More on Whether Treasury/IRS Interpretations under § 7805(a) Are Entitled to Loper Bright Deference? (5/29/25; 5/30/25)

I write today to address the issue of whether  § 7805(a) is the type of provision that Loper Bright would treat as a delegation to the Treasury/IRS that qualifies for what I call “Loper Bright deference” (for lack of a better word). By Loper Bright deference, I mean some authoritative gravitas for agency interpretations beyond Skidmore respect (Skidmore requires the Court to be persuaded that the agency interpretation is the best and is not deference, despite some claims otherwise). Some readers of this blog may recall that I have addressed the § 7805(a) issue in two prior blogs:

• Do General Authority Congressional Delegations of Authority to Prescribe Regulations to Carry Out the Provisions of the Statute Qualify for Loper Bright Deference? (Federal Tax Procedure Blog 11/12/24), here.

• Can § 7805(a) & (b) Be Read as Delegating to Treasury/IRS Interpretive Authority with Deference (Federal Tax Procedure Blog 7/14/24), here.

I am prompted to return to the issue by a recent article By Professor Mitchell M. Gans [bio here], Has the Supreme Court Already Resolved How Loper Bright Applies to Section 7805 Regulations?, 187 Tax Notes Fed. 1069 (May 12, 2025), here. Professor Gans argues that, sub silentio, the Supreme Court in Bondi v. VanDerStok, ___ U.S. ___, 145 S. Ct. 857 (2025) effectively decided that § 7805(a) is not entitled to Loper Bright deference by applying the Skidmore factors to a statute under the Gun Control Act that is functionally the same as § 7805(a). For those wishing to read VanDerStok, the Supreme Court slip opinion is here and the GS opinion (paginated to 145 S.Ct.) is here. (Caveat: some refer to the respondent in the case as Vanderstok; the proper name is VanDerStok. See the petition here and the slip opinion where most but not all references are to VanDerStok.)

I do not agree with Professor Gans’ reading of VanDerStok. I don’t read VanDerStok as a Skidmore case where the court gives the agency interpretation some oomph beyond what the statutory text and context would allow. None of the opinions in VanDerStok mention Skidmore or deference. VanDerStok involved the propriety of a facial challenge to the agency interpretation. A facial challenge requires that there is no realistic set of circumstances in which the interpretation could be valid. (By contrast, an as applied challenge claims only that as applied to the plaintiff, the interpretation is not valid.) The Court spends most of its time analyzing the consistency of the interpretation with the statute and its context, a type of classic de novo interpretation. 

Most instructively, the VanDerStok opinion for the Court, in closing, dismisses a lenity argument. Lenity is an interpretive rule for interpretations in a criminal or penalty context that resolves ambiguity in favor of the person subject to the criminal law or penalty. (Something like the now rejected Chevron deference requiring ambiguity.) The Court says (145 S.Ct. at 876; bold face supplied by me):

Tax Court Rejects Too Good to be True Tax Shelter Defense Based on Tax Opinion Purchased to Support a Reasonable Cause Defense (5/17/25)

In Stevens v. Commissioner, T.C. Memo. 2025-45, TCM here * & GS here, the court rejected the taxpayer’s arguments for the merits of the bullshit, “too good to be true,” tax shelter. Most of the findings of facts and opinion relate to the merits. As usual, the shelter was effected through a shroud of complex financial documents that, in the end, signified nothing that was cognizable for tax purposes. 

* Readers wishing to access the opinion through the docket entries may do so here at docket # 199.]

I find the penalties interesting because the taxpayers recognized that the shelter might be subject to penalties and, for that reason, “purchased” a tax opinion that, they hoped, would protect them against penalties if the IRS saw through the smoke and mirrors in the documents and disallowed the tax benefits of the shelter. Here are some quotes from the opinion (boldface supplied by JAT):

In July 2014 Shannon Stevens [the wife-taxpayer] became concerned with the risk of tax penalties if SLS engaged in the Dermody transaction and claimed interest deductions related to it. Shannon Stevens was the longtime owner and operator of her own accounting firm. She had substantial experience preparing tax returns for individuals and small businesses. She discussed with both Dermody and Witten her concern about tax penalties.

