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Contracts and the Court, Designated Orders November 16 – 21, 2020, Part I

Changes made during transition to the Tax Court’s new website prevent us from easily linking to the orders discussed in this post, but if you are interested in seeing an order you can search the case’s docket number on the Court’s website to find it.

Almost every area of law requires some knowledge of the tax code, especially contract law, and many of the orders designated during the week of November 16th demonstrate that. Summary judgment is not appropriate when a genuine dispute of a material fact exists, so can a genuine dispute exist when a case involves a legal writing, such as contract, deed, or agreement? The validity of the legal writing is not being questioned in any of these cases, but the Court reviews the legal writings to determine whether summary judgment is appropriate.

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Conservation Easement Deeds

The Court has been reviewing conservation easement deeds for perpetuity requirement violations for a while now and has been consistently granting summary judgment in favor of respondent. But the tides may be changing, in Docket No. 20849-17, St. Andrews Plantation, LLC v. CIR, the Court denies respondent’s summary judgment motion on this issue.

As we’ve seen and blogged about before, the deed in this case contains the “forbidden language” which fails to guarantee the donee its proportionate share of proceeds if the conservation easement is extinguished. This violates the perpetuity requirement and causes the donor organization to lose its charitable contribution deduction. For background information the posts here and here are most helpful.

So why isn’t this case another slam-dunk for respondent? According to the Court, “the deed in this case is different than the deeds in other cases,” because the “deeds in other cases contemplated future improvements that had obvious value.”

The language in the deed at issue in this case only permits maintenance of existing modest improvements, which consist entirely of a forest paths, gravel and other permeable-base roads, drainage ditches, and a metal entrance gate.

Unlike the more elaborate improvement possibilities in other cases (such as, natural gas wells, cell phone towers and additional structures) the options available in the deed in this case could not increase the fair market value of the subject property, or any increase would be de minimis. As a result, the improvements clause would not necessarily cause the donee organization to receive less than its proportionate share of proceeds in the event the property was sold following judicial extinguishment of the easement.

In Docket No. 14179-17, 901 South Broadway Limited Partnership, Standard Development, LLC v. CIR. The Court reviews the language of a deed for a façade easement and denies the IRS’s summary judgment motion while taking petitioner’s motion under consideration.

A façade easement it involves a different analysis for when it has a conservation purpose which is found in section 170(h)(4)(B) and requires that the building be listed in the National Register or be certified as having historic significance. Further section 170(h)(4)(C)(ii) requires non-National Register buildings to meet two additional requirements regarding preservation of the building’s exterior and “prohibits any change in the exterior of the building which is inconsistent with [its] historical character…”

Respondent argues that language in the deed related to the second additional requirement violates the perpetuity requirement. The deed requires the grantor to obtain prior express written approval from the grantee before it can make any changes to the building’s exterior, however, if the grantee fails respond to the request within 30 days the request is deemed approved (the “deemed approval provision”). Respondent argues that this means the grantor can make changes inconsistent with the building’s historical character if the grantee fails to respond.

But in a later section of the deed, the grantor is specifically prohibited from making any changes inconsistent the building’s historical character (the “prohibition provision”).

Both petitioner and respondent make arguments based on the deed’s construction, conflicting clauses, and the effect under California law, but the Court steps in to say none of that is necessary. The Court does not see any conflict between the deemed approval provision and the prohibition provision, because the prohibition provision limits both parties from permitting or making changes that are inconsistent with the building’s historical character so the grantee cannot be deemed to approve any request which it lacks the authority to approve.

Another order was designated in this case asking questions of respondent and setting a pre-trial conference for January 6, 2021. During the conference, IRS conveyed that they have abandoned the argument that the deed violates the perpetuity requirement argument, but they identified new issues under section 170(f) which the parties are working to resolve. 

Divorce and Separation Agreements

In Docket No. 13901-17, Redleaf v. CIR, the Court had to review the language in a divorce agreement to determine whether allocations made to petitioner were alimony or property settlements. Although the Court outlined the steps it must take when reviewing divorce agreements for characterization questions, the language in the agreement itself (referring to the allocations as “property settlement,” “division of assets,” “property division,” etc.) influenced the Court’s decision to grant summary judgment to petitioner.

In Docket No. 20452-18S, Valente v. CIR, the Court to review the terms of a separation agreement to determine whether payments made to petitioner were alimony or child support. In this case, an enrolled agent either didn’t understand, or didn’t follow, the separation agreement’s terms when he prepared petitioner’s tax return and treated a portion of what should have been alimony as child support because it produced a better result for her children’s college financial aid application. The Court determined there was nothing in the language of the separation agreement that would have allowed the alimony payments to be treated as child support payments and decided for respondent.

