D.C. Circuit Holds Equitable Tolling May Apply to Time Limit in Whistleblower Case (7/4/19)

In Myers v. Commissioner, ___ F.3d ___, 2019 U.S. App. LEXIS 19757 (D.C. Cir. 2019), here, the Court applied the jurisdictional/nonjurisdictional distinction to determine that the time period in § 7623(b)(4) to petition the Tax Court with respect to an IRS whistleblower determination is nonjurisdictional, thus allowing the potential for equitable tolling of the time period.  The Court of Appeals remanded the case to the Tax Court to determine whether equitable tolling applied.  (See also Carlton Smith (Guest Blogger), D.C. Circuit Holds Tax Court Whistleblower Award Filing Deadline Not Jurisdictional and Subject to Equitable tolling (Procedurally Taxing 7/3/19), here.

Based on Myers, I have just revised the section of my tax Federal Tax Procedure book working draft and offer it here.  (I remind readers that the next updated version of the book will by in early August.)  Here is the revised discussion of equitable tolling (without footnotes, although I do offer the text and footnotes in a pdf available here, but do caution readers that the quote has been "cleaned up" which I note in the footnote in the pdf version):

VII. Smoothing the Harsh Effects of Statutes of Limitation.

* * * *

C.  General Equitable Principles (Herein of Jurisdictional/Nonjurisdictional).

The Code’s time limits (often called statutes of limitations) are classified for some purposes as either jurisdictional or nonjurisdictional.  This issue is presented for time limits throughout federal law, including applications of time limit in the Code. In the tax context, this distinction has been in issue most importantly where there are time limits for a taxpayer to obtain court review of IRS action (such as the 90-day period to petition for redetermination of a notice of deficiency or the periods for filing claims or suits for refund).  The question is how rigid the time limits are.  If the time limits are rigid time limits that must be met without exception, they are called jurisdictional because failure to meet the time limit will deprive a court of “jurisdiction” to consider the dispute between the taxpayer and the IRS.  By contrast, if a time limit is nonjurisdictional, it may not be quite so rigid, and may permit relief by way of “tolling” or suspending the time limit in certain cases.  Ultimately, the question the distinction is based upon the court’s interpretation of the time limit (both the text and the context) as evidencing Congress’s choice that the time limit to be rigid or, alternatively, to permit some tolling or suspension of the time limit based on traditional equitable considerations.

In a tax case in 2019, The D.C. Circuit explained:

The Supreme Court in recent years has pressed a stricter distinction between truly jurisdictional rules, which govern a court's adjudicatory authority, and nonjurisdictional claim-processing rules, which do not.  Key to our present decision, the Court has made plain that most time bars are nonjurisdictional; they are quintessential claim-processing rules which seek to promote the orderly progress of litigation, but do not deprive a court of authority to hear a case.  Therefore, although the Congress is free to attach the jurisdictional label to a rule that we would prefer to call a claim-processing rule, we treat a time bar as jurisdictional only if Congress has clearly stated as much.  The Supreme Court has explained that this clear statement requirement is satisfied only if the statute expressly refers to subject-matter jurisdiction or speaks in jurisdictional terms. It is not enough, for instance, that a statute uses mandatory language.

The issue of jurisdictional/nonjurisdictional as to when the Code’s time limits must be met or might be tolled or suspended based on equitable considerations is not fully fleshed out.  As noted in the quote above, the Supreme Court “in recent years” began pressing a stricter distinction; that process of pressing the distinction generally has resulted in many time limits throughout the law to be nonjurisdictional so that rigid compliance is not required.  As with much of federal law, most of the time limits in the Code were adopted at a time before the jurisdictional/nonjurisdictional distinction became prominent, so Congress did not make its “intent” clear as to whether the time limit is to be rigid or not.  The courts thus have to consider closely the text and context, the statutory language and its context in the tax system involving millions of taxpayers where, at least in some cases, not imposing rigid time limits could impose its own inequities and impose unacceptable administrative burdens on the IRS.

