By: Leandra Lederman
Susan Morse and Stephen Shay have blogged today on Procedurally Taxing about the Ninth’s Circuit oral argument tomorrow in Altera Corp. v. Commissioner, as has Dan Shaviro on his blog, Start Making Sense. Altera is the transfer pricing and administrative law case involving the Treasury’s cost-sharing agreement regulation. The Tax Court invalidated the regulation under the Administrative Procedure Act, as arbitrary and capricious. That is because the Tax Court accepted the taxpayer’s argument that it need not share stock-based compensation costs under a qualified cost-sharing agreement because arm’s length parties would not do so. The Tax Court found that Treasury had inadequately addressed evidence in the notice-and-comment process that parties not under common control did not share stock-based compensation costs, although Treasury explained in the Preamble to the regulation that cost-sharing agreements between uncontrolled parties are not sufficiently comparable to those in controlled-party transactions.
Altera raises an important administrative law question about what is required of Treasury for its regulations to be valid. Susie and Steve spearheaded an amicus brief in the Ninth Circuit in favor of the Commissioner, in which I joined, along with Dick Harvey, Ruth Mason, and Bret Wells. An amicus brief prepared by another group of professors also supports the Commissioner. There are also amicus briefs by business groups on the other side. See Susie and Steve’s blog post for more detail. And for prior coverage on the Surly Subgroup, see this post on our amicus brief, explaining why the Ninth Circuit should reverse the Tax Court’s decision invalidating the regulation.
By: Philip Hackney
The Treasury Inspector General for Tax Administration (TIGTA) just issued a new report four years and five months after rebuking the IRS for using “inappropriate” criteria to select applications for tax exempt status for scrutiny. In the first report, TIGTA rebuked the IRS for pulling the applications of conservative leaning organizations for greater scrutiny.
This time it considers the fact that the IRS over a period of 10 years used liberal leaning names such as ACORN, Emerge, and Progressive as criteria for pulling applications for greater scrutiny. This resulted in the IRS applying greater scrutiny to these organizations. Some might say the IRS targeted these organizations. Those organizations appear to have faced long wait times as well, and sometimes some questions of limited merit.
I write this piece to make two points: (1) had this information been in the initial report, I don’t think we would have had the “scandal” that shook the IRS and the political world of the time; and (2) the TIGTA report built its primary claim on a garbled faux legal postulate. The original report did terrible damage to the IRS and individuals by failing on both of these fronts. Continue reading “IRS ‘Targeted’ Liberal Organizations and After All These Years TIGTA is Still Wrong”
By: David Herzig
With all the diversions this week, it was easy to miss that the House Committee on Appropriations posted on June 28th the Appropriations Bill for FY 2018. The bill seems to include a couple items that not many were expecting. So, I thought I would highlight some of the key provisions. Since it is Friday before a Holiday weekend, I’ll keep it short for now. There are four main provisions I will address: (1) IRS Targeting/Johnson Amendment; (2) ACA Penalties; (3) Conservation Easements; and (4) 2704 (Estate/Gift Tax).
I. IRS Targeting/Death of Johnson Amendment
First, is a clear response to the “targeting” of groups from the Lois Lerner Administration. In three separate sections (107, 108 and 116), the bill attempts to regulate the IRS, not Continue reading “House Appropriations Bill”
By: David Herzig
As the world braces for the upcoming Executive Order from President Trump,
I wanted to take a minute and describe the Johnson Amendment. Later today, after the actual Executive Order is made public, Ben Leff will be writing up a more through post.
A couple of months ago President Donald Trump told the audience at the National Prayer Breakfast that he would “get rid of and totally destroy” the Johnson Amendment. Which raises the question: what is the Johnson Amendment. Because he brought it up at the National Prayer Breakfast, it also leads to the question of how does affects churches.
In 1954, without explanation, Lyndon Johnson proposed a small amendment to the tax law governing tax-exempt organizations: forbid them from endorsing or opposing candidates for office. One of the few consistent talking points during president-elect Donald Trump’s campaign was that this so-called “Johnson Amendment” should be repealed; since comprehensive tax reform is part of Trump’s plan for his first 100 days in office, the repeal may happen immediately. Continue reading “What is the Johnson Amendment?”
Time flies when you’re having fun, I guess. Today is the one-year blogiversary of the Surly Subgroup. What started off as a group-blogging experiment hatched at last year’s Critical Tax Conference at Tulane Law School has provided quite a bit of entertainment for Surly bloggers and our guest bloggers, and hopefully for our readers as well.
It’s obviously been a big year on tax and other fronts. Since our inception, we’ve published 206 blog posts on a variety of topics. And we’ve drawn readers from 140 different countries.