 On July 29, 2014, Dermody sent Shannon Stevens a sample tax opinion letter relating to a transaction of a different type from the Dermody transaction. Dermody recommended that she obtain a tax opinion letter about the Dermody transaction.

 On July 30, 2014, Gopman spoke to Witten and recommended to Witten that petitioners obtain a tax opinion letter from Jeffrey Rubinger, a tax attorney. On July 30, 2014, Witten emailed Shannon Stevens with a copy to Kirk Stevens and Gopman. Witten recommended that petitioners obtain a tax opinion letter for their “protection.” Witten stated that a tax opinion letter could be obtained from Rubinger “for a reasonable price.” In a separate communication with Shannon Stevens, Witten specifically suggested that a tax opinion letter could be obtained from Rubinger for $10,000.

The estimated cost of the opinion letter was too low; the opinion letter ultimately cost $40,000.

Tax Court Discovery Subpoenas to Third Parties Returnable Before Trial Calendaring (5/13/25)

I have just revised the working draft discussion relating to third-party subpoenas. (Practitioner Ed. p. 572; Student Ed. p. 394. As revised, the text and footnotes (not in Student Ed.) are (with redline for changes and one strikeout; note footnote numbers are for this posting but will change in the 2025 Practitioner Ed.):

Trial Subpoenas (both for testimony or for documents or things) may be used for discovery. Section 7456(a)(1) permits Tax Court judges and some officers to issue subpoenas compelling “the attendance and testimony of witnesses, and the production of all necessary returns, books, papers, documents, correspondence, and other evidence, from any place in the United States at any designated place of hearing.” As interpreted in orders, subpoenas may have a return date in advance of the trial calendar in which the case is to be tried.n1 Indeed, discovery subpoenas for a return date at the calendar session for trial may irritate the judge if the discovery should have occurred before the trial calendar, which may cause the judge to quash the subpoena.n2 These discovery subpoenas are used to compel third-party testimony or production of documents; discovery from the taxpayer-petitioner is pursued through the informal and formal discovery procedures (such as request for production, interrogatories, etc.), preceded by a Branerton request. The depositions or documents may be used at trial with the proper predicate (which may be by stipulation); either party may still desire to issue a trial subpoena in order to ensure that the documents can be admitted.
   n1 Production in advance of the trial setting may be more efficient to manage the documents and trial. The Tax Court may issue an order for return on the subpoena in advance of the trail session, permitting subpoenaed testimony. Ubiquiti, Inc. v. Commissioner (T.C. Case No. 22581-22 Dkt. # 54 Order dtd. 5/12/25) (Judge Lauber, citing North Donald LA Property LLC v. Commissioner (Order T.C. Dkt. 24703-21 #52 10/14/22), said: “For more than four years this Court has been conducting regularly-scheduled document subpoena hearings on virtually every Wednesday during the calendar year. The purpose of this well-established procedure is to set a hearing date in advance of trial at which document subpoenas may be returnable under Rule 147(a). Neither section 7456(a) nor Rule 147(c) requires that a case be  calendared for trial as a precondition to the convening of a document subpoena hearing.”).
            Section 301 of The Taxpayer Assistance Act (“TAS”), a bipartisan bill in the Senate in 2025, would eliminate the “at any designated place of hearing,” that was read by some to require the return date at the trial setting (a reading that, as noted in the preceding paragraph is rejected). The Section-by-Section discussion of the proposal explains that, under present law, the Tax Court does not have “express authority to issue a third-party subpoena for the production of documents before or in the absence of a hearing date”; the discussion indicates that the wording of § 301 grants the express authority presumably by eliminating the language that had been misread by some.
   n2 See YA Global Investments, LP v. Commissioner (Docket Nos. 14546-15, 28751-15 Order dtd. 10/1/20) (holding that trial subpoenas for documents were used for improper discovery). See Samantha Galvin, A Tax Court Procedural Anomaly: the Trial Subpoena Duces Tecum, Designated Orders July 29 – August 2 (Procedurally Taxing Blog 9/24/19) (discussing unpublished order in Cross Refined Coal, LLC,  v. Commissioner (Dkt 19502-17 Order Dtd. 8/1/19)).