Supreme Court Yet Again Weighs In At the Edges on Legislative and Interpretive Rules (6/26/19; 7/2/19)

In Kisor v. Wilkie, 588 U.S. ___, 139 S.Ct. 2400 (2019) [Sup Ct Slip Op here; Google Scholar with S.Ct. pagination here], the Supreme Court decided to retain Auer deference, at least for now.  I offer some preliminary thoughts on the opinions in Kisor and may revise them as I think further and consider others comments.

Although perhaps oversimplifying for analysis, I think Auer deference functions like Chevron deference but one step removed from the statutory text.

• Chevron deference applies to some reasonable agency interpretations of ambiguous statutory text.
• Auer deference applies to reasonable agency subregulatory interpretations of  ambiguous agency regulations (which for this purpose may be either (i) ambiguous legislative regulations (e.g., in a tax context, ambiguous consolidated return regulations) or (ii) ambiguous interpretive regulations entitled to Chevron deference (e.g., in a tax context, say ambiguous “away from home” interpretive regulations entitled to deference as in Correll)).

In Kisor, while re-affirming Auer deference, the opinions were fractured as to what Auer continues to mean and whether it may be on life support.  All we can say for sure is that Auer lives (for now, although its precise application may be muddled and Kisor clearly restricts Auer’s application over what some of the prior less restrained applications suggested).

I don't want to get into the Justices competing views of Auer deference.  The pundits will be doing that for some time now.

I do want to get into what, if anything, Kisor says about the legislative / interpretive issue that I have fulminated about recently.  See Article on the Continued Viability of the APA Category of Interpretive Regulations (Federal Tax Procedure Blog 6/21/19), here; and Supreme Court Again Weighs In At the Edges on Legislative and Interpretive Rules (Federal Tax Procedure Blog 6/23/19), here.

Just to restate the issue.  Some, a considerable consensus in the scholarly community, claim that the interpretive regulation is no longer viable, having been conflated into legislative rules by judicial opinions after the adoption of the APA.  I reject that notion.  I do note as an important pushback Justice Breyer's comment in the Kisor oral argument:  “there are hundreds of thousands, possibly millions of interpretive regulations.”   Justice Breyer is, of course, an administrative law expert (he and Justice Kagan are the administrative law experts on the Court), and he thinks that interpretive regulations are still viable.  (Significantly, at oral argument, no Justice challenged the notion that interpretive regulations were a viable APA category.)

The Kisor opinions, as I said, were fractured, with some key points not gathering a majority. The Justices in the plurality for the Court opinion which I discuss herein were Justices Kagan (author), Ginsburg, Breyer and Sotomayor.  Remember  that Justices Kagan and Breyer are the Court's administrative law experts, so from the perspective I focus on (the APA distinction between legislative and interpretive regulations), Justice Kagan's opinion concurred in by Justice Breyer are most important to the legislative /interpretive issue.

Supreme Court Again Weighs In At the Edges on Legislative and Interpretive Rules (6/23/19; 7/2/19)

The immediately preceding blog reported my new article posted on SSRN titled The Report of the Death of the Interpretive Regulation Is an Exaggeration.  See Article on the Continued Viability of the APA Category of Interpretive Regulations (Federal Tax Procedure 6/21/19), here.  One of the threads in the claim that the APA category of interpretive regulations is no longer viable is the notion that Chevron deference, when applied to interpretations in agency rule (regulations in specific), gives the interpretation the force of law, supposedly the hallmark of a legislative rule (which must be by notice and comment regulation) rather than an interpretive rule.  I argue in the article that "force of law" is a slippery concept, but in this context is the consequence of a regulation being legislative and not a test that a regulation is legislative.

I address in this blog a new development that, I think, refutes the notion that Chevron deference for agency interpretations is relevant to the issue of whether rules (including regulations) are legislative or interpretive.