Contracts related to Research and Experimentation Credits

In Docket No. 7805-16, Meyer, Borgman & Johnson, Inc. v. CIR, the Court looks petitioner’s contracts to determine whether research was “funded” as defined in section 41(d)(4)(H). If the research was funded by petitioner’s clients, then petitioner is ineligible for the research credit.

The regulations instruct that “all agreements (not only research contracts) entered into between the taxpayers performing the research and other persons shall be considered in determine the extent to which research is funded,” and “amounts payable under any agreement that are contingent on the success of the research and thus considered to be paid for the product or result of the research are not treated as funding.”

The Court entertains many of petitioner’s arguments, but ultimately looks to the contracts and finds that none of them expressly make payments contingent on the success of petitioner’s research. Use of express terms have been identified as important in the case law that exists in this area. As a result, it finds there are no genuine issues of material fact and grants summary judgment to respondent.

The designated order in Consolidated Docket No. 27268-13, 27390-13, 27371-13, 27373-13, 27374-13, 27375-13, Tangle, et. al. v. CIR, also involved the research credit, but for the question of whether the qualified research tests were met and Section 41 exclusions avoided. Since it didn’t involve a contract, I don’t discuss it in detail.

Other Orders Not Discussed

There were three orders designated during the week of October 19-23, 2020:

Docket No. 2018-17L, Means v. CIR, petitioner’s case for very old tax years was dismissed after a lengthy history of non-compliance with Court orders.

Docket No. 25934-17, Tobin v. CIR, the Court grants IRS’s protective order requesting that they not be required to respond to petitioner’s request for admissions which perpetuate frivolous arguments.  

Docket No. 19697, Kalivas v. CIR, the Court denies petitioner’s motion for leave to file an amendment to petition because he failed to comply with the Court’s order, rules and more.

BBA Partnership Tax Provisions and Bankruptcy– A Recipe for Disaster, Part 1

We welcome back guest blogger, A. Lavar Taylor.  Lavar’s practice is based in Southern California though you can find him pursuing cases around the country.  He spent the early days of his career in the General Litigation Division of Chief Counsel’s office where he learned the intricacies of the intersection of tax and bankruptcy.  We enjoy his insights today on a new issue that could vex bankruptcy and tax attorneys in the coming years.  Keith

Some of us practitioners are old enough to have endured the transition to the TEFRA Partnership audit provisions from the unwieldy pre-TEFRA rules that required the IRS to audit the tax returns of all partners in a tax partnership in order to assess deficiencies resulting from adjustments to Forms 1065 filed by those partnerships.  That transition required a considerable learning curve. Even 30+ years after the enactment of the TEFRA Partnership audit provisions, we have still been “learning through litigation” about the proper interpretation of some of the more poorly drafted TEFRA Partnership audit provisions.  See, e.g., Petaluma FX Partners, LLC v. Comm’r, 792 F.3d 72 (D. C. Cir. 2015).

The intersection between the TEFRA Partnership audit provisions and the bankruptcy/insolvency world has also proven to be quite interesting, as illustrated by the Ninth Circuit’s opinion in Cent. Valley Ag Enters. v. United States, 531 F.3d 750 (9th Cir. 2008). In that case, the taxpayer/debtor was allowed to challenge a claim filed by the IRS based on a TEFRA Partnership audit even though the IRS had issued an FPAA and the deadline for filing a Tax Court petition with respect to the FPAA had expired without any petition having been filed.  Outside of bankruptcy, no judicial challenges to the audit assessment made against that partner as the result of the TEFRA Partnership audit would have been permissible as of the date on which the Chapter 11 bankruptcy case was filed. But once inside Chapter 11, per the Ninth Circuit, the taxpayer/debtor/partner was entitled to challenge the merits of the audit assessment under section 505(a)(2) of the Bankruptcy Code.  The filing of the Chapter 11 by the partner allowed the debtor/taxpayer/partner to escape the otherwise preclusive effect of the failure of any party in interest to file a Tax Court petition in response to the FPAA.

Now, thanks to Congress, we are faced with learning an entirely new set of partnership audit provisions: the BBA Partnership audit provisions. Learning how these new provisions will operate in the real world is likely to be no less painful than it was to learn how the TEFRA Partnership audit provisions operate in the real world.

This learning process will be even more painful where a bankruptcy is involved. How much more painful? That remains to be seen, but masochists and sadists will likely rejoice.

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This post discusses one of the many problems that are going to arise when the BBA Partnership audit provisions collide with the Bankruptcy Code, namely, how to classify, for purposes of the Bankruptcy Code, claims for audit assessments of income taxes arising under the BBA Partnership Audit proceedings. I plan to follow up this post with additional posts which will further discuss the problems that are going to arise as the result of the intersection of these two statutory schemes. A discussion of these issues appears timely in light of the current economic climate.