Surly regulars and guest bloggers have covered various tax-related issues surrounding politics and the 2016 election—including disclosure of presidential tax returns, the Emoluments Clause, the Trump Foundation, and the Clinton Foundation. We’ve written about churches, 501(c)(3)s and the IRS treatment of non-profits. We’ve discussed the tax reform proposals of the 2016 presidential candidates and the #DBCFT. We’ve written several administrative law posts about Treasury Regulations and rulemaking.
Politics aside we’ve also covered other important issues in tax policy—including taxation and poverty, healthcare, tax policy and disabilities, tax compliance, and tax aspects of the Puerto Rico fiscal crisis. We’ve discussed several issues in international and cross-border taxes, touching on the EU state aid debate, the CCCTB, taxation and migration, the Panama Papers, tax leaks more generally, and tax evasion in China.
We hosted our first ever online Mini-Symposium on Tax Enforcement and Administration, which featured posts by ten different authors on a variety of tax administration topics. The Mini-Symposium was spearheaded by Leandra Lederman. Leandra had organized and moderated a discussion group on “The Future of Tax Administration and Enforcement” at the 2017 AALS Annual Meeting, and many of the discussion group participants contributed to the online symposium. We hope to organize future online symposia on other topics.
We’ve blogged about various conferences, workshops, and papers, both tax related and not-so-much tax related. We’ve also had lots of fun writing about taxes in popular culture – Surly bloggers and guest bloggers have written about the tax aspects of Pokémon Go, tax fiction, music-related tax issues (Jazz Fest! Prince! “Taxman”!), soccer players, dogs, Harry Potter fan fiction, Star Trek, and John Oliver. Surly bloggers even recorded a few tax podcasts!
In short, it’s been a busy year, and we’ve had a lot of fun with the Surly platform. We hope you have as well. Going forward, we’re going to keep the blog posts coming. We also hope to draw more regular and guest bloggers and to organize other online symposia.
Thanks for reading!
On Friday, the Senate confirmed Neil Gorsuch as the newest Justice on the Supreme Court, and today he was officially sworn in, taking the seat that Justice Scalia’s passing left vacant.
When Justice Scalia passed away, I looked at the tax opinions he had authored. It turns out, Justice Scalia didn’t author a whole lot of tax opinions, and those that he did author were, as I said, “workmanlike,” without the verbal pyrotechnics, wit, and flair he was known for.
I was curious whether Justice Gorsuch would bring anything different to that seat, so I looked for tax opinions he had authored.[fn1] My search terms brought up 34 hits; the vast majority were not actually cases dealing with the federal income tax.[fn2] In fact, I only saw two cases dealing with federal income tax issues, and neither of them really dealt with the tax law. Continue reading “Neil Gorsuch and the Tax Law”
By: Leandra Lederman
Sam Brunson previously blogged about President Trump’s Executive Order of January 30, 2017, “Reducing Regulation and Controlling Regulatory Cost,” which requires an agency to identify two regulations to eliminate for every new regulation it issues. (Sam also has related posts here and here). As Sam stated, the Executive Order burdens taxpayers, who benefit from the public guidance Treasury regulations provide.
On March 23, the American College of Tax Counsel (ACTC) sent a letter to the Secretary of Treasury, Hon. Steven Mnuchin, and the Director of the Office of Management and Budget, Hon. Mick Mulvaney, “respectfully request[ing] that the Administration consider the unique role that the tax law plays in the lives of every American and provide the Treasury Department and the IRS with appropriate flexibility in issuing guidance that taxpayers and their advisors need in order to comply with the tax law.” The letter explains in part:
“By limiting the flexibility of Treasury and the IRS to issue such guidance, the Executive Order risks shifting the interpretive burden onto taxpayers, who must hire accountants, lawyers, and other advisors to guide them. . . . Moreover, by requiring Treasury and the IRS to identify two ‘deregulatory’ actions for each new guidance item, the Executive Order risks imposing additional burdens on taxpayers if it results in the elimination of existing rules that taxpayers and their advisors have come to rely on.”
I hope that Secretary Mnuchin and Director Mulvaney are receptive. As the ACTC’s letter states, even while simplification efforts are underway, “it is critical for taxpayers and their advisors to have the guidance needed to comply with the tax law as currently in effect.”
By: Leandra Lederman
In QinetiQ v. Commissioner, the Court of Appeals for the Fourth Circuit refused to invalidate a Notice of Deficiency that simply stated “that QinetiQ ‘ha[d] not established that [it was] entitled’ to a deduction ‘under the provisions of [26 U.S.C.] § 83.’” The taxpayer had argued that the Notice “failed to provide a reasoned explanation for the agency’s final decision, as required by the Administrative Procedure Act (APA), 5 U.S.C. §§ 701-06.” The court’s analysis of this issue focuses on the distinction between court review that is subject to the APA and court review that is not. The QinetiQ court found that review of IRS deficiency actions, which predates the APA, falls into the latter category.
