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Government Files Its Brief in Auer Deference Case

As we discussed in a prior post and in our article for Law360, the Supreme Court is poised to decide in Kisor v. Wilkie whether to overrule the Auer deference doctrine. This doctrine, which originated in the 1945 Seminole Rock case, generally affords controlling deference to an agency’s interpretation of its own ambiguous regulations. To date, the petitioner has filed its brief, several amici have filed briefs and the government has filed its brief (links to these documents can be found here). Argument is currently scheduled for March 27, 2019, and an opinion is anticipated by the end of June 2019. The government’s brief, filed on February 25, 2019, acknowledges that Auer deference raises serious concerns. Specifically, the government states that the basis for the doctrine is unclear, the doctrine is in tension with the Administrative Procedures Act (APA) and overly broad deference to agency interpretations can have harmful practical consequences. However,...

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DC Circuit Reverses Tax Court and Holds Section 883 Regulations Invalid under Chevron Test

On March 28, 2017, the US Tax Court (Tax Court) issued its opinion in Good Fortune Shipping SA v. Commissioner, 148 T.C. No. 10, upholding the validity of Treas. Reg. § 1.883-4. The taxpayer had challenged the validity of the regulation’s provision that stock in the form of “bearer shares” cannot be counted for purposes of determining the more-than-50-percent ownership test under Internal Revenue Code (Code) section 883(c)(1), but the Tax Court held that the regulation was valid under the two-step analysis of Chevron USA, Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), and applied it in ruling for the Internal Revenue Service (IRS). We previously discussed the Tax Court’s opinion here. The taxpayer appealed the Tax Court’s decision to the US Court of Appeals for the District of Columbia Circuit (DC Circuit). On July 27, 2018, the DC Circuit released its opinion in Good Fortune Shipping SA v. Commissioner, Dkt. No. 17-1160. The DC Circuit took...

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Fifth Circuit Dismisses Anti-Inversion Regulation Case

We previously posted on the Order by the US District Court for the Western District of Texas in Chamber of Commerce of the United States of America, et al. v. Internal Revenue Service, Dkt. No. 1:16-CV-944-LY (W.D. Tex. Sept. 29, 2017). To recap, the district court held that Treas. Reg. § 1.7874-8T was unlawfully issued because it violated the Administrative Procedures Act (APA) by not providing affected parties with notice and an opportunity to comment on the temporary regulations. In addition to the APA analysis, the court’s Order was noteworthy for its conclusion that the plaintiff’s claims were not barred by the Anti-Injunction Act because the regulations did not involve assessment or collection of tax. As we updated our readers, the government appealed the Order to the Court of Appeals for the Fifth Circuit. However, the case was stayed while the regulation underwent notice and comment. And, on July 11, 2018, Treasury and the Internal Revenue Service...

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US Tax Reform: Potential Role of the APA Program

US tax reform finally occurred in 2017 with what was formerly referred to as the Tax Cuts and Jobs Act of 2017 (the Act). The headline from a corporate standpoint is reduction in the maximum rate from 35 percent to 21 percent beginning in 2018. In the international context, the Act: (i) embraces a territorial system as exists with most of its trading partners; (ii) seeks to protect the US tax base from perceived cross-border erosion; and (iii) enacts an incentive for certain economic investments in the United States at a globally attractive effective tax rate (13.125 percent). The purpose of this post is not to review the technical provisions of the Act, but to note that as each multinational enterprise (MNE) evaluates its impact on its effective tax rate strategy (both opportunities and hazards), an item to keep on the agenda may be “could a bilateral APA be of assistance?” While there is no material reference to advanced pricing agreement (APA) procedures...

