is enacted that cancels or otherwise affects the sequester, at which time the sequestration reduction rate is subject to change.”

• add § 7623(b)(6)(D) to provide a general rule that the Tax Court is to grant whistleblower requests for anonymity absent “a finding by the Tax Court that a heightened societal interest exists for disclosing the whistleblower’s identity, exceeding the normal interest in knowing a petitioner’s identity.” Bill § 4. The effective date is for “petitions filed with the Tax Court which are pending on, or filed on or after, the date of the enactment of this Act.” I am not sure how this will apply to WB petitions already filed naming the whistleblower.

9th Circuit En Banc Holds That Filing Tax Returns for Statute of Limitations Purposes Means Proper Filing as Prescribed in Regulations (3/11/23)

In Seaview Trading, LLC v. Commissioner, 62 F.4th 1131 (9th Cir. 3/10/23) (en banc), CA9 here and GS here,  the Ninth Circuit rejected its panel opinion analysis at 34 F.4th 666, here, and held that sending a to an IRS agent a “copy” of a tax return the partnership claimed it previously filed timely CMRRR was not a filing for purposes of starting the partnership period of limitations.

I reported on the previous panel opinions earlier: 9th Circuit Holds That Copy of Unfiled Return Delivered to Examining Agent is Filing of Return for Statute of Limitations Purposes (Federal Tax Procedure Blog 5/12/22; 3/11/23), here. In that blog, I used the Court’s Summary of the panel opinion. I will do so here (at least key excerpts) for the en banc holding, and repeat what I said earlier that, although the Ninth Circuit cautions that the summary, prepared by staff, is not part of the opinion, the summary, like a Supreme Court syllabus, is not a nothingburger. See Supreme Court Opinion Syllabus as Persuasive Authority? (Federal Tax Procedure Blog 2/8/21), here. I include only the core holdings of the majority.

SUMMARY*

* This summary constitutes no part of the opinion of the court. It has been prepared by court staff for the convenience of the reader.

Tax

       Affirming the Tax Court’s decision concluding that the Internal Revenue Service’s notice of final partnership administrative adjustment was timely, the en banc court held that neither Seaview Trading LLC’s faxing a copy of their delinquent 2001 tax return to an IRS revenue agent in 2005, nor mailing a copy to an IRS attorney in 2007, qualified as a “filing” of the partnership’s return, and therefore the statute of limitations did not bar the IRS’s readjustment of the partnership’s tax liability.

 * * * * *

        26 U.S.C. § 6230(i) (2000), which was applicable during the period in question, provided that a partnership’s return “shall be filed . . . at such time, in such manner, and at such place as may be prescribed in regulations.” The implementing regulations, 26 C.F.R. § 1.6031(a)-1(e)(2001), in turn, provided that “[t]he return of a partnership must be filed with the service center prescribed in the relevant IRS revenue procedure, publication, form, or instructions to the form” and that “[t]he return of a partnership must be filed on or before the fifteenth day of the fourth month following the close of the taxable year of the partnership.” The Tax Court held that Seaview never “filed” its 2001 return because it failed to send the return to [*4] the designated place for filing under Treasury Regulation § 1.6031(a)-1(e)(1))—namely, the IRS’s Ogden Service Center. The en banc court agreed.

       The en banc court explained that Seaview did not meticulously comply with the regulation’s place-for-filing requirement because neither the IRS revenue agent nor the IRS attorney to whom Seaview sent copies of its 2001 return qualified as a designated place for filing. And at no point was Seaview’s return ever forwarded to the designated place for filing at the Ogden Service Center. The en banc court concluded that because Seaview did not meticulously comply with the regulation’s place-for-filing requirement, it was not entitled to claim the benefit of the three-year limitations period. Rather, having never properly filed its return, Seaview was instead subject to 26 U.S.C. § 6229(c)(3) (2000), which allows taxes attributable to partnership items to be assessed “at any time.”

JAT Comments:

Tax Court in Reviewed Opinion Rejects Chevron and State Farm Attack on § 482 Blocked Income Regulation (2/10/23; 2/15/23)

In 3M Companies v. Commissioner, 160 T.C. ___ No. 3 (2/9/23) (reviewed), TA here and GS here, the Court sustained the IRS so-called blocked income regulations. The opinions (opinion of the court and concurring and dissenting opinions) cover 346 pages. The following is the page breakdown.

