Appealing Chamber of Commerce v. IRS?

By Sam Brunson

Last Friday the District Court for the Western District of Texas issued a decision in Chamber of Commerce v. IRS.  In its decision, the court held that the IRS violated the Administrative Procedure Act in issuing Treas. Reg. § 1.7874-8T. The most interesting part of the case was that the Chamber got past the standing and Anti-Injunction Act hurdles; the substantive decision was that Congress didn’t eliminate the notice-and-comment requirement by expressly permitting time-limited temporary regulations. For a great substantive discussion of the case, take a look at Andy Grewal’s post on Notice & Comment.

The question on everybody’s mind now is, will the government appeal? On the one hand, as Andy explains, the court’s opinion is fairly summary; it may be right that the Anti-Injunction Act doesn’t bar the suit here, but it hasn’t done the work to make the holding bullet-proof.

On the other hand, the IRS takes a risk appealing to the Fifth Circuit. I’m not a close court-watcher, but I’ve heard talk that the Fifth Circuit is less than totally favorable to the IRS.

I don’t know what the IRS will do, of course. But I can think of a few reasons why they may not want to appeal:

  1. They don’t need to defend this particular temporary regulation. It was rushed into existence to prevent the Pfizer/Allergan inversion. And it worked—Pfizer walked away from the merger. At this point, I suspect that most would-be inversions are structuring their inversion in a way that wouldn’t trigger the temporary regs in any event. Also, the decision didn’t say that the rule laid out in the temporary regs was impermissible; all the IRS needs to do is follow the APA procedure.
  2. A centerpiece of the GOP tax reform framework released last week is a shift from our worldwide tax system to a territorial system. Part of their reason is that a territorial tax system eliminates the tax incentive for inversions. While there isn’t consensus on the effectiveness of territorial taxation eliminating inversions, if the Administration has the courage of its convictions—and believes that it will succeed at enacting its reform—it doesn’t need to protect its anti-inversion regulations. They’ll be moot in the foreseeable future anyway.
  3. District court opinions have no precedential value.[fn1] In fact, the Supreme Court has said that district court decisions aren’t binding on a different judicial district, the same judicial district, or even the same judge.[fn2] That’s not to say they can’t be persuasive, and it’s not to say that other courts wouldn’t follow this decision. But frankly, it was light enough on the details that, even if it’s right, other courts aren’t going to rely on it; rather, plaintiffs will have to redo the work that the Chamber did in this case.

No matter what happens, though, this is an interesting extension of the current trend of discounting tax exceptionalism.

[fn1] Gasperini v. Center for Humanities, 518 U.S. 415, 430 n.10 (1996).

[fn2] Camreta v. Greene, 563 U.S. 692, 709 n.7 (2011).

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