Taxpayer and Supporting Amicus Briefs Filed in Home Concrete

The taxpayer has filed its brief in Home Concrete.  The brief argues forcefully that the case is controlled by Colony, characterizing the underlying statutory issue as “settled by stare decisis.”   The brief disputes the government’s arguments that the changes made by Congress in the 1954 Code had the effect of extending the six-year statute to overstatements of basis outside the trade or business context, observing that the 1954 Code changes were all designed to favor taxpayers. 

With respect to the regulations, the taxpayer first argues that Colony should be understood as having held that the statutory language was unambiguous, thus foreclosing Treasury from issuing regulations that would require a different statutory interpretation.   (As we previously reported, this particular point was the focus of oral argument before the Federal Circuit in Grapevine, with the court ultimately resolving that point in favor of the government and deferring to the regulation.)  Second, the brief argues that the regulation would in any event be invalid because of its retroactive effect on pending litigation.  In addition, the brief makes some narrower arguments about this particular regulation, maintaining that by its terms the regulation does not cover cases like Home Concrete and that the regulation is procedurally defective.

At least eight amicus briefs were filed in support of the taxpayer.  A brief filed by the American College of Tax Counsel focuses on the retroactive application of the regulations, elaborating on the taxpayer’s arguments in asserting that “retroactive fighting regulations” that are designed to change the outcome of pending litigation “are inconsistent with the highest traditions of the rule of law” and should not be afforded Chevron deference.  The brief invokes general principles against retroactive legislation and also argues that Code section 7805(b)’s prohibition on retroactive regulations applies.  The government argues that section 7805(b) does not apply to regulations interpreting statutes enacted before 1996, a position that was not heavily disputed by taxpayers in the court of appeals litigation of these cases.

Four other amicus briefs were filed by taxpayers who litigated the Home Concrete issues in other circuits and whose cases will be controlled by the outcome — one filed by Grapevine Imports (Federal Circuit), one filed by UTAM, Ltd. (D.C. Circuit), one filed jointly by Daniel Burks (5th Circuit) and Reynolds Properties (case pending in the 9th Circuit), and one filed by Bausch & Lomb (cases pending in the Second Circuit).   The latter brief emphasizes that Bausch & Lomb’s case does not involve a son-of-BOSS tax shelter, but rather a more standard business transaction, and also that it involves only section 6229, which does not contain the statutory changes from the 1939 Code found in section 6501 and on which the government heavily relies to distinguish Colony.  Amicus briefs were also filed by the Government of the U.S. Virgin Islands, the National Association of Home Builders, and the National Federation of Independent Business, Small Business Legal Center.  Copies of the taxpayer’s brief and some of the amicus briefs are attached.

The oral argument in Home Concrete is scheduled for January 17.   The government’s reply brief is due on January 10.

Home Concrete – Taxpayer’s Supreme Court brief

Home Concrete – Amicus Brief of American College of Tax Counsel

Home Concrete – Grapevine Amicus Brief

Home Concrete – Amicus Brief of Burks and Reynolds Properties

Home Concete – Amicus Merits Brief of Bausch & Lomb

Supreme Court Briefing Underway and Argument Date Set in Home Concrete

The Supreme Court has set January 17 as the date for the oral argument in Home Concrete, the case in which it will decide the “Intermountain” issues concerning the applicability of the six-year statute of limitations to overstatements of basis, on which we have reported extensively many times before.  (See here and here for a sample.)  In the meantime, the briefing has commenced with the filing of the government’s opening brief (linked below).

The brief covers what is mostly familiar ground at this point, but it does further develop some of the arguments that have emerged in the course of the court of appeals litigation, with particular reliance on the D.C. Circuit’s decision in Intermountain.  The government divides its argument into three sections.  The first analyzes the statutory text, structure, and purpose, emphasizing a broad definition of the word “omission” and arguing that its position is supported by other subsections within section 6501(e).  Second, the government argues for deference to the final regulations.  Finally, the third section argues that the Supreme Court’s Colony decision is not controlling.

With respect to the administrative deference point that is of the broadest significance in this case, the government not surprisingly offers up arguments that will enable the Court to rule in its favor without exploring the outer limits of the power that the Court’s recent precedents arguably confer on the Treasury Department.  But the government does not shirk from pushing those limits in case its other arguments are unpersuasive. 

