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Court Opinions – A Year In Review

Several notable court opinions were issued 2016 dealing with a variety of substantive and procedural matters. In our previous post – Tax Controversy 360 Year in Review: Court Procedure and Privilege – we discussed some of these matters. This post addresses some additional cases decided by the court during the year and highlights some other cases still in the pipeline.

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APA Challenge to Notice of Deficiency: QinetiQ Oral Arguments

On October 26, 2016, the US Court of Appeals for the Fourth Circuit heard oral argument in QinetiQ U.S. Holdings, Inc. v. Commissioner, No. 15-2192. We previously wrote about the case here and here. To refresh, the taxpayer had argued in the US Tax Court (Tax Court) that the notice of deficiency issued by the Internal Revenue Service (IRS), which containing 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 deficiency adequately notified the taxpayer that a deficiency had been determined under relevant case law. The taxpayer appealed to the Fourth Circuit.

The substance of the oral argument focused on two issues: (1) whether the IRS’s notice of deficiency in this case violated the APA and was invalid; and (2) whether, on the merits, the taxpayer was entitled to a particular deduction. We focus on the former issue here.

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