 A pdf of the changes is here (note that the footnote numbers are not final).

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?"

Sixth Circuit Opines on Types of Deference after Loper Bright (4/28/25)

In United States v. Bricker, 135 F.4th 427 (6th Cir. 2/22/25), CA6 here and GS here the majority held that 18 U.S.C. § 3582(c)(1)(A) allowing a court to reduce a final prison sentence for “extraordinary and compelling reasons” was sufficiently plain in meaning that Congress did not delegate to the Sentencing Commission the authority to interpret the phrase to include consideration of a nonretroactive sentencing law change it as it had in U.S.S.G. § 1B1.13(b)(6). The majority reached that conclusion based on its holding of plain meaning or nonambiguity.

Query would the majority holding have been different if the Court found an express delegation of interpretive authority which still requires ambiguity but cannot be based on ambiguity alone? I get into that issue below.

The dissenting judge (Jane Stranch) argues that “extraordinary and compelling reasons” is ambiguous, without a plain meaning (at least with regard to the factor under consideration), and that Congress delegated the authority to the Commission to interpret “extraordinary and compelling reasons” within the bounds of its ambiguity. The dissent did not argue that ambiguity alone warranted the conclusion of congressional delegation of interpretive authority (that is prohibited by Loper Bright’s rejection of Chevron deference), but that the structure and context of the provision made it clear that Congress intended the Commission to interpret the ambiguous phrase. Under this argument, the delegation would pass muster under Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024).

The interesting part of Judge Stranch’s dissent is her conclusion that Congress delegated interpretive authority to the Commission. She argues that delegated interpretive authority (again based on factors other than ambiguity alone) is governed by the same deference as under Chevron—reasonable within the scope of ambiguity. (All iterations of deference have required statutory ambiguity; Chevron alone treated ambiguity as the basis for a fictional congressional delegation.) Of course, delegated interpretive authority requires some ambiguity, otherwise there is no interpretive authority to delegate or apply. But once there is ambiguity and a delegation of interpretive authority not based on ambiguity, the agency reasonable interpretation should control. And, the elements for Loper Bright qualified deference are present--congressional delegation and reasonable interpretation within the scope of the statutory ambiguity.

A key issue in the difference between the majority and the dissent was a Sixth Circuit precedent, United States v. McCall, 56 F.4th 1048 (6th Cir. 2022) (en banc). McCall’s en banc decision had treated the phrase “extraordinary and compelling reasons” before the Commission’s later guidance in question in Bricker to have a plain meaning not to include a nonretroactive factor such as a reduction in authorized sentences. Of course, under the Chevron regime, agency interpretations could overrule prior court precedents in some cases. Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967 (2005). With the demise of Chevron via Loper Bright, Brand X was no longer controlling for agency interpretations given deference based on ambiguity alone. In Bricker, the majority held that McCall was controlling on the issue of whether the phrase “extraordinary and compelling reasons” was ambiguous; McCall held the phrase was not on the retroactive factor issue. The majority thought McCall’s holding of nonambiguity was binding precedent on the issue of consideration of a nonretroactive sentencing factor. 

Conflicting Statutes of Limitations for Regular Tax Assessments and Restitution-Based Assessments (4/27/25)

 In United States v. Brown (W.D. WA Case No. 24-cv-05021 Dkt. No. 38 Order dated 4/21/25), GS here and CL here, the Court upheld the validity of a restitution-based assessment (“RBA”) against Brown that was for the same tax that had been previously assessed against Brown. (For prior Blogs on RBAs on the Federal Tax Crimes Blog, see here, and on the Federal Tax Procedure Blog, here.) For clarity, I will differentiate the two assessments by calling the first-in-time assessment, the regular assessment and the second-in-time assessment the RBA. The reason that was even an issue was because Brown never fully paid the regular assessment and the 10-year statute of limitations to collect any balance on the regular assessment (by reducing to judgment) had expired. Brown claimed that, since the statute of limitations on the regular assessment had expired, thus preventing the IRS from claiming on that regular assessment, the IRS could not end-run the regular assessment statute of limitations based on the RBA assessment. At least that is how I understand Brown’s claim that the court rejected, thus permitting the government to reduce the RBA to judgment and use the RBA extended statute of limitations to collect (including further extending the statute of limitations).