For example, although the government argues that the Colony decision is inapplicable because it involved a 1939 Code provision that has since changed in some ways, the government maintains that it should still prevail even if no changes had been made to the statute in the 1954 Code.  “Under Brand X,” the government states, “the new Treasury Department regulation would be entitled to Chevron deference even if that rule construed precisely the same statutory provision that was before the Court in Colony.”  Thus, the government is not bashful about claiming an extraordinary amount of power for the Treasury Department.  Congress can pass a law establishing a particular rule, and the Supreme Court can construe that law, but the Treasury Department can turn it all upside down as long as the Court did not declare the statutory language unambiguous. 

The government’s brief also addresses the additional objection that the regulations operate retroactively.  The government argues that they are not truly retroactive, because they supposedly “clarified rather than changed existing law” (notwithstanding Colony and two court of appeals decisions that were unquestionably on point) and addressed “procedures,” rather than the legality of the conduct.  In the end, however, the government maintains that “the rule would be valid even if it had retroactive effect.” Thus, the government fully embraces an expansion of the Treasury Department’s power beyond that recognized in Mayo — arguing that an agency not only has the power to promulgate rules that overturn settled judicial precedents, but also has the power to apply those new rules to prior years.  Given that even Congress is usually constrained in adopting retroactive legislation, it will be interesting to see if the Court balks at conferring this kind of power on unelected officials.

The taxpayer’s brief is due December 15.

Home Concrete – U.S. Supreme Court opening brief

Supreme Court Agrees to Hear Home Concrete Case to Address Six-Year Statute Issues

The Court this morning granted certiorari in the Home Concrete case from the Fourth Circuit, thus paving the way for a definitive, nationwide resolution of the issues presented in the Intermountain cases.  We had previously indicated that it was more likely that the Court would hear the Beard case, since the petition in that case was filed first.  It is ironic that the Court chose to hear the Home Concrete case, since that is the one case that neither party urged the Court to take.  (The government asked the Court to grant Beard and hold the Home Concrete case, and the taxpayer asked the Court to deny certiorari. See our previous report here.)  Perhaps the Court thought that Home Concrete was the preferable vehicle because the court of appeals had addressed the applicability of the regulations; perhaps the Court was just being ornery and wanted to resist the government’s efforts to manipulate the docket by contriving to have the Beard case jump ahead of the earlier-decided Home Concrete case.  See our previous report here.

In the long term, it does not appear to make much difference which case the Court agreed to review.  The Court can be expected to resolve the six-year statute question in this case, likely addressing the effect of the regulation.  In the short term, the Court’s choice does affect the briefing schedule.  Since the government is the petitioner in Home Concrete, its brief will be due first, and it will have the opportunity to file a reply brief.  This schedule gives taxpayers interested in filing an amicus brief a bit more time to prepare one than they would have had if Beard were the lead case, as such a brief would be due seven days after the taxpayer’s brief, which will now not be due until mid-December.

The Court took no action on the petitions in Beard and Grapevine.  The petitions in these cases will likely be held and acted upon only after the Home Concrete case is decided.

The government’s opening brief in Home Concrete is due November 14.  The case will likely be argued in January, or possibly February, and the Court will issue its decision before the end of June 2012.

Update on Intermountain Cases

Although our blog coverage might reasonably be accused of hibernating over the summer, court calendars inexorably marched on, and there were several developments in the various Intermountain cases.  If the Supreme Court grants cert in Beard on September 26, as we have predicted, these developments will not be of much moment, since all of the cases will likely be governed by the Supreme Court’s decision in Beard.  The one possible exception is the Federal Circuit’s decision in Grapevine, where the taxpayer’s cert petition has been fully briefed and is ready for consideration by the Supreme Court on September 26 together with Beard.  In any event, for those keeping score, here is an update, along with a selection of the filings, which are somewhat duplicative.

Federal Circuit:  The Federal Circuit denied rehearing in Grapevine on June 6.  The taxpayer petitioned for certiorari, docketed as No. 11-163, and the government responded by asking the Court to hold the petition and dispose of it as appropriate in light of its decision in Beard.  The government filed its response early, thus allowing the Court to consider the petition in tandem with Beard on September 26.  Thus, the Court could conceivably agree to hear both cases, or agree to hear Grapevine alone (because the regulatory deference issue is fleshed out in the court of appeals opinion in that case).  The government, however, does not urge either of those approaches.  Instead, it asks the Court to grant cert in Beard alone, following its usual practice of hearing the earliest-filed case when two petitions raise the same issue.