• Opinion of the court by Morrison, joined by Kerrigan, Gale, Gustafson, Nega, Ashford, and Marshall): pp. 1-273, with 208 footnotes
• Kerrigan concurring (joined by Gale, Paris, Ashford and Copeland): pp. 275-280, no footnotes
• Copeland concurring in the result joined by Kerrigan, Gale and Paris: pp. 281-286, 1 footnote
• Buch dissenting joined by Urda, Jones, Toro, and Greaves: pp. 287-305, 9 footnotes
• Pugh dissenting, joined by Foley, Buch, Urda, and Toro: p. 306, 1 footnote
• Toro dissenting, joined by Buch, Urda, Jones, Greaves, and Weiler (307-346, 33 footnotes

Judge Toro offers (p. 309 n. 2) this helpful and short statement describing the function of the opinion of the court: “Following the Court’s tradition, I refer to the opinion by Judge Morrison, which received 7 votes (out of 17) from active judges, as the opinion of the Court.” The opinion of the court is not a majority opinion, so what gives? For more on this phenomenon, see Kandyce Korotky, All for One, and Five for Sixteen? When the Tax Court’s “Majority” Opinion Isn’t (Procedurally Taxing Blog 4/10/18), here. [Note: in a subsequent Order in Coca-Cola v. Commissioner (Dkt. No. 31183-15 Order dated 2/14/23), a case on hold pending the outcome of 3M, Judge Lauber asked the Coca-Cola parties to file briefs addressing some issues remaining open after the 3M opinions and describing the 3M split among the judges as follows: "On February 9, 2023, a Court-reviewed opinion was issued in the 3M case, rejecting by a 9-8 vote the taxpayer's Chevron and APA arguments and upholding the validity of the “blocked income” regulation. See 160 T.C. No. 3 (2023)."]

I think it will be most helpful to readers just to offer the Syllabus at the beginning of all the opinion of the court. The Syllabus summarizes the opinion of the court (not the concurring and dissenting opinions): 

Chevron Step Two Reasonableness and Agency Best Interpretations in Courts of Appeals (2/9/23)

Many observers have noted that the Supreme Court has avoided Chevron deference in recent years. E.g., Isaiah McKinney, The Chevron Ball Ended at Midnight, but the Circuits are Still Two-Stepping by Themselves (Notice & Comment 12/18/22), here. The Supreme Court has affirmed so-called Auer deference for agency subregulatory interpretations of ambiguous regulations. Kisor v. Wilkie, 588 U.S. ___, 139 S.Ct. 2400 (2019). (Auer deference is now sometimes called Auer/Kisor deference.) But the Supreme Court has not deployed core Chevron deference recently, although one prominent scholar has said that Kisor was an affirmation of Chevron deference. Cass R. Sunstein, Zombie Chevron: A Celebration, 82 Ohio St. L.J. 565, 570-571 (2021) (“If Kisor was right, it would be easy to conclude that Chevron was also right, and for exactly the reasons given by the Court in that case.”) Still, I suspect that the Supreme Court’s Chevron avoidance is to avoid reflexive deference and more rigorously apply the tools of construction to find no ambiguity at Chevron Step One (without mentioning Chevron).  See e.g., Isaiah McKinney, At the Supreme Court, Chevron Deference Has Morphed into the Application of the Tools of Construction (Notice & Comment 2/9/23), here.

Not all Justices avoid Chevron. Justice Gorsuch has lamented Chevron in dissenting opinions. E.g., Buffington v. McDonough, 143 S. Ct. 14 (2022), here, discussed at Justice Gorsuch's Newest Rant on Chevron and the Administrative State (Federal Tax Procedure Blog 11/7/22; 11/8/22), here. This ranting is just a continuation of his famous claim on the 10^th Circuit that Chevron was the “elephant in the room * * * [permitting] executive bureaucracies to swallow huge amounts of core judicial and legislative power and concentrate federal power in a way that seems more than a little difficult to square with the Constitution of the framers' design.” Gutierrez-Brizuela v. Lynch, 834 F.3d 1142, 1153 (10th Cir. 2016) (concurring to his own majority opinion apparently because he could not get the other judges on the panel to join his rant).

With Chevron falling  into desuetude on the Supreme Court, others have noted that the Chevron action is in the lower courts, noting particularly the Courts of Appeals. Chevron is Supreme Court authority that has not been overruled; logically, Chevron should be used by Courts of Appeals in appropriate cases.

I recently tested a one-year dataset of possible Chevron applications in the Courts of Appeals. Is Chevron on Life Support; Does It Matter? (Federal Tax Procedure Blog 4/2/22; 4/3/22), here. That data set included no Court of Appeals opinion where the Court said it was deferring to a less persuasive agency interpretation. In each instance where a Court of Appeals invoked Chevron in outcome determinative way, it simply declared the agency interpretation reasonable at Chevron Step Two. Of course, agency interpretations that are the best interpretations are reasonable. So, when a court stops at merely declaring the agency interpretation reasonable, it has not determined that the agency interpretation was not the best interpretation and was deferring anyway.

