July 1, 2016
On Wednesday, the Federal Circuit issued its decision in the Wells Fargo interest netting case, affirming in part the trial court’s decision in favor of the taxpayer but also reversing in part. We previously covered the trial court decision and the oral argument here. As our prior coverage explained, the case presented three different fact patterns (termed “situations” in the decision) in which the taxpayer’s entitlement to interest netting hinged on the extent to which corporate mergers resulted in distinct corporations becoming the “same taxpayer” under the relevant Code section governing interest netting (§ 6621(d)). And as the questioning … Read More
June 22, 2016
The Eleventh Circuit today denied the petition for rehearing and rehearing en banc filed by the appellants in the Clarke summons enforcement case. The petition did not focus on the broader legal issue that we have previously addressed here concerning the standards for allowing an evidentiary hearing on the basis of allegations of improper motive in issuing a summons. Instead, the petition asked the court of appeals to reconsider whether the trial court erred in refusing to allow the appellants to make new submissions in the wake of the Supreme Court’s remand of the case.
The appellants now have 90 … Read More
March 16, 2016
The Eleventh Circuit this morning affirmed the district court’s decision in Clarke that had enforced a group of IRS summonses. The court’s legal analysis provides a glimmer of hope for taxpayers who desire to contest future summonses on grounds of bad faith, but there are daunting factual challenges to being able to actually make use of that legal analysis.
As evidenced by our prior reports, this case has a long history that now encompasses a Supreme Court opinion and three decisions by the Eleventh Circuit. To recap, the summoned parties sought an evidentiary hearing at which they could examine … Read More
February 23, 2016
We have previously reported on the Tax Court’s important decision in Altera, which has significant implications both for IRS regulation of cost-sharing agreements under the transfer pricing rules and, more broadly, for how the Administrative Procedure Act might operate as a constraint on rulemaking by the Treasury Department in the tax area. Although there were some tactical considerations that could have made the government hesitant to seek appellate review from its defeat in Altera (see here), the government has now filed a notice of appeal to the Ninth Circuit.
The court of appeals will issue a briefing … Read More
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.test
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