As we previously discussed, toward the end of June Whirlpool Financial Corporation & Consolidated Subsidiaries and Whirlpool International Holdings S.a.r.l. & Consolidated Subsidiaries (collectively, Whirlpool) asked the Supreme Court of the United States to review the US Federal Circuit Court of Appeals for the Sixth Circuit’s decision that income earned by a Luxembourg controlled foreign corporation was foreign base company sales income (FBCSI) under the branch rule of Internal Revenue Code (IRC) section 954(d)(2) and taxable to the corporation as “subpart F income.” (For an excellent dissection of the Sixth Circuit’s decision, please see our colleagues’ article, “Implications of the Sixth Circuit’s Whirlpool Opinion.”)
Several amici recently filed briefs with the Supreme Court supporting Whirlpool. The docket sheet for the case, titled Whirlpool Financial Corp. et al., Petitioners, v. Commissioner of Internal Revenue, No. 22-9, is available here.
On August 3, 2022, the National Association of Manufacturers (NAM) submitted its brief, setting forth two arguments:
First, the Sixth Circuit applied an entirely novel interpretation—not found anywhere in the Code or Treasury regulations and not advanced by the agency nor adopted by the Tax Court—that conflicts with decades-old regulations promulgated contemporaneously with the underlying statute and at Congress’s express command in section 954(d)(2) itself.
Second, reliance on validly promulgated regulations—and therefore regulated parties’ ability to comply with the laws—is the bedrock of administrative law. If taxpayers must follow regulations or face the prospect of civil (and perhaps even criminal) penalties, then so too must the government be held to its binding, published actions.
On August 4, 2022, PricewaterhouseCoopers LLP, Deloitte Tax LLP and KPMG LLP (collectively, Accounting Firms) joined forces to bring the “exceptionally important” nature of the case to the Supreme Court’s attention. (The brief states that Ernst & Young LLP did not participate as amicus curiae because it is Whirlpool’s financial statement auditor.) In their brief, the Accounting Firms assert:
The Sixth Circuit’s disregard of the regulations in its attempt to interpret the requirements of the statute creates substantial uncertainty with respect to the efforts to comply with the Internal Revenue Code and the Amici who advise them. Review by this Court is necessary to reassure taxpayers that when Congress expressly conditions tax provisions on the issuance of Treasury Regulations, courts will take those regulations into account in interpreting the requirements of the Internal Revenue Code.
Also on August 4, a third brief was submitted by the Silicon Valley Tax Directors Group, the National Foreign Trade Council, the Information Technology Industry Council and TechNet. These amici assert:
This Court should alleviate [the] disparate treatment among taxpayers—or even the same taxpayer in different federal courts—by recognizing the importance of the clear statutory command that branch income “shall constitute” FBCSI only “under regulations prescribed by the Secretary [of the Treasury].” 26 U.S.C. § 954(d)(2). Restoring taxpayer reliance on those regulations is crucial for preserving Congress’s desired uniform scheme and avoiding the upheaval of operations of essentially all CFC branches.
Interestingly, the government took another approach. On August 3, 2022, it submitted a waiver of “its right to file a petition in this case, unless requested to do so by the Court.”
Practice Point: It remains to be seen whether the Supreme Court will grant Whirlpool’s petition. As the several amici highlight, this case raises the important questions of whether agencies and courts must follow validly promulgated regulations, particularly regulations that US Congress specifically directed be promulgated to provide guidance to taxpayers. We remain hopeful that the Supreme Court will grant Whirlpool’s petition and provide clarity in this area.
*McDermott Will & Emery represents NAM in this matter.