D.C. Circuit:  The taxpayers in both Intermountain and UTAM filed petitions for rehearing.  The court denied the petition in Intermountain on August 18 and denied the petition in UTAM earlier today on September 15.  In both cases, the court slightly amended its opinion to provide what it believed to be a better response to certain relatively narrow arguments made by the taxpayers.

Fourth Circuit:  The government filed a petition for certiorari in Home Concrete, asking the Court to hold the case for Beard.  The taxpayer filed a brief in opposition asking the Court to deny certiorari on the grounds that the Fourth Circuit got it right and that Congress has closed the son-of-BOSS loophole for future years.  Good luck with that.  The Home Concrete petition will also be considered at the Court’s September 26 conference.  If the Court grants cert in Beard or Grapevine, it will surely hold the Home Concrete petition pending consideration of those cases.

Fifth Circuit:  The government filed a cert petition in Burks, docketed as No. 11-178, and asking that that case also be held pending the disposition of Beard.  The taxpayer did not file an early response, and that case will not be ready for consideration at the Court’s September 26 conference.

Ninth Circuit:  The Ninth Circuit’s Reynolds Properties case lagged behind those in the other circuits because the briefing schedule was delayed for some time by the mediation process.  Undeterred for now by the prospect that the Supreme Court will resolve the issue, the Ninth Circuit is marching ahead.  The case is now fully briefed and is scheduled for oral argument on October 13, 2011.

Tenth Circuit:  The court denied rehearing in Salman Ranch on August 9.  The taxpayer obtained a stay of the mandate so that it can file a petition for certiorari, which will surely be held if the Court grants cert in one of the other cases.

We will be back soon with a report on what, if anything, the Court does at its September 26 conference.

Grapevine – U.S. response

UTAM Order Denying Rehearing and Amending Opinion

Intermountain Order Denying Rehearing and Amending Opinion

Home Concrete – Cert petition

Home Concrete – Brief in Opposition

Government Acquiesces in Beard Petition for Certiorari

The government has now filed its response to the taxpayer’s petition for certiorari in Beard, the first of the Intermountain cases to reach the Supreme Court.  As expected, the government filed an “acquiescence,” meaning that it told the Court that the Seventh Circuit had correctly ruled against the taxpayer, but the government agreed that it is appropriate for the Supreme Court to hear the case in order to resolve the conflict in the circuits.   In the words of the response, “[a]lthough the decision below is correct, . . . [i]n light of the square circuit conflict, and the importance of the uniform administration of federal tax law, the petition for a writ of certiorari should be granted.”

It is very likely that the Supreme Court will agree to hear the case in light of the government’s acquiescence.  The Court does not issue orders on certiorari petitions over its summer recess, but will sometimes issue them during the week before the Court’s formal return on the first Monday in October.  Look for an order granting certiorari to issue on September 26 or soon thereafter.

Beard – Government Response to Petition for Cert

Taxpayer Seeks Rehearing in Salman Ranch

While we wait to see what the government will say to the Supreme Court on the Intermountain issue, litigation continues in the courts of appeals.  (The government’s response to the certiorari petition in Beard is currently due on July 27.)   The taxpayer has filed a petition for rehearing en banc in Salman Ranch.  It is hard to imagine that the Tenth Circuit will head down that road when it appears that the Supreme Court will address the issue.  Salman Ranch, however, does present one wrinkle not present in the other cases — namely, whether the government was precluded by collateral estoppel from relitigating the issue against this taxpayer because Salman Ranch had prevailed in the Federal Circuit on the same issue in another tax year.  The Tenth Circuit panel ruled that collateral estoppel did not apply because, in light of the issuance of the regulations, it was not true that the “applicable legal rules remain unchanged.” 

The petition for rehearing, as well as the other briefs in this case, are linked below.

Salman Ranch – Taxpayer Petition for Rehearing

Salman Ranch – Government Opening Brief

Salman Ranch – Taxpayer Response Brief

Salman Ranch – Government Reply Brief

Beard Becomes First Intermountain Case to Reach the Supreme Court

We have been noting for the past few months that the Intermountain issue would be heading to the Supreme Court soon, with the government’s petition in the Home Concrete case due on July 5.  The taxpayers in Beard have jumped the line, however, by seeking certiorari ahead of the deadline, and that case is now docketed in the Supreme Court as No. 10-1553.  Meanwhile, the government has obtained a 30-day extension until August 3 to file its certiorari petition in Home Concrete.  Thus, unless the taxpayer in either Salman Ranch, Grapevine, or one of the D.C. Circuit cases sprints to the Court with its own cert petition well before the deadline, it looks like Beard will be at the head of the line by a good margin.