I think the court properly gives a good textual reading of the applicable statutory provisions. I am concerned that the decision may not be consistent with the purpose or intent of the statute. (For a textualist, purpose or intent may not matter.) Although I have not filtered back through the legislative history, my understanding of the purpose of the RBA was to avoid requiring the IRS to jump through assessment hoops for tax ordered as restitution. In other words, it was to permit the IRS to make an immediate assessment where it had not assessed before. (Stated otherwise, it was not to give the IRS two independent assessments to collect. The Code provisions do not say that, but that is my understanding of the need for an RBA. If the tax later subject to restitution had already been assessed, there would be no need for an RBA. And the IRS could deal with an expiring statute of limitations on the regular assessment by simply reducing the regular assessment to judgment, thereby refreshing the statute of limitations.

It is true that § 6501 says that § 6501(c)(1) says: “In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.” But, at a minimum, that would only apply where there was no regular assessment and presumably no RBA. Where there is a regular assessment, one might argue through inference that the regular assessment statute and its limitation period should apply.

Court Dismisses Bivens Claim Against IRS Agents for Asserting Accuracy-Related Penalties (4/21/25)

In Ray v. Priver, et al., 2025 U.S. Dist. LEXIS 71600, 2025 WL 1113406 (D. D.C. 4/15/25), CL here and GS here, The Court dismissed Ray’s Bivens actions against IRS agents that, he claimed, violated his constitutional rights in the IRS’s assertion of the accuracy-related penalty under § 6662(b)(1) and (2) and then in improperly influencing the Tax Court’s sustaining of the penalties in Ames v. Commissioner, T.C. Memo. 2019-36, GS here, aff’d in part and reversed in part with respect to a portion of the penalties, Ray v. Commissioner. 13 F.4th 467 (5th Cir. 2021), after remand motion to Reopen the Record denied in Tax Court (10/28/22), aff’d on appeal Ray v. Commissioner, 2023 U.S. App. LEXIS 21799, 2023 WL 5346067 (5th Cir. 8/18/23), GS here*, and petition for rehearing denied Ray v. Commissioner, 2023 U.S. App. LEXIS 27464 (5th Cir. 10/16/23). At the end of all that commotion from the main Tax Court case in 2019, Ray was liable for some of the accuracy-related penalty but not for a portion for which the Court of Appeals reversed the Tax Court on its denial of the “reasonable cause” defense.

I asked Gemini, Google’s AI Tool, to summarize the case. The following is the result which I have massaged somewhat (reminder these AI Tools, while good, need to be carefully reviewed and revised as appropriate).

Background:

• In 2014, the IRS audited Ray and issued a notice of deficiency, including a penalty under 26 U.S.C. § 6662(a) & (b)(1) (negligence or disregard) (b)(2) (substantial understatement).
• Ray claims this penalty was unwarranted, alleging that two other IRS agents found insufficient evidence for it. He asserts that Lawson and Priver knew this but still pursued the penalty and falsified evidence in his administrative file.
• Ray initially challenged the penalty in Tax Court, where he alleges Priver and Lawson repeatedly lied and falsified evidence. The Tax Court upheld the penalty, but the Fifth Circuit reversed finding Ray not liable for some of the penalty based on reasonable cause. On remand, the Tax Court entered decision sustaining the deficiency and the portion of the penalty approved by the Fifth Circuit.
• Ray later obtained files through a FOIA request, which he claims revealed that Priver and Lawson maliciously prosecuted the penalty claim and concealed exculpatory evidence.

Claims:

• Ray sued Priver and Lawson in their individual and official capacities, alleging what he called a Bivens action:
• Count I: Malicious prosecution in violation of the Fourth Amendment.
• Count II: Denial of a fair trial under the Fifth Amendment's Due Process Clause.