I noted in the article that, on March 27, 2019, during oral argument in Kisor v. Wilkie (Sup. Ct. No. 18-15), Justice Breyer, an administrative law expert (along with Justice Kagan), said: “there are hundreds of thousands, possibly millions of interpretive regulations.”  I noted in the footnote (p. 5 n. 14) that Justice Breyer was formerly a professor of administrative law at Harvard Law School and is the lead author on a leading administrative law book which continues with his name as a nominal author. Stephen G. Breyer, et al., Administrative Law and Regulatory Policy (8th ed. 2017 Walters Kluwer), co-authored with four other recognized administrative law experts, Richard B. Stewart, Cass R. Sunstein, Adrian Vermeule, and Michael E. Herz.  (Justice Kagan also taught administrative law at Harvard Law School.)

Justice Breyer is at it again, this time refuting the notion that Chevron sounded the death knell of the interpretive regulation.

In PDR Network, LLC v. Carlton & Harris Chiropractic, Inc., 588  U.S. ___, ___ S.Ct. ___, 2019 U.S. LEXIS 4181 (2019), here, decided June 20, 2019, the issue was judicial reviewability of final orders of the Federal Communication Commission (FCC).  The FCC had issued a final Order interpreting the prohibition on "unsolicited advertisement" as used in the Telephone Consumer Protection Act of 1991, 47 U. S. C. §227(b)(1)(C).  The statute gave courts of appeals “exclusive jurisdiction to enjoin, set aside, suspend (in whole or in part), or to determine the validity of” certain “final orders of the Federal Communication Commission.” 28 U. S. C. §2342(1).  That "exclusive review" was required in a proceeding brought within 60 days after the entry of the order.  The issue was whether a district court, in an application of the law long after the FCC adopted the Order, precluded the district court from considering the merits of the interpretation in the Order.

Justice Breyer for the majority felt that the issue turned upon preliminary issues not yet addressed by the courts--whether Order was (p. 5, cleaned up)

• "the equivalent of a legislative rule, which is issued by an agency pursuant to statutory authority and has the force and effect of law."

or

• "the equivalent of an interpretive rule, which simply advises the public of the agency’s construction of the statutes and rules which it administers and lacks the force and effect of law?"

Note the phrasing of "equivalent of."

Article on the Continued Viability of the APA Category of Interpretive Regulations (6/21/19)

I have posted on SSRN my article titled "The Report of the Death of the Interpretive Regulation Is an Exaggeration."  Here is the SSRN preferred citation with link to the Abstract page:  Townsend, John A., The Report of the Death of the Interpretive Regulation Is an Exaggeration (June 6, 2019). Available at SSRN: https://ssrn.com/abstract=3400489.  The article may be downloaded at that site.

The following is a brief summary of the SSRN abstract which is linked above:

There is a notion that the Administrative Procedure Act (APA) categories of legislative regulations and interpretive regulations have been conflated into the legislative regulation category so that the interpretive regulation category is now extinct.  The APA does not make the interpretive regulation category extinct, but the notion is based on judicial developments that in effect amend the APA to effectively legislate the category out of the statute.  (OK, that is argumentative.) That notion has considerable traction in the administrative law scholarly community, as I note in the article.  A consequence of this notion, if viable, is that Treasury (and presumably other agency) regulations that go into effect without notice and comment (e.g., Treasury Temporary Regulations) are illegal, and that interpretations in regulations that do no more than interpret the statute cannot have retroactive effect.  I push back on that notion.  With the considerable traction in the scholarly community, I may be wrong.  But, I feel compelled to state my case.

Any feedback from readers will be appreciated.

A subset of the article dealing with the Altera case was presented in Ninth Circuit Reverses Unanimous Tax Court in Altera (Federal Tax Procedure Blog 6/7/19; 6/20/19), here.

Taxpayer Waived Argument that § 6501(c)(1) Requires Taxpayer's Fraud for Unlimited Statute of Limitations (6/14/19)

In Finnegan v. Commissioner, ___ F.3d ___ (11th Cir. 2019), here, the 11th Circuit held that the taxpayers had waived the right to assert the the § 6501(c)(1) required the taxpayer's own fraud for the unlimited statute of limitations.  Readers will recall that § 6501(c)(1) provides as an exception to the normal 3 year civil statute of limitations:

"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."