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Supreme Court Denies Review of QinetiQ

We have previously written about QinetiQ U.S. Holdings. Inc.’s (QinetiQ) fight to apply the Administrative Procedure Act (APA) to notices of deficiency issued by the Internal Revenue Service (IRS). (See below for our recent coverage.) In short, the Tax Court and the US Court of Appeals for the Fourth Circuit rejected QinetiQ’s argument that a one-sentence reason for a deficiency determination contained in a notice of deficiency violated the APA because it was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” Undeterred, QinetiQ filed a petition for certiorari seeking review from the Supreme Court. Alas, the saga ends for QinetiQ as the Supreme Court denied the petition this morning. Practice Point:  Although QinetiQ was not successful in its APA arguments, other APA arguments in the tax law have gained considerable traction in recent years. We will be posting soon on the recent order out of the Western District of Texas...

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Senate Attempts to Repeal Chevron Deference

In Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. 467 US 837 (1984), the Supreme Court of the United States established a framework for assessing an agency’s interpretation of statutory provisions. First, a reviewing court must ask whether Congress “delegated authority to the agency generally to make rules carrying the force of law,” and whether the agency’s interpretation was promulgated under that authority. United States v. Mead Corporation, 533 US 218, 226–27 (2001). Delegation may be shown in a variety of ways, including “an agency’s power to engage in adjudication or notice-and-comment rulemaking, or by some other indication of a comparable congressional intent.” Id. at 227. If an agency has been delegated the requisite authority, the analysis is segmented into two steps. Under step one, the reviewing court asks whether Congress has clearly spoken on the precise question at issue. See Chevron, 467 US at 842. If so, both the court and...

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Tax Court Hands Eaton a Complete Victory on the Cancellation of its Advance Pricing Agreements

On July 26, 2017, the United States Tax Court (Tax Court) handed a complete victory to Eaton Corporation (Eaton) relating to the Internal Revenue Service’s (IRS) cancellation of two Advance Pricing Agreements (APA). Eaton Corporation v. Commissioner, TC Memo 2017-147. The Tax Court held that the IRS had abused its discretion in cancelling the two successive unilateral APAs entered into by Eaton and its subsidiaries with respect to the manufacturing of circuit breaker products in Puerto Rico, and it found no transfer of any intangibles subject to Internal Revenue Code (Code) Section 367(d). In 2011, the IRS cancelled Eaton’s first APA effective January 1, 2005, and the renewal APA effective January 1, 2006, on the ground that Eaton had made numerous material misrepresentations during the negotiations of the APAs and during the implementation of the APAs. As a result of the APA cancellations, the IRS issued notice of deficiencies for 2005 and 2006 determining...

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APA Challenge to Notice of Deficiency: QinetiQ Requests Supreme Court Review

On April 4, 2017, QinetiQ U.S. Holdings, Inc. petitioned the US Supreme Court to review the US Court of Appeals for the Fourth Circuit’s decision that the Administrative Procedure Act of 1946 (APA) does not apply to the Internal Revenue Service (IRS) Notices of Deficiency. We previously wrote about the case (QinetiQ U.S. Holdings, Inc. v. Commissioner, No. 15-2192) here, here, here and here. To refresh, the taxpayer had argued in the US Tax Court that the Notice of Deficiency issued by the IRS, which contained a one-sentence reason for the deficiency determination, violated the APA because it was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” The APA provides a general rule that a reviewing court that is subject to the APA must hold unlawful and set aside an agency action unwarranted by the facts to the extent the facts are subject to trial de novo by the reviewing court. The Tax Court disagreed, emphasizing that it...

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APA Challenge to Notice of Deficiency: QinetiQ Affirmed

On January 6, 2017, the US Court of Appeals for the Fourth Circuit, by published opinion, affirmed the US Tax Court’s (Tax Court) earlier ruling in QinetiQ US Holdings, Inc. v. Commissioner.  We previously wrote about the case here, here, and here.  To refresh, the taxpayer had argued in Tax Court that the Notice of Deficiency issued by the Internal Revenue Service (IRS), which contained a one-sentence reason for the deficiency determination, violated the Administrative Procedure Act (APA) because it was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”  The APA provides a general rule that a reviewing court that is subject to the APA must hold unlawful and set aside an agency action unwarranted by the facts to the extent the facts are subject to trial de novo by the reviewing court. The Tax Court disagreed, emphasizing that it was well settled that the court is not subject to the APA and holding that the Notice of...

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