Defendants' Motion to Dismiss:

• Defendants moved to dismiss, arguing:
• Improper service (later moot due to government acceptance of service).
• Sovereign immunity bars official-capacity claims (conceded by Ray).
• Failure to state a claim against individual defendants under Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics.

Court's Ruling:

• The Court GRANTED the Defendants' motion to dismiss.
• The Court agreed that Ray's claims against Priver and Lawson in their official capacities are barred by sovereign immunity.
• Regarding the individual-capacity claims, the Court applied the two-step Bivens analysis:
• New Context: The Court found that Ray's claims arise in a "new context" because they involve IRS employees, a different statutory mandate (Internal Revenue Code), and do not align with the specific constitutional violations in the three previously recognized Bivens cases (Fourth Amendment unreasonable search and seizure, Fifth Amendment sex discrimination, and Eighth Amendment cruel and unusual punishment).
• Special Factors: The Court found "special factors" counseling against a new Bivens remedy, primarily the existence of a comprehensive alternative remedial scheme within the Internal Revenue Code. This scheme includes administrative review, the ability to sue for a refund, challenging assessments in Tax Court, and the Treasury Inspector General for Tax Administration (TIGTA) for investigating employee misconduct. The Court emphasized that even if these remedies don't provide complete relief (like monetary damages), their existence is sufficient to preclude a new Bivens action. 

• JAT Addition: The Court relied significantly on the Supreme Court’s admonition that expansions from past Bivens applications is “now a ‘disfavored’ judicial activity.” Hernandez v. Mesa, 589 U.S. 93, 102 (2020); and Ziglar v. Abbasi, 582 U.S. 120, 135 (2017) (citing Ashcroft v. Iqbal, 556 U. S. 662, 675 (2009)). 

Conclusion:

The Court concluded that Ray's case presents a new Bivens context, and the presence of an existing remedial scheme within the Internal Revenue Code constitutes a "special factor" that makes it inappropriate for the judiciary to imply a new damages remedy against individual IRS employees. Therefore, the Court dismissed Ray's amended complaint.

JAT Comments:

Political Thrashing Around Acting Commissioners and Commissioner of Internal Revenue (4/18/25; 4/19/25)

I thought I was through posting for the day and even for a few days. But this new item popped up. Jonathan Swan, Andrew Duehren, Alan Rappeport and Maggie Haberman, Head of I.R.S. Being Ousted Amid Treasury’s Power Struggle With Elon Musk (NYT 4/18/25), here. I think readers should be able to read the article, but if not a free article of some of the same content is Katherine Doyle, Trump is replacing the acting IRS commissioner, part of a dispute between treasury and Elon Musk (NBC News 4/18/25), here.

President Trump nominated a political actor, William Hollis Long II (“Billy”), Wikipedia here, but he has yet to have confirmation hearings. As the articles note, there has been some thrashing around in the “Acting” leadership in the IRS because of political meddling by Trump and his sycophants. I don’t propose to go into that.

The statute requires that the Commissioner have “demonstrated ability in management.”  § 7803(a)(1)(A), here. I would think that, by reasonable inference, Acting Commissioners should also meet that requirement. Hence, in the past Acting Commissioners were often drawn from high level Executive IRS officers who have demonstrated ability in management. Melanie Krause, Wikipedia here, former Acting who left a couple of days ago, had such demonstrated ability. She was replaced by Gary Shapley, one of the “whistleblowers” on the IRS investigation (conducted with the USAO Delaware) of Hunter Biden. It was never clear to me that Mr. Shapley had any such “demonstrated ability in management.” Nor, is it evident that Mr. Long, a former auctioneer and U.S. Representative, has such “demonstrated ability in management.”

Trump may have appointed Mr. Long to create further dysfunction in the IRS, so lack of management skills may be the whole point. Still, I would think that someone who is both smart and with management skills could do a better job of wrecking the IRS.