Classifying income tax claims under the Bankruptcy Code is important. How income tax claims get classified under the Bankruptcy Code determines matters such as: a) the order in which such claims get paid in Chapter 7 relative to other types of claims, b) whether such claims must be paid in full in a Chapter 11 case or in a Chapter 13 case, c) the terms on which such claims can or must be paid in a Chapter 11 case or in a Chapter 13 case, and d) the extent to which such claims can be discharged in bankruptcy.

Without getting too technical, there is a big distinction under the Bankruptcy Code between income tax claims that are for tax periods that end prior to the date of the filing of the bankruptcy petition (“pre-petition tax claims”) and income tax claims for tax periods that end after the date of the filing of the bankruptcy petition (“post-petition tax claims”).  Pre-petition income tax claims, if not secured by the proper filing of a tax lien notice, are either “general unsecured” claims or “priority” claims. See, e.g., Bankruptcy Code 507(a)(8)(A), which determines what pre-petition income tax claims are treated as “priority” tax claims.

Post-petition income tax claims are sometimes (but not always) entitled to be paid as an administrative expense in the bankruptcy case.  In other cases, post-petition income tax claims are not treated as administrative expense and cannot be paid out of proceeds held by a Chapter 7 Trustee and cannot be paid at all under a Chapter 11 plan.

In any bankruptcy case, unsecured pre-petition tax claims, whether treated as “priority” tax claims or as “general unsecured” claims, do not get paid until all administrative expense claims have been paid in full. Also, “priority” tax claims get preferred treatment over general unsecured claims in all types of bankruptcy cases.  

Thus, determining whether an income tax claim is a pre-petition claim or is instead a post-petition claim is important. Also, if an income tax claim is a pre-petition claim, determining whether that claim is a “priority” tax claim or is instead a “general unsecured” tax claim is important. Similarly, if an income tax claim is a post-petition claim, determining whether or not that post-petition income tax claim is an administrative expense claim is important.  See, e.g., Towers for Pacific-Atlantic Trading Co. v. United States (In re Pacific-Atlantic Trading Co.), 64 F.3d 1292 (9th Cir. 1995), which dealt with all of these issues in the context of an IRS claim for taxes for the tax year during which a corporate debtor/taxpayer went into chapter 11 bankruptcy.

Those of you who have some familiarity with the BBA Partnership audit provisions should already have an idea of where this discussion is headed.  Under the BBA Partnership provisions, an audit of a partnership return for the year 2019 which ends in the year 2023 and which generates a deficiency can result in any of the following:  1) deficiency assessments against the 2019 partners for the 2019 tax year, 2) a deficiency assessment against the partnership for the tax year 2023, or 3) deficiency assessments against the 2023 partners for the tax year 2023. 

Suppose, then, that the tax partnership files for chapter 11 at the end of 2022 and that this Chapter 11 case remained pending as of the end of 2023 without a chapter 11 plan being confirmed.   If an IRS audit of the partnership’s 2019 tax return comes to an end in 2023 and the taxes are assessed against the partnership for the year 2023 in 2024, how should that claim be classified under the Bankruptcy Code?  The claim is for the 2023 tax year, a post-petition year.  That suggests that the claim is a post-petition claim. But the claim is clearly based on pre-petition activity. Thus, there is an argument that the claim against the partnership should be treated as a pre-petition claim, even though the claim is for a post-petition tax year.

If the claim is to be treated a pre-petition claim, is the claim entitled to priority treatment under section 507(a)(8) even though that section only applies to claims for tax years that ended before the date on which the bankruptcy was filed? If the claim is to be treated as a post-petition claim, is the claim an administrative expense claim allowed under section 507(a)(2) of the Bankruptcy Code? Resolution of these issues will be important not only to the IRS, which will want to be paid what it is owed, but also to the 2023 partners of the partnership, who can be held personally liable for the partnership’s 2023 income tax deficiency assessment if it is not paid by the partnership.

Sorting out these classification issues in this very simple fact pattern, based on the law as it presently stands, will take years of litigation. There will undoubtedly be variations of this fact pattern, and there will be bankruptcy cases involving the partners in a partnership subject to the BBA Partnership audit provisions in which claim classification issues arise.  Such claim classification issues are but a small fraction of the issues that will arise in bankruptcy cases involving individuals and entities subject to the BBA Partnership audit provisions.