The Tax Court held in Allen v. Commissioner, 128 T.C. 37 (2007) that the taxpayer's own fraud was not required.  The Court of Federal Claims held in BASR Partnership v. United States, 795 F.3d 1338 (Fed. Cir. 2015), that the taxpayer's fraud was required.

The substantive issue is, of course, important because tax preparers can commit fraud on a return without the taxpayer engaging in the fraud on the return.  In addition, any number of enablers (such as preparers and tax shelter promoters) can commit fraud that finds it way on a return.  In either event, if all that is required is fraud on the return without the taxpayer's own participation in the fraud, then there is an unlimited statute of limitations.

The 11th Circuit did not address the merits of the split between the Tax Court in Allen and the Court of Federal Claims in BASR.  So, the merits of the issue is still open.  The important thing is that the Government is still asserting that Allen was correct -- that the taxpayer's fraud is not required for the unlimited statute of limitations in § 6501(c)(1).  The Government's brief is here.  I offer some brief excerpts from that brief stating the argument (but without the detail support for the argument):

[*2]  

"2. Whether the fraud exception under I.R.C. § 6501(c)(1), requiring 'a false or fraudulent return with the intent to evade tax,' applies where, as here, the taxpayer’s return preparer, and not the taxpayer, possessed the requisite intent." 

* *  * *

Ninth Circuit Reverses Unanimous Tax Court in Altera (6/7/19; 6/20/19; 7/2/19)

I have blogged on the Ninth Circuit's prior opinion reversing the unanimous Tax Court in Altera Corp. v. Commissioner, 145 T.C. 91 (2015) (reviewed opinion), here. Developments - Federal Tax Procedure Book 2018 Editions and Altera (7/25/18; 7/27/18), here. That opinion was reversed because it was rendered after one of the panelist died.  Ninth Circuit Withdraws Altera Opinions (8/7/18; 8/13/18), here.  Another judge was substituted for the deceased judge and oral argument was heard by the reconstituted panel.

The Ninth Circuit reconstituted panel, with all members apparently still alive, issued its opinion reversing the unanimous Tax Court.  Altera Corp. v. Commissioner, ___ F.3d ___, 2019 U.S. App. LEXIS 17143 (9th Cir. 2019), here.

Altera has been quite a saga, including the strange concept of a dead judge joining a majority opinion.  At the outset, it might be worth doing a tally of the judges on the merits.  In just the win-lose category.  There are two judges giving the win to the IRS, but they are the most important judges -- two of the three judges on the reconstituted panel.  All the other judges (other than the deceased Ninth Circuit judge who apparently voted before his death) who voted on merits held against the IRS.  Those judges are the dissenting judge on the reconstituted panel and all of the judges (15 in number) who voted on the reviewed opinion in the Tax Court.  So, just counting heads, two judges thought the IRS should win; 16 thought the IRS should lose.  (And this is not counting the dead judge's vote for the original panel opinion, which, if counted, would have been 3 for the IRS and 16 for the taxpayer.)  For those with the time to review an anecdote from my earlier appellate career at DOJ Tax for a Government appeal, like Altera, from a reviewed Tax Court opinion with most of the judges voting for the taxpayer, see Developments - Federal Tax Procedure Book 2018 Editions and Altera (7/25/18; 7/27/18), here.

Now to the current opinions from the reconstituted panel with living panel members.  The split is as it was in the withdrawn opinion.  Judge Thomas was for the IRS; Judge O'Malley from the Federal Circuit (by designation for the original and reconstituted panel) was for the taxpayer.  The swing judge was Judge Graber from the Ninth Circuit, designated to the panel to replace the deceased Judge Reinhardt.  Like Judge Reinhardt, the swing judge voted with Thomas whose opinion thereby became the majority just as with the withdrawn opinion.