The petition does not add much to the arguments on the merits of the dispute.  The goal of a certiorari petition is to explain to the Court why it is important for it to hear the case.  If cert is granted, there is plenty of opportunity for the litigant to address the merits.  One of the best ways to convince the Court that it has to step in to a dispute is to demonstrate a conflict among the various courts of appeals, which will lead to different outcomes in similar cases unless the Court steps in.  Making that showing on the Intermountain issues is like shooting fish in a barrel.  The Beard petition sensibly focuses on discussing the circuit conflicts, both on the statutory interpretation issue (where the Seventh Circuit in Beard is the only court to have ruled that, even without the regulations, the statute should be construed as providing for a six-year statute of limitations (see here)), and on the question whether Chevron deference is owed to the regulations.

There are two items worth noting in the petition that relate to the merits.  The petition signals that the taxpayer will argue that Chevron is getting completely out of hand if deference is paid in the context of this case.  Specifically, the petition states that the government’s position that “the Treasury is empowered to reject and overrule longstanding precedent of this Court and other courts that it disfavors, simply through the issuance of temporary regulations without notice and public comment threatens obvious, far-reaching consequences.”  Second, the petition briefly responds to the argument that Colony should be read as applying only to cases involving a trade or business by pointing out that, although Colony itself did involve a trade or business, the Court was seeking there to establish a rule that would resolve a circuit conflict, and some of the conflicting cases did not involve a trade or business.

The next step is a response by the government, currently due on July 27.  In most cases, of course, the government’s response to a cert petition is to oppose the petition and argue that the Court should leave standing the court of appeals decision in favor of the government.  Sometimes, however, when there is a circuit conflict on an important issue, the government will “acquiesce” in the petition — meaning that it will tell the Court that the court of appeals decision was correct but that it agrees with the petition that the Supreme Court should hear the case so that it can pronounce a rule that will apply uniformly throughout the country. 

The government is virtually certain to agree that the Court should resolve the Intermountain dispute.  The only question would seem to be a tactical one:  will the government acquiesce in the Beard petition and have the dispute resolved in that case, where the government prevailed below?  Or will the government instead try to steer the Court towards a different case where perhaps it believes the facts are more favorable or where the taxpayer prevailed below.  The request for an extension in Home Concrete is a pretty good indication that the government is content to let the issue be resolved in Beard.

As far as timing, the government routinely secures extensions of time to respond to certiorari petitions.  (You may recall that the government got four extensions to respond to the Kawashima petition.  See here).  But if the government decides to acquiesce in Beard, that would be a very simple filing, and the government has had plenty of time already to decide what it wants to do in these cases.  Thus, it is possible that the government’s response will be filed on July 27.

The Beard petition is linked below.

Beard Petition for Certiorari

D.C. Circuit Gives the Government Another Victory in Intermountain

The D.C. Circuit yesterday reversed the Tax Court in Intermountain, handing the government more ammunition to use if, as appears increasingly likely, the Supreme Court considers the question of the applicability to overstatements of basis of the six-year statute of limitations found in Code sections 6229(c)(2) and 6501(e)(1)(A).  This now makes the score 4-2 for the government and represents the third straight court of appeals to adopt the government’s primary argument that courts owe Chevron deference to the relatively recent Treasury regulations interpreting the six-year statutes to apply to overstatements of basis.

The D.C. Circuit’s opinion is comprehensive, tracing the same ground as the Federal Circuit’s Grapevine decision, but also supplementing that court’s analysis.  In particular, the D.C. Circuit explores in detail the background of Colony and the legislative history of the 1954 Code in order to justify the conclusion that section 6501 does not unambiguously provide that overstatements of basis do not trigger the six-year statute — even though the same statutory term “omission from gross income” in the 1939 Code was construed in Colony not to include overstatements of basis.  Having reached that conclusion, the D.C. Circuit found that the Chevron step two analysis was “easy,” and there was no justification for suggesting that the Treasury regulation was an unreasonable interpretation of the statute.

One item of interest is the court’s refusal to address a couple of arguments made by Intermountain’s counsel because they were not raised in a timely fashion.  The court’s analysis distinguishing current law from the 1939 Code provision addressed in Colony relies heavily on the 1954 addition of section 6501(e)(1)(A)(i), which specifically addresses “gross income” in the case of a trade or business.  Intermountain contended at oral argument that this analysis ought to be irrelevant in a case that involved only section 6229, not section 6501.  The court, however, refused to consider that argument, stating that Intermountain had never before argued “that the two sections have different meanings outside the trade or business context.”  The court also refused to consider, as raised too late, Intermountain’s reliance on positions taken by the Commissioner on the meaning of Colony before the son-of-BOSS cases arose.  One might see these arguments raised and addressed in the Supreme Court down the road.

