Outcome Uncertain After Federal Circuit Oral Argument in Wells Fargo Interest Netting Case

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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

Government Brief Filed in Clarke Summons Enforcement Case

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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

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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

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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

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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

Summons Enforcement Update — Opening Brief Filed in Clarke and Briefing Ordered in Microsoft

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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

Update on Microsoft Hearing

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July 27, 2015

For those who have been wondering why they have seen no reports on the evidentiary hearing in the Microsoft summons enforcement case (see our previous report here), the hearing was postponed at the request of both parties.  It has been rescheduled for August 25.… Read More

Supreme Court Decision in Wynne Seeks to Clarify Commerce Clause Restrictions on State Taxation

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July 16, 2015

[Note:  Miller & Chevalier filed an amicus brief in this case on behalf of the National Association of Publicly Traded Partnerships]

As discussed in our previous report here, Comptroller of Maryland v. Wynne presented the Supreme Court with a tricky constitutional issue because it implicated some fundamental principles found in the Court’s precedents, but those principles did not all point in the same direction.  In particular, Maryland relied on a state’s unquestioned power to tax the income of its domiciliaries wherever earned, while the taxpayers relied on the Commerce Clause’s limitations on double taxation.

The Court’s 5-4 May 18 … Read More

Summons Enforcement Hearing in Microsoft Set for July 21

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July 9, 2015

While the Eleventh Circuit begins the process of reconsidering the Clarke summons enforcement case following the Supreme Court’s remand (see our prior reports here), a federal district court is poised to address similar issues much sooner in a case that has garnered extensive publicity.  (Incidentally, briefing is now underway in Clarke, with the respondents’ opening brief on appeal due on August 14.).

As most readers probably know, the government is engaged in a major transfer pricing audit of Microsoft in connection with its cost-sharing arrangements with affiliates in Puerto Rico and Asia.  The IRS has hired the … Read More

Eleventh Circuit Set to Consider Whether IRS Impermissibly Used Summons Power to Obtain “Discovery” in the Tax Court

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July 1, 2015

As we previously reported, the Supreme Court’s decision in the Clarke summons enforcement case was not a complete victory for the government.  The Court set forth a standard that appeared to leave a little more room than before for summoned parties to obtain an evidentiary hearing in resisting summons enforcement actions.  The Court left open the possibility that the lower courts on remand could require a hearing in Clarke itself at which IRS officials would have to testify.

The Eleventh Circuit elected not to address this question in the first instance after the Supreme Court remand.  Instead, it sent … Read More

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