Trump’s First Term Commissioner was Charles P. (“Chuck”) Rettig, Wikipedia here. I know Chuck and like him a lot. I was not aware of his demonstrated ability in management, but I did know him to be a very smart, competent, and experienced tax attorney with great people skills. From what I can determine, he did a great job as Commissioner. By contrast, I have no reason to believe that Billy Long brings those characteristics, much less management skills, to the job for which he has been appointed. Maybe with his auctioneer skills, he can sell off the outsourcing of the IRS to the highest bidder (perhaps Musk).

Update on 4/19/25 @ 3:45pm: The President has named Michael Faulkender, Deputy Secretary of Treasurer, as the Acting Commissioner of Internal Revenue to act until the Presidential nominee (currently Billly Long, the auctioneer) is approved by the Senate. Faulkener's Wikipedia page is here. It is not apparent from the Wikipedia description that Faulkender has “demonstrated ability in management,” although he certainly appears to be a smart and capable person and likely can meet the demands of the office. 

In terms of credentials and apparent mental firepower, Faulkender stands head and shoulders over the immediately preceding Acting Commission, Gary Shapley, Wikipedia here, who lasted just a few days in office and whose only claim to prominence was that, as an IRS Criminal Investigation Special Agent, he blew the whistle on claimed mismanagement of the Delaware U.S. Attorney’s investigation of Hunter Biden. Having blown the whistle on matters that implicate Joe Biden, Shapley became the darling of the conservatives and particularly Donald J. Trump, who hates Joe Biden with a passion. It was not clear to me how Shapley remotely qualified for the position of Acting Commissioner of Internal Revenue. Of course, as I noted above, it is not clear to me how the nominee for Commissioner, Billy Long, the auctioneer, remotely qualifies.

The Section 7217 Crime of Executive Office, including President, Requesting or Directing IRS to Examine or Audit (4/18/25)

I have been thinking about President Trump’s public scrap with Harvard University, In doing so, I have reviewed § 7217, titled " Prohibition on executive branch influence over taxpayer audits and other investigations," here, which makes it a felony crime (5 years) for any “applicable person”—including the President—"to request, directly or indirectly, any officer or employee of the Internal Revenue Service to conduct or terminate an audit or other investigation of any particular taxpayer with respect to the tax liability of such taxpayer.” I won’t go through the “applicable person” list because the President is clearly one of them. And the crime is to "directly or indirectly" make the request.

I discuss § 7217 in my Federal Tax Procedure Book, 2023 Practitioner Edition p. 420 and Student Edition p. 291. In reviewing that discussion to see whether I should change anything in the Working Draft for the 2024 Editions, I have made minimal changes to the text but have added a footnote with respect to the exclusion of the Attorney General from the prohibition. As revised in the Working Draft for the 2024 Editions, the second sentence (with footnote for the Practitioner Edition) says:

The executive branch personnel within the scope of this prohibition are: (i) the President and Vice President and their respective executive offices; and (ii) persons at level 1 of 5 U.S.C. § 5312 (generally department heads other than the Attorney General).n1828a*
   n1818a I have not researched legislative history of this section to determine whether it explains why the Attorney General was excluded from the prohibition on Executive level actors. One reason might be that DOJ Tax, acting on behalf of the AG, must interact with the IRS often to carry out its duties and probably could and should be able to request the IRS to examine or audit. Another reason could be that the prohibition, enacted in 1998, was at a time when the norm had been established to avoid such White House or Executive Office direction of the AG and DOJ generally.
          The exclusion of the AG from the prohibition takes on great significance in the Trump Second Administration (2024-2028) where (i) Trump acts contrary to the norm, publicly claiming that the DOJ acts under his control and (ii) Trump installed a compliant AG, Pamela Bondi, willing to do his bidding or his wishes as she perceives them. Could Trump skirt the prohibition by asking or directing the AG to request an IRS examination? For example, it is widely reported that, in his attempt to make Harvard University bend the knee to him, Trump has publicly proclaimed that the IRS should revoke Harvard’s tax exempt status. E.g., Aimee Picchi, Can Trump or the IRS strip Harvard of its tax-exempt status? Here's what to know (CBS News 4/17/25). By publicly attacking Harvard’s tax exempt status, is that enough to indirectly direct the AG to make the request to the IRS or even for the IRS, “sua sponte,” to act to examine Harvard? The statute does prohibit requests “directly or indirectly.” A comparison might be made to Henry II who in a moment of pique at Thomas Becket, Archbishop of Canterbury, is  alleged to have said "Will no one rid me of this turbulent priest?” (or some variant) which some of his sycophants took as a direction or request and murdered Becket in 1170. See Wikipedia “Thomas Becket,” here (last edited 4/9/25 and viewed 4/17/25) (noting that “Regardless of what Henry said, it was interpreted as a royal command.”). Can the President avoid § 7217 in that manner? Or, to extend the thought, could the IRS begin examinations of persons with whom the President expresses displeasure? Or at least the principal actors drawing the President’s angst? Readers might also consider Trump’s Executive Order among many on the first day of office supposedly to end the weaponization of Government. See Executive Order titled “Ending the Weaponization of the Federal Government” # 14147 (1/20/25), here. I think the record to date shows at least the possibility that Trump has weaponized the Federal Government despite his own Executive Order. Of course, violating his own Executive Order merely shows that the President is a hypocrite, and, so far as I am aware, hypocrisy is not a crime, nor is violating an Executive Order.