The Intermountain opinion also governs the companion UTAM case that was argued in tandem.  The D.C. Circuit did issue a separate opinion in UTAM addressing an issue unique to that case — whether a final partnership administrative adjustment (FPAA) tolls an individual partner’s limitations period under section 6501 in the same way section 6229(d) tolls the section 6229(a) “minimum period.”  The court ruled for the government on that issue as well, and we plan to address that opinion in another post.

Intermountain is likely the last that will be heard from the courts of appeals on the six-year statute issue before it moves to the Supreme Court.  (The Federal Circuit, as expected, denied rehearing in Grapevine on June 6.  Reynolds Properties v. Commissioner, No. 10-72406, has been fully briefed in the Ninth Circuit, but oral argument is not yet scheduled.)  The government’s recent successes in the courts of appeals give it a lot of momentum heading to the Court.  Of course, it is often said that momentum is only as good as the next day’s starting pitcher, and in the end the Supreme Court will make up its own mind without regard to the score in the courts of appeals.  The government’s anticipated petition for certiorari in Home Concrete is due July 5.

Intermountain opinion

UTAM opinion

Tenth Circuit Sides With Government on Intermountain Issue

The Tenth Circuit, after a long period of deliberation, has reversed the Tax Court in Salman Ranch.  (Opinion linked here.)  This now makes the score 3-2 in favor of the government in the series of appeals that have spread to most circuits.  See our original report here.

The Tenth Circuit’s opinion closely tracks the reasoning of the Federal Circuit in Grapevine.  The court first looked at the Supreme Court’s decision in Colony and concluded that it should not be read as holding that the statute unambiguously supports the taxpayer’s position.  (The Tenth Circuit did note its disagreement with the Seventh Circuit’s conclusion in Beard that the statute unambiguously resolves the issue in the government’s favor.)   Having found that Colony was not an obstacle to the issuance of valid Treasury regulations, the court proceeded to apply the Chevron test to the regulations and, like the Federal Circuit, ruled that the regulations surmounted the relatively low bar of being a reasonable interpretation of the statute.  The Tenth Circuit stated:  “Although we are not convinced the IRS’s interpretation is the only permissible one or even the one we would have adopted if addressing this question afresh, we are satisfied that it is a ‘permissible construction’ within the mandate of Chevron.” 

The Salman Ranch case presented one interesting wrinkle not found in the other Intermountain cases.  The Salman Ranch partnership had already prevailed on the identical issue in the Federal Circuit for a different tax year.  See Salman Ranch Ltd. v. Commissioner, 573 F.3d 1362 (Fed. Cir. 2009).  Ordinarily, that decision would have collateral estoppel effect in other litigation on the same issue between the same parties, and therefore it would have controlled the outcome in the Tenth Circuit.  The Tenth Circuit ruled, however, that there was no collateral estoppel effect because the “rules” had changed in the interim — because of the issuance of the new regulations.  The Federal Circuit had observed in Grapevine that the Chevron doctrine gives “regulatory agencies, not the courts, primary responsibility to interpret ambiguous statutory provisions.”  The Tenth Circuit’s decision goes that statement one better with respect to the power of agencies to make law, at least in this particular context.  It potentially gives regulatory agencies more power than even Congress to change the law, as Congress usually does not act retroactively when it enacts new legislation to overturn a court decision.  Without retroactive effect, new legislation would not destroy the collateral estoppel effect of a court decision.

If the taxpayer wishes to seek rehearing, the petition would be due on July 18.  By that time, the issues could be on their way to the Supreme Court because the government’s deadline for seeking certiorari in Home Concrete, the most advanced of these cases, is July 5.

Rehearing Denied in Burks

On April 15, the Fifth Circuit denied the government’s rehearing petition in Burks.  Not surprisingly, the courts of appeals are showing little interest in sitting en banc to address the Intermountain issue when they cannot eliminate the circuit conflict.  To recap, a rehearing petition is pending in the Federal Circuit, but the other three circuits to rule (the Fourth, Fifth, and Seventh) have denied rehearing, and the time is running to file petitions for certiorari in those cases.  The first deadline on the horizon is in the Home Concrete case from the Fourth Circuit, where the certiorari petition is due July 5.

« Previous Page — Next Page »