The QinetiQ case can readily be grouped with Mayo Foundation and the post-Mayo cases focused on the intersection of administrative law with federal tax law. In a recent post on the Procedurally Taxing blog, Bryan Camp does a nice job of analyzing the case in that context. But another perspective on the case is that the APA argument in QinetiQ is the latest packaging of some taxpayers’ complaints about uninformative Notices of Deficiency. In fact, QinetiQ also argued that the Notice violated Code section 7522, which requires various IRS notices, including Notices of Deficiency, to “describe the basis for, and identify the amounts (if any) of, the tax due, interest, additional amounts, additions to the tax, and assessable penalties included in such notice.”
As I wrote over two decades ago, in one of my first articles, “‘Civil’izing Tax Procedure: Applying General Federal Learning to Statutory Notices of Deficiency,” 30 U.C. Davis L. Rev. 183 (1996), the conflicts and confusion over the validity of Notices of Deficiency stem from two issues. The first is that courts often focus on only one of the Notice’s functions in isolation, such as its jurisdictional role as the “ticket to Tax Court” in deficiency cases. My 1996 article argued that the Notice of Deficiency not only plays that role, it also provides notice to the taxpayer (like civil process) and acts as an inchoate complaint, helping to frame the issues if a Tax Court case ensues. As I explain there, less content should be required for jurisdictional purposes than to frame the content of the litigation. Code section 7522 arguably reflects this idea, as I’ll explain further below. Continue reading “Deficient Notices of Deficiency and the Remedy Question”
By: David Herzig
Friday the Wall Street Journal published Daniel Hemel and my article on why we think it will be very hard for the Senate to just do away with the ACA (aka Obamacare) via reconciliation. We follow-up our earlier Surlygroup posting (also cross-posted at Yale J. Reg.) which discussed why the Senate norms are hard to break. Since that article, we have developed some fairly interesting models on why we think the Senate norms are rather sticky – more on that to come.
In the Wall Street Journal article we state, “Most significantly, Majority Leader Mitch McConnell and his caucus may be forced to choose between their antipathy toward the ACA, also known as Obamacare, and their allegiance to longstanding institutional norms. In the end, the scope of ACA repeal will likely depend on whether Senate Republicans decide to score political victories in the short term or to maintain the Senate’s unique culture for the long haul.”
The problem for the republicans is the Byrd rule. Repeal of the ACA will have budgetary impact beyond the budget window. A decision will need to be made on the impact. As we stated, “On some reconciliation-related questions, the presiding officer defers to the Budget Committee chairman, currently Senator Mike Enzi. On other questions, including whether a provision produces “merely incidental” effects on the budget, the presiding officer generally follows the advice of the Senate’s nonpartisan parliamentarian, the official adviser to the Senate on the body’s rules.”
Continue reading “Budget Reconciliation Process and Obamacare”
By Daniel Hemel and David Herzig
Who Holds the Trump Card on Reconciliation?
Republicans on Capitol Hill are reportedly planning to use the filibuster-proof budget reconciliation process to repeal the Affordable Care Act and overhaul the tax code. Against that background, Sam Wice says that “the most powerful person in America” in 2017 will be Senate Parliamentarian Elizabeth MacDonough, the nonpartisan official who will “determine” how much of their agenda Republicans can pass through reconciliation. This, of course, is an exaggeration: like it or not, the most powerful person in America in 2017 will be Donald J. Trump, who will wield all the power of the imperial presidency. But Wice’s post helpfully directs our attention to the budget reconciliation process, the rules of which quite likely will determine whether the Republican leadership on Capitol Hill can repeal the ACA and reform the tax laws.
Yet while one should not underestimate the importance of reconciliation, one should also not overestimate the power of the Parliamentarian in the reconciliation process. As a formal matter, the Parliamentarian’s role is advisory; and as a practical matter, the Parliamentarian has little say over significant aspects of reconciliation. Other actors—most notably, Senate Budget Committee Chairman Mike Enzi (R-Wy.)—wield at least as much influence as the Parliamentarian. Most importantly, Enzi—not MacDonough—will determine whether the provisions in any reconciliation bill violate various rules against deficit-increasing legislation being passed via reconciliation. And unlike the Parliamentarian, the Budget Committee Chairman is very hard to fire.
Reconciliation measures can begin in either or both chambers. However, since the ultimate vote on the budget measure occurs in the Senate, we’ll focus on the Senate side of the reconciliation process for purposes of this discussion. On the House side, the Rules Committee Chair and the Budget Committee Chair will wield outsized influence as well. We expect Pete Sessions (R-Tex.) to stay on as House Rules Committee Chair; as for the House Budget Committee Chair, the race is on for a replacement to Tom Price, the Georgia Republican recently tapped as Trump’s Health and Human Services Secretary.
To understand why the Budget Committee Chair is as powerful as he is, a bit of background on reconciliation may be helpful. Continue reading “The Art of the (Budget) Deal”