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Tax Court Proposes New Rules of Practice and Procedure

On March 23, 2022, the US Tax Court announced new proposed rules for practicing before it. The Court proposed three new rules, amendments to existing rules and changes to conform the existing rules to various forms. The proposed changes also reflect the Court’s move toward conformity with the Federal Rules of Civil Procedure.

OVERVIEW OF THE NEW PROPOSED RULES

The new rules include Rule 63, Rule 92 and Rule 152. Rule 63 provides rules to parties seeking to intervene in a Court proceeding who have an unconditional right and a conditional right to intervene by a federal statute.

Rule 92 provides rules to identify and certify an administrative record in certain actions. The explanation to the proposed rule states that proposed Rule 92 is meant,

[T]o fill a gap in the Court’s Rules of Practice and Procedure. Although the Court has longstanding Rules governing the submission of the administrative record in declaratory judgment cases, see Title XXI of the Court’s Rules, the Court has not adopted a rule of procedure or a uniform process governing the submission of the administrative record to the Court in other actions where judicial review is normally limited to the administrative record or where judicial review requires an examination of the administrative record and other relevant evidence, as appropriate.

Rule 152 provides a uniform rule for the Court to accept briefs filed by amicus curiae. The explanation to the rule states that proposed Rule 152 is a corollary to Rule 29 of the Federal Rules of Appellate Procedure and Rule 7(o) of the local rules for the US District Court for the District of Columbia. We previously discussed amicus briefs in the Court, and this change is a welcome development to provide specific procedures in the area.

NOTABLE REVISIONS TO EXISTING RULES

Proposed Rule 21, Service of Papers, makes service of pleadings through the Court’s electronic system the default method for serving papers upon the Court and opposing parties.

Proposed Rule 23, Form and Style of Papers, omits all prefixes (e.g., Mr., Ms.) from pleadings. The amendment would also permit the use of a typed written name on a pleading that is filed electronically with the Court to constitute that person’s signature.

Proposed Rule 70, Scope of Discovery, would add the following rule:

Discovery must be proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.

Additionally, the amendment proposes that any information withheld under a claim of privilege must be expressly made and describe the nature of the documents, communications, etc., not produced to enable the other party the ability to assess the privilege claim. The rule also adds provisions for the return of privileged documents that were inadvertently disclosed to the opposing [...]

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Are Changes Looming over the Tax Court’s Procedure Rules?

Tax controversy practitioners are undoubtedly aware of the gradual movement over the years to conform certain Tax Court procedure rules (Tax Court Rules) to those of the Federal Rules of Civil Procedure. In many ways, this makes sense to ensure uniformity of tax cases regardless of whether a taxpayer litigates his tax dispute in a refund forum in the US District Court or the US Court of Federal Claims, or prior to payment of tax in the Tax Court. Below we note a few important areas of divergence between the different rules, and point out situations where the Tax Court Rules do not address a particular matter. These matters were discussed at the recent Tax Court Judicial Conference held in Chicago last week.

Amicus Briefs

As we have discussed before, amicus briefs are not uncommon in other courts. However, the Tax Court does not have specific rules on the topic and, instead, permits each judge to decide a case-by-case basis whether to permit the filing of an amicus brief. Although the Tax Court has discussed standards for filing amicus briefs in unpublished orders, given the nationwide importance of many issues that arise in Tax Court litigation, it may be time for the court to issue specific rules addressing the issue. (more…)




Should Taxpayers File Amicus Briefs in Tax Court Cases?

Amicus–or “friend of the court”–briefs are not uncommon in Supreme Court and appellate court cases.  The purpose of an amicus brief is generally to provide assistance to the court by presenting additional arguments either in support or opposition of one of the litigant’s positions.  Amicus briefs should not rehash the same arguments presented by one of the parties, but rather should provide insights and a different perspective that is not presented by the parties, and to inform the court of the impact of the issues in the case on other affected parties.  The Federal Rules of Appellate Procedure provide detailed rules on how and when to file an amicus brief.  See here for Federal Rule of Appellate Procedure 29, which governs amicus filings.

