February 12, 2016
Opening briefs have been filed in the Ninth Circuit in United States v. Sanmina, where the IRS is appealing a decision by the U.S. District Court for the Northern District of California holding that the attorney-client privilege and work product doctrine protect two memoranda prepared by Sanmina’s in-house tax attorneys. In its opening brief, the IRS is advancing a narrow view of attorney-client privilege and an expansive view of waiver.
Sanmina claimed a $503 million worthless stock deduction on its return. To support its return position, Sanmina provided the IRS a valuation report prepared by outside counsel DLA Piper. … Read More
January 8, 2016
The summoned parties have filed their reply brief in the Clarke case. The brief focuses more on the particular facts of the case and less on legal principles of broad applicability. In particular, the brief criticizes the district court’s decision not to allow introduction of new evidence on remand, arguing that the court made that determination at the initial post-remand status conference, which was earlier than the summoned parties should have been expected to make an offer of proof.
Oral argument is tentatively scheduled for the last week in February.
District Court Orders Microsoft Summonses Enforced, Finding No Legal Obstacle to Involvement of Outside Law Firm
December 3, 2015
The district court has ordered enforcement of the IRS’s summonses in its high-profile audit of Microsoft. As we have previously discussed, Microsoft’s objections to the summonses centered on the IRS’s novel decision to bring in an outside law firm (Quinn Emanuel) as a consultant to whom certain tasks would be delegated. The objections also touched on the issue being litigated in the Clarke case concerning the appropriateness of enforcing a summons that is arguably designed to assist the IRS in Tax Court litigation. (See prior posts on Clarke here.) The district court’s decision in Microsoft turns on … Read More
December 2, 2015
We reported earlier on the Tax Court’s important decision in Altera, which invalidated a transfer-pricing regulation for failure to satisfy the “reasoned decisionmaking” standard for rulemaking under the Administrative Procedure Act. At the time, there were outstanding issues that prevented the Tax Court from entering a final decision. The parties have now submitted agreed-upon computations, and on December 1 the Tax Court entered a final decision. The government has 90 days to file a notice of appeal from that decision.
As we noted previously, the government will be motivated to appeal this decision both because of its specific impact … Read More
November 17, 2015
The Federal Circuit heard argument on November 5 in the government’s appeal in Wells Fargo. The Court of Federal Claims had upheld the taxpayer’s claim for interest netting based on overlapping periods of interest for companies that later became part of Wells Fargo following statutory mergers. See our prior report here.
The panel consisted of Judge Lourie and the two most recent appointments to the Federal Circuit, Judges Hughes and Stoll. Although Judge Lourie was silent during the argument, the latter two judges posed questions of both sides. Both of those judges expressed skepticism of the government’s position … Read More
November 4, 2015
After obtaining a one-month extension, the government has now filed its response brief in the Eleventh Circuit in the Clarke summons enforcement case. See our prior reports here. The brief raises three points in response to the appellants’ argument that the IRS had an improper purpose in seeking to enforce the summonses after Tax Court litigation had begun.
First, the government argues that the appellants are essentially arguing for a blanket rule that a summons cannot be enforced once litigation has commenced in the Tax Court. Such a restriction is not found in the statute, and accordingly the government … Read More
Divided Ninth Circuit Reverses Tax Court in Sophy on Question of Mortgage Interest Deduction Limits for Unmarried Taxpayers
October 13, 2015
We previously reported (see here and here) on the Ninth Circuit’s consideration of an appeal involving the mortgage interest deduction – specifically, whether the statutory limits on that deduction apply on a per-taxpayer or per-residence basis. The unmarried taxpayers here (Charles Sophy and Bruce Voss) argued that they were each entitled to take a deduction up to the $1.1 million limit for the residence that they co-owned, and thereby receive double the tax benefit that a similarly situated married couple would receive, but the Tax Court disagreed. The briefing in this case was completed in April 2013, but … Read More
Federal Circuit Set to Address Post-Merger Application of “Same Taxpayer” Requirement for Interest Netting
October 9, 2015
The Federal Circuit is now considering an appeal by the government that seeks to restrict the availability of interest netting following mergers. Section 6621(d) provides for a “net interest rate of zero” on “equivalent underpayments and overpayments by the same taxpayer.” As we previously reported here and here, the government declined to pursue an appeal in Magma Power Co. v. United States, 101 Fed. Cl. 562 (2011), in which the Court of Federal Claims held that the “same taxpayer” requirement did not prevent interest netting where the taxpayer was a member of a consolidated group with respect to … Read More
Tax Court Relies on APA to Invalidate the Cost-Sharing Regulation Governing Stock-Based Compensation
October 2, 2015
We present here a guest post from our colleagues Patricia Sweeney and Andrew Howlett. A longer version of this post is published here.
In Altera Corp. v. Commissioner, 145 T.C. No. 3 (July 27, 2015), the Tax Court put the IRS and Treasury on notice that, when promulgating regulations premised on “an empirical determination,” the factual premises underlying those regulations must be based on evidence or known transactions, not on assumptions or theories. Otherwise, the regulations do not comply with the requirements of the Administrative Procedure Act (“APA”), 5 U.S.C. § 551 et seq. Applying the arm’s-length standard … Read More
August 31, 2015
The government has filed its opening brief in the Eleventh Circuit in the Clarke case. The case is now back in that court for the second time after a remand from the Supreme Court that did not persuade the district court to retreat from its prior denial of an evidentiary hearing. See our previous report here.
On the merits, the appellants’ primary argument is that they are entitled to a hearing to explore their allegation that the government is misusing the summons enforcement process to obtain discovery for pending Tax Court proceedings. To that end, the appellants ask the … Read More