I am focusing here only on the new panel majority and dissenting opinions.  I make no attempt to compare the differences between the withdrawn opinions and reconstituted panel current opinions; I just assume that, in broad strokes, the positions are the same (with some interim tweaking) since the same judges wrote the panel majority and dissenting opinions. (Readers interested in the withdrawn panel majority and dissenting opinions can look at my prior blog or Google any other comment on them.)  Readers interested in a discussion of the differences between the withdrawn and the current opinions might watch the Miller & Chevalier Tax Appellate Blog, here, because, in a quick posting on the blog on Friday, there the author said:  "Although it borrows heavily from the withdrawn opinion (indeed, much of the language remains similar if not the same), there are some notable differences between today’s opinion and the withdrawn opinion. We will post some observations after a more careful comparison."  Steve Dixon, Ninth Circuit Again Upholds Cost-Sharing Regulation in Altera (Tax Appellate Blog 6/7/19), here.

In broad outline, the panel majority opinion holds:

1.  Chevron Analysis.

   a.  Chevron Step One. Section 482 is ambiguous on the issue presented (whether the qualified cost sharing arrangement ("QCSA") must include employee stock option costs in allocating income from the intangible ).  Accordingly, Chevron Step One is passed.

   b.  Chevron Step Two.  The regulations' requirement that employee stock option costs be included in the QCSA costs is reasonable and therefore the interpretation that the court applies, by Chevron deference, in Chevron Step Two.

2.  State Farm Analysis.  The promulgation of the regulation requirement met the reasoned decisionmaking requirement and was not procedurally defective.

Draft of Article on Interpretive Regulations (4/19/19)

I post here for download my article titled "The Report of the Death of the Interpretive Regulation Is an Exaggeration."  Here is a summary of the article:

In this article, I discuss the claim of the demise of the APA category of interpretive tax regulations for APA purposes, a claim that, when extended, is that there are no longer any interpretive regulations for any agencies for APA purposes.  Instead, so the claim goes, the regulations that have historically been considered interpretive because all they do is reasonably interpret ambiguous statutory text, are now legislative regulations under the APA.  My understanding is that the claim has considerable traction in the academic community. 

By contrast, in the recent oral argument in Kisor v. Wilkie (Sup. Ct. No. 18-15), transcript p. 10, here), Justice Breyer, an administrative law scholar (taught administrative law at Harvard Law School), said “there are hundreds of thousands, possibly millions of interpretive regulations.” 

So which is it?  Are there interpretive regulations as a legitimate APA category? 

I claim that, as the title suggests, interpretive regulations are a viable APA category.  I argue that: (i) the APA original public meaning of the interpretive regulation category remains viable; (ii) there have been no material developments after enactment of the APA (including American Mining Congress and Chevron) that changed the original public meaning; (iii) in particular, the concept of deference (both pre- and post-Chevron) never had any role in the APA distinction between legislative and interpretive regulations; (iv) deference (currently in its Chevron iteration) applies to legislative regulations only in determining the scope of the delegation of legislative authority (an interpretive exercise) and has no application to the arbitrary or capricious / State Farm, a different test for procedural regularity (including failure to make reasoned decisionmaking, by extreme example stating a basis for the interpretation that the moon is made of green cheese); and (v) that other distractions along the way are not relevant to the APA’s distinction between legislative and interpretive regulations. 

To be sure, I suppose that Congress could have framed the APA so that all regulations were treated and tested as legislative regulations.  That is not the choice Congress made.  My claim is that, regardless of one’s interpretive bent or judicial philosophy, Congress’ clearly expressed intent in the original public meaning of the legislative / interpretive distinction should control. 

The article is a revision of a draft of the article that I presented in conjunction with a panel discussion on Altera and the intersection of tax law and administrative law at the Virginia Tax Study Group on April 12.

I hope that some readers will download the article, read it, and offer me their comments.  I plan on posting the article to SSRN in the near future, but would like comments before doing so.  Please offer any comments whether as to substance, presentation, grammar, etc.