Sometimes, amicus parties want to get involved at the trial court level before the trial record is fixed.  Thus, increasingly, amicus briefs are being filed in trial courts, and in particular in the United States Tax Court (Tax Court).  When, why and how to file an amicus brief in a trial court is not clear.  Indeed, most trial courts do not have procedural rules that directly address those filings.  This post provides an overview of some of the considerations and procedures for filing such briefs in a Tax Court case.

Whether to allow an amicus to participate in a case is within the sound discretion of the court.  Because the filing of an amicus brief is discretionary, the typical practice is to file a motion seeking permission or“leave” of the court to file an amicus brief accompanied with a statement stating that the litigants do, or do not, object to the filing of the amicus brief.

In deciding whether to grant permission to file anamicus brief, the Tax Court generally examines whether “the proffered information is timely, useful or otherwise helpful.”  The court also considers whether amici are advocates for one of the parties, have an interest in the outcome of the case and possess unique information or perspective.  This is consistent with the standards applied by other courts in making the determination.

Practice Point:  Several factors should be considered by taxpayers in deciding whether to file an amicus brief in Tax Court.  In addition to the cost, taxpayers may want to consider whether their position is being adequately represented by another taxpayer’s case and whether they believe that they can provide arguments that might persuade the court to adopt their position.  Participation as an amicus can also be helpful to taxpayers in coordinating legal positions and ensuring that the best possible arguments are presented on issues of first impression.  An effective amicus brief has the potential to persuade the court, and can be an effective tool to resolve an issue favorably.  This is especially true when, because of the specific facts of the taxpayer, the perspectives of other taxpayers are not adequately addressed.




Law School Professors File Amicus Briefs in Support of Commissioner’s Position in Altera

Two groups of law school professors have filed amicus briefs with the US Court of Appeals for the Ninth Circuit in support of the government’s position in Altera Corp. v. Commissioner, Dkt Nos. 16-70496, 16-70497. Read more on the appeal of Altera here and the US Supreme Court’s opinion addressing interplay between the Administrative Procedure Act (APA) procedural compliance and Chevron deference here. Each group argues that Treas. Reg. § 1.482-7 represents a valid exercise of the Commissioner’s authority to issue regulations under Internal Revenue Code (Code) Section 482 and that the US Tax Court (Tax Court) erred in finding the regulation to be invalid under section 706 of the APA.

One group of six professors (Harvey Group) first notes its agreement with the arguments advanced by the government in its opening brief. In particular, the Harvey Group concurs with the argument that “coordinating amendments promulgated with Treas. Reg. § 1.482-7(d)(2) vitiate the Tax Court’s analysis in Xilinx that the cost-sharing regulation conflicts with the arm’s-length standard.” It then goes on to note its agreement with the government’s argument that “the ‘commensurate with the income’ standard … contemplates a purely internal approach to allocating income from intangibles to related parties.”

Having thus supported the government’s commensurate-with income-based arguments, the Harvey Group argues that the regulation in question is, in any event, consistent with the general arm’s-length standard of Code Section 482. It does so based principally on the proposition that “[s]tock-based compensation costs are real costs, and no profit-maximizing economic actor would ignore them.” However, that said, “there are material differences between controlled and uncontrolled parties’ attitudes, motivations and behaviors regarding stock-based compensation.” Thus, according to the Harvey Group, the Tax Court erred when it concluded that “Treasury necessarily decided an empirical question when it concluded that the final rule was consistent with the arm’s-length standard,” because “[n]o empirical finding that uncontrolled parties do, or might, share stock-based compensation costs is required to support Treasury’s regulation.” Accordingly, the Tax Court’s reliance on State Farm and the cases following it was a “key misstep” by the Tax Court.

The Harvey Group also proposes that, should the Ninth Circuit find that the term “arm’s length standard” or the meaning of the “coordinating regulations” is ambiguous, the government’s interpretation embodied in Treas. Reg. § 1.482-7 should be afforded Auer deference. Read more on deference principles in tax cases and the unique challenges of Auer deference. Auer deference is a special level of deference that can apply when an agency interprets its own regulations, although there are several limitations on its use.  Finally, if the Ninth Circuit decides that the regulations “have an infirmity,” the Harvey Group argues that “[t]he best remedy is to remand to Treasury for further consideration.”

A second group of nineteen professors (Alstott Group) similarly agrees with the government’s arguments to the Ninth Circuit. The Alstott Group argues that the 1986 addition of the “commensurate with income” standard [...]

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