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

Briefing Underway in Mazzei

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February 5, 2019

The taxpayers have filed their opening brief in Mazzei urging the Ninth Circuit to reverse the Tax Court’s use of the substance-over-form doctrine to recharacterize transactions between Roth IRAs, a Foreign Sales Corporation (“FSC”), and an export company. The brief focuses on the similarities between the FSC-Roth IRA structure in Mazzei and the Domestic International Sales Corporation (“DISC”)-Roth IRA structure that the taxpayers implemented in Summa Holdings. Citing principles of comity and uniformity, the brief urges the Ninth Circuit to follow decisions of the First, Second, and Sixth Circuits in Summa Holdings and the related Benenson cases, which held … Read More

Oral Argument Scheduled in SIH Partners

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February 4, 2019

The Third Circuit has scheduled oral argument in the SIH Partners case for Friday March 8, 2019.… Read More

Ninth Circuit to Scrutinize Tax Court’s Invocation of Substance-Over-Form Doctrine in Light of Apparently Conflicting Decisions From Three Different Courts of Appeals

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January 15, 2019

We present here a guest post from our colleague Nicholas Metcalf.

In Mazzei v. Commissioner, a divided Tax Court (12-4) relied on the substance-over-form doctrine to disregard transactions between the taxpayers, their Roth IRAs, and an FSC purportedly owned by the Roth IRAs. The Mazzei decision is at odds with three recent appellate decisions that rejected the IRS’s use of the substance-over-form doctrine to recharacterize similar transactions.

The Mazzei Decision.  The taxpayers—a husband, wife, and their daughter—owned and operated a company (“Injector Co.”) that sold and distributed injectors in both the United States and foreign markets. The husband … Read More

Briefing Completed in SIH Partners

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December 14, 2018

The final briefs have now been filed in the SIH Partners case.  The government’s response to the taxpayer’s opening brief is long, but hammers extensively on one point — namely, that the regulation is “categorical” in establishing that a loan guarantee issued by a CFC will be treated as taxable.  (The word “categorical” appears 29 times in the government’s brief.).  And the government maintains that this “bright-line” rule flows directly from the statutory text.  Given that premise, the government is able to give most of the taxpayer’s arguments short shrift.

In particular, the government says that the settled legal landscape … Read More

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