Supreme Court Dismisses Attorney-Client Privilege Case as Improvidently Granted (1/23/2023)

I recently reported on this blog and my Federal Tax Crimes Blog on the Oral Arguments in In Re Grand Jury (Sup Ct. No. 21-1397), docket entries here.  See On Supreme Court Oral Argument in In Re Grand Jury On Issue of Principal or Significant Purpose for Attorney-Client Privilege (Federal Tax Procedure Blog 1/17/23), here, linking to On Supreme Court Oral Argument in In Re Grand Jury On Issue of Principal or Significant Purpose for Attorney-Client Privilege (Federal Tax Crimes Blog 1/10/23; 1/11/23), here.

Today, the Supreme Court entered the following order “Writ of certiorari DISMISSED as improvidently granted. Opinion per curiam.”  See the docket entried liked above and the opinion here. 

For further discussion, see Supreme Court Dismisses Attorney-Client Privilege Case as Improvidently Granted (1/23/2023), here.

10th Circuit in Unpublished Opinion Holds § 6751(b)(1) Written Supervisor Approval Must Precede Notice of Deficiency (1/20/23; 1/21/23)

In Minemyer v. Commissioner (10th Cir. 1/19/23), 10^th Cir. here and TN here and GS here (Unpublished), The Court key holding is relatively short, so I copy and paste it held (Slip Op. 10-13 , footnotes omitted):

             The IRS argues that the tax court imposed a requirement that appears nowhere in the text of the statute. That position is supported by two recent circuit court decisions, from the Ninth and Eleventh Circuits, which have examined the plain language of § 6751(b)(1) and concluded that it is not ambiguous and does not require supervisory approval before an initial determination of an assessment is communicated to the taxpayer. Kroner v. Comm’r, 48 F.4th 1272, 1276-81 (11th Cir. 2022); Laidlaw’s Harley Davidson Sales, Inc. v. Comm’r, 29 F.4th 1066, 1070-74 (9th Cir. 2022). The courts in Kroner and Laidlaw’s found nothing in the text of the [*11] statute to support the timing requirement imposed by the tax court here. See Kroner, 48 F.4th at 1278 (“nothing in the text . . . requires a supervisor to approve penalties at any particular time”); Laidlaw’s, 29 F.4th at 1072-73 (“[t]he statute does not make any reference to the communication of a proposed penalty to the taxpayer”). We agree with these assessments of § 6751(b)(1) and hold that its plain language does not require approval before proposed penalties are communicated to a taxpayer.

            That does not end our inquiry, however, for there remains the question whether § 6751(b)(1) imposes a timing requirement of any kind. The Second Circuit has observed that “[i]f supervisory approval is to be required at all, it must be the case that the approval is obtained when the supervisor has the discretion to give or withhold it.” Chai, 851 F.3d at 220. The court reasoned that supervisory approval would be meaningless if the statute were construed to allow such approval after the supervisor lost the authority to prevent the penalty from being assessed. See id. at 220-21. The court further observed that the last moment that a supervisor still has [*12] discretion to give or withhold approval is the IRS’s issuance of the notice of deficiency, id. at 221, because after a notice of deficiency is issued the IRS loses the discretion not to assess penalties. See 26 U.S.C. § 6213(c) (“the deficiency . . . shall be assessed” if the deadline for seeking tax court review expires); § 6215(a) (if taxpayer petitions the tax court, then the tax court determines the deficiency and penalties, which “shall be assessed” once the tax court’s decision becomes final). Accordingly, the Second Circuit held “that § 6751(b)(1) requires written approval of the initial penalty determination no later than the date the IRS issues the notice of deficiency . . . asserting such penalty.” Chai, 851 F.3d at 221.

            We are persuaded by the Second Circuit’s reasoning and hold that with respect to civil penalties, the requirements of § 6751(b)(1) are met so long as written supervisory approval of an initial determination of an assessment is obtained on or  before the date the IRS issues a notice of deficiency.6  In this case, it is undisputed that the proposed penalties received written supervisory approval three months before the IRS issued the notice of deficiency to Mr. Minemyer. That is all that § 6751(b)(1) required. We therefore reverse the holding of the tax court denying a [*13] civil fraud penalty for 2001 and remand for the tax court to decide on the evidence whether Mr. Minemyer is liable for the civil fraud penalty for 2001.