Briefing Complete in Mazzei

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May 20, 2019

The taxpayers have filed their reply brief in Mazzei, completing the briefing.  The reply brief is colorful–perhaps to a fault–in critiquing the government’s arguments.  For example: the issue is whether a Roth IRA can hold stock in a DISC “without suffering multitudinous nasties at the hands of the Commissioner”; the government’s arguments are “disingenuous” and “odd” and the Tax Court performed “judicial alchemy”; and the cases cited by the government are “as devoid of landing space herein as Noah’s crow” [actually a raven, according to the King James Bible].

Looking beyond the rhetoric, which is unlikely to make a … Read More

Third Circuit Affirms Subpart F Income Inclusion Ruling in SIH Partners

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May 7, 2019

A unanimous Third Circuit this morning affirmed the Tax Court in SIH Partners in an opinion that will please government lawyers who are increasingly dealing with APA challenges to Treasury regulations.  As explained in our previous posts here, the issue in SIH Partners was whether loan guarantees by two CFCs resulted in income exclusions, even though the guarantees were not equivalent to an actual repatriation because, among other things, there were many other guarantors.  Because the regulations on their face set forth a bright-line rule that takes no account of the individual circumstances of particular loan guarantees, the taxpayer … Read More

Both Parties Face Tough Questions in Amazon.com Ninth Circuit Argument

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May 1, 2019

As we previewed here, the Ninth Circuit heard oral argument in Amazon.com v. Commissioner on Friday, April 12. Before giving a detailed recap of that oral argument, some background on the dispute is in order.

The Primary Issue in Dispute

Amazon.com, the U.S. parent company (Amazon US), entered into a qualified cost-sharing agreement with its Luxembourg subsidiary (AEHT) in 2005. Amazon US contributed the intangible assets required to operate its European website business to that cost-sharing agreement. Then effective Treas. Reg. § 1.482-7(g)(2) provided that AEHT owed Amazon US a buy-in payment for the “pre-existing intangibles” that Amazon US … Read More

Ninth Circuit to Hear Oral Argument in Amazon Transfer-Pricing Dispute Friday

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April 10, 2019

We wanted to alert our readers that oral argument in the Ninth Circuit in Amazon.com Inc. v. Commissioner will be held this Friday. Similar to Veritas Software Corp. v. Commissioner, this transfer-pricing dispute is about the value of intangibles that the U.S. parent contributed to a cost-sharing arrangement with a foreign subsidiary. In particular, the parties dispute whether particular intangibles, like goodwill and going concern values, are compensable and thus require a buy-in payment upon their contribution to a cost-sharing arrangement. The government lost in the Tax Court.

The briefs are below. The Ninth Circuit will stream the oral … Read More

Government Brief Filed in Mazzei

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April 9, 2019

The government has filed its response brief in Mazzei urging the Ninth Circuit to accept the Tax Court’s recharacterization of the taxpayer’s transaction using the substance-over-form doctrine.  See our prior reports here.  The government’s brief starts by highlighting the IRS’s issuance of Notice 2004-8, which related to certain “abusive Roth IRA transactions” between: (1) a taxpayer’s pre-existing business, (2) the taxpayer’s Roth IRA, and (3) “a corporation (the Roth IRA Corporation), substantially all the shares of which are owned or acquired by the Roth IRA.”  Notice 2004-8 identified potentially abusive situations where the Roth IRA’s acquisition of shares, the … Read More

Briefing Complete in Kisor

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March 25, 2019

The petitioner has now filed his reply brief in Kisor, and the case is fully briefed in preparation for the oral argument later this week on March 27.  Given the government’s partial retreat from defending Auer deference (see our prior post here), which the petitioner describes as a “sharp retreat,” the reply brief responds to two different briefs.  First, it responds directly to an amicus brief by a group of law professors (linked in our prior post) that put forth a full-throated defense of Auer deference.  Second, it acknowledges that the government’s “Auer-light” position is “preferable … Read More

Divided Tax Court Decides E&P Computation Issue in Eaton

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March 12, 2019

In Eaton Corp. v. Commissioner, 152 T.C. No. 2 (2019), a divided Tax Court decided (by a 10-2 margin) that the CFC partners in a U.S. partnership must increase earnings and profits (E&P) for the partnership’s subpart F inclusions. Members in the taxpayer’s group owned several CFCs (the “CFC partners”) that were partners in a U.S. partnership. That partnership in turn owned several lower-tier CFCs (the “lower-tier CFCs”) that generated subpart F income. There was no dispute that the U.S. partnership had to include the subpart F income of the lower-tier CFCs. The question before the Tax Court on … Read More

Treasury and IRS Issue Joint Policy Statement on the Tax Regulatory Process

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March 7, 2019

Earlier this week, the Treasury Department issued a policy statement on the tax regulatory process.  A significant section of the statement describes the approach that will be taken in Tax Court litigation to arguments based on judicial deference to regulations.  Treasury states that it will not claim Auer deference in such litigation to interpretations set forth in subregulatory guidance, such as revenue rulings, nor will it claim Chevron deference to such interpretations.  That apparent abandonment of Auer deference arguments goes beyond the position the Justice Department has taken in the Supreme Court in the Kisor case, where the government has … Read More

Government Brief Filed in Kisor

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March 6, 2019

The government was faced with something of a dilemma in filing its response brief in the Kisor case addressing the level of deference owed to an agency’s interpretation of its own regulation. See our prior reports here. On the one hand, the government was defending the agency action in this case and the decision below, which rested on paying Auer deference to the agency’s interpretation. On the other hand, conservative legal theorists have long been critical of Auer deference, following Justice Scalia’s lead, and the views of the political appointees in this administration about Auer likely range from unenthused … Read More

Briefing Underway in Kisor

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February 8, 2019

The opening salvo has been filed in the Supreme Court challenge to the continuing vitality of what is usually called either Seminole Rock or Auer deference – the rule that a court owes deference to an agency’s interpretation of its own regulations. See our prior report here. The petitioner, a Vietnam veteran seeking disability benefits, has filed his opening brief, supported by 25 different amicus briefs.

The petitioner argues that Auer deference is unjustified for three principal reasons. First, petitioner contends that it is incompatible with the Administrative Procedure Act (APA) because it allows an agency to exercise lawmaking … Read More

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