* Note that the footnote number is consistent with the 2023 text but that footnote number will be different in 2024 final Professional Edition and the content of the footnote may even be revised before publication of the Edition.

Another Bullshit Tax Shelter Goes Down; On Frank Lyon (4/17/25)

Judge Lauber nails another bullshit tax shelter in GWA, LLC v. Commissioner, T.C. Memo. 2025-34, TC here at Dkt # 357, GS here [to come] and TN here. Suffice it to say that Judge Lauber was not confused by the smoke and mirrors the taxpayer threw up on the proverbial wall. The key issue is whether the financial contract was an option contract or an ownership contract. For the tax benefits, the taxpayer wanted to treat it as an option contract, the form in which it appeared; the taxpayer argued it was an option contract that permitted deferral and ultimate favorable tax treatment; the IRS asserted it was an ownership contract not allowing such treatment. Other issues were (i) whether the treatment as an ownership contract was, under the facts, a change of accounting requiring a § 481 adjustment (it did) and (ii) whether the taxpayer was subject to penalties (it is).

I write to discuss the role of Frank Lyon Co. v. United States, 435 U.S. 561, 573 (1978) in the opinion. Frank Lyon was a disaster of an opinion, and my principal poster child as to why tax cases are too important to have the Supreme Court decide them. (That is hyperbole, of course, but not much.) In Frank Lyon, the Court, while nominally honoring the venerable tax concept of substance over form, entered a fact-intensive multi-element inquiry to bless the form of a sale-leaseback transaction with tax ownership benefits (depreciation) going to the nominal lessor (Frank Lyon). I think that most careful observers of Frank Lyon believe that Frank Lyon was incorrectly decided. E.g., Charles I. Kingson, How Tax Thinks, 27 Suffolk U. L. Rev. 1031, 1034-35 (2004). “few [tax] shelters are shoddier than those approved by the Court in Lyon and Brown [Commissioner v. Clay B. Brown, 380 U.S. 563 (1965)]”; and Bernard Wolfman, The Supreme Court in the Lyon's Den: A Failure of Judicial Process, 66 Cornell L. Rev. 1075, 1098 (1981). Still, perhaps saving the day, courts generally find enough in Frank Lyon to reject bullshit tax shelters, as Judge Lauber did in GWA, LLC v. Commissioner.

I won’t get into a back story on Frank Lyon in which I was peripherally involved at DOJ Tax. Perhaps I will write on it sometime, in order to explain why, in my judgment, the Court imprudently granted the petition for certiorari in the first place and then wrote the opinion the way it did (in my view imprudently, rather than DIG the case). Nevertheless, that should not detract from the opinion on its four corners. Since Frank Lyon, most of the bullshit tax shelter legal opinions cite and claim to rely on Frank Lyon. Most judicial opinions cite Frank Lyon in shooting down bullshit tax shelters.