The title of the article takes off from the famous quote (much misquoted) from Mark Twain (Samuel Clemens) that  “The report of my death was an exaggeration.”  See Wikiquotes entry on Mark Twain, here.

Treasury and IRS Policy Statement on Tax Regulatory Process (3/17/19; 4/19/20)

Treasury and the IRS have issued a joint Policy Statement on the Tax Regulatory Process (3/5/19), here.

I am in the midst of finalizing an article titled:  The Report of the Death of the Interpretive Regulation Is an Exaggeration.  I have just included a discussion of this new policy.  I thought I would offer my discussion although framed in the context of the article.  Here is a cut and paste of the discussion.  This discussion in the article has only a few short(er) footnotes, so I omit the footnotes.

I offer this short introduction so that readers will have some context offered by the article.

In the article, I argue that the Administrative Procedure Act ("APA") permits two types of regulations (those published as regulations in the Federal Register) -- (i)  legislative regulations and (ii) interpretive regulations.  The distinction between the two categories is:

(i) a legislative regulation is promulgated pursuant to express statutory authority to set the law where the regulation functions like a statute because, within the scope of the delegation, the regulation is the law.  The classic tax example of a legislative regulation is the consolidated return rules promulgated by regulation under § 1502. 

(ii) an interpretive regulation is promulgated as an interpretation of a statute Congress enacted (in the case of tax, generally in the Internal Revenue Code (Title 26)).  There is no classic tax example of an interpretive regulation; I use the example of the away from home regulation addressed in United States v. Correll, 389 U.S. 299 (1967), here.  

As Kenneth Culp Davis, the leading authority on administrative law said shortly after enactment of the APA:  "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."

Basically, as the Courts have said, legislative regulations are the law (and thus, in the jargon, have the "force of law"), whereas interpretive regulations simply interpret to law (and do not have the force of law, even if courts give the agency interpretation deference under the Chevron framework).

The distinction between legislative and interpretive regulations has a lot of nuance which I develop in the article.  Indeed, I develop that nuance in  the article, perhaps at too great a length in the article (which I post on SSRN after I offer for comments in a conference in April 2019)  Still, the foregoing is the essence of the argument.  [Addendum 9/25/19, the article is here:  Townsend, John A., The Report of the Death of the Interpretive Regulation Is an Exaggeration (June 6, 2019). Available at SSRN: https://ssrn.com/abstract=3400489.]

With the foregoing, readers with some background in administrative law and the APA specifically should be able to understand the general concepts in the new Policy Statement and my comments below [Addendum as of 4/19/20:  the following is from my working draft of the article for revision later; hence, some of it may reflect developments or thinking after I posted the original of this blog entry on 3/27/19; my footnotes are not included.]

Federal Tax Procedure Update on Tax Crimes (2/20/19)

Today, I completed revisions to the Tax Crimes section of my Federal Tax Procedure Book so that I could circulate to Jim Malone's Tax Practice and Procedure class to UVA Law School where I will guest teach the subject next week.  I have  circulated it to class members.  Readers of this blog can download it here.  A related spreadsheet is available here.

As always, I would appreciate feedback from readers for improvement.

The next editions of the FTPB will be published in early August 2019.

Taxpayer Advocate Annual Report with Graphics on the Tax Procedure Processes (2/14/19)

The Taxpayer Advocate has issued the Annual Report to Congress for 2018, here.  There is a lot in the report that I will blog on here (or incorporate in the working draft for my next Federal Tax Procedure Book that will be finalized and posted on SSRN in August 2019).

I offer here seven pages of schematic graphics from the report that show the various stages of the tax procedure process.  I think the graphics are good, but for best use requires some understanding of the various steps in the process.  The graphics are as follows:

• Tax Return Preparation Roadmap
• Tax Return Processing Roadmap
• Notices Roadmap
• Exam Roadmap
• Appeals Roadmap
• Collection Roadmap
• Litigation Roadmap