Conclusion of Part I

It will be far more efficient to solve these problems through legislative and administrative action, rather than through litigation. The first step in this process, however, is to identify the problems that need to be solved. I hope to identify additional problems in future posts, and I invite the PT Community to help identify the problems that are out there. (For those of you interested in reading a short article which identifies some of the due diligence that bankruptcy professionals must perform as the result of the enactment of the BBA Partnership audit provisions, I invite you to review the following article which appeared in Business Law News, published by the California Lawyer’s Association, which can be found here.

TBOR and CDP

On March 20, the Tax Court entered an order remanding a Collection Due Process (CDP) case back to Appeals to consider the collection alternative requested by the taxpayer. The remand resulted from the request of the IRS over the strenuous objection of the taxpayer. That’s not the normal scenario for a remand. The taxpayer also sought to have the IRS levy, which it refused to consider at the Appeals level of this CDP case. The facts explain the reason for this seemingly topsy turvy situation. The case also involves significant arguments by the taxpayer about the Taxpayer Bill of Rights and how the actions of the IRS are abrogating those rights. Les and I discussed this case, and others, in our panel presentation this week at the Tax Court Judicial Conference. I will briefly touch on the other cases that we discussed during the panel.

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Mr. Dang is a refugee from Vietnam. After arriving in the United States and quickly integrating, he eventually went into business. Although the business had success initially, it subsequently failed. Mr. Dang had the misfortune to hire a disreputable tax advisor who got him into trouble with the IRS during the period in which the business operated. He has an outstanding liability in the neighborhood of $100,000. That amount of liability allowed Mr. Dang to have his case handled by a revenue officer.

Mr. Dang, through his counsel at a low-income taxpayer clinic, explained to the revenue officer that his IRA was the only asset he had with which he could satisfy his outstanding tax obligation. He asked the revenue officer to levy on his IRA so that he could avoid the 10% (approximately $10,000) excise tax under IRC section 72(t). After some initial resistance, he appeared to have succeeded in convincing the revenue officer to levy on the IRA; however, before the levy occurred, the IRS assigned the case to a new revenue officer and she declined to levy on the retirement account. Instead, she asked Mr. Dang to pull the money out of the IRA and pay off the debt.

Eventually, the IRS issued a CDP notice and Mr. Dang requested a hearing. At the hearing, he requested that the IRS levy on his retirement account. The Appeals employee declined to accept that levying on his retirement account could serve as a collection alternative. He denied relief and issued a determination letter sustaining the right of the IRS to levy on Mr. Dang. A Tax Court petition followed and in their answer to the petition, the lawyers at Chief Counsel IRS admitted that the Appeals employee should have considered Mr. Dang’s request and considered whether a levy on the retirement account would serve as the best way to collect from Mr. Dang. The answer filed on December 1, 2017, stated “respondent will seek to remand this case to Appeals for a supplemental Collection Due Process hearing in which the Settlement Officer’s errors can be corrected.” The answer also stated that respondent “admits petitioner’s CDP hearing was incomplete and did not properly consider all collection alternatives.”

On January 3, 2018, the IRS filed its motion to remand. In that motion, respondent said:

  1. SO True incorrectly believed this request did not qualify as a ‘collection alternative’ and was thus outside the scope of Appeals CDP hearing jurisdiction….
  2. SO True’s determination regarding Appeal’s ability to consider the request was incorrect. Appeals should have evaluated petitioners’ request to pay his liability via a levy on petitioner husband’s Individual Retirement Account and determined whether it was in the best interests of the taxpayers and the government.
  3. Pursuant to Treas. Reg. 301.6330-1€(3) Q&A-E6, taxpayer can request a ‘substitution of assets’ be considered as a collection alternative during a CDP hearing. Requesting respondent collect from a specific revenue source or asset is an acceptable ‘collection alternative’ request and should be considered by Appeals….
  4. A remand for a supplemental hearing is appropriate when it will be helpful or productive…. A remand would be helpful and productive because resolution of this issue would preserve the parties and the Court’s time and resources.”

Petitioners objected to the motion, arguing that it was unnecessary to remand the case and that the Tax Court should simply order the IRS to levy on his retirement account. In the brief filed in support of their objection, petitioners made several arguments and requested “sanctions for violating the Taxpayer Bill of Rights, unnecessarily delaying the resolution of this matter, and needlessly increasing the cost of litigation.” They stated “by refusing to levy on Petitioners’ IRA but insisting upon a voluntary withdrawal from that same IRA, RO Neville rendered meaningless the taxpayer relief enacted by Congress.” They cited to several violations of TBOR, including the right to a fair and just tax system and the right to pay no more than the correct amount of tax.

In remanding the case, the Court gave the IRS a very short time frame to hold the remand hearing and render its opinion regarding taxpayer’s request. Short time frames are a regular feature of CDP cases for taxpayers but not very often for the IRS. It will be interesting to watch this case not only for the substance of the argument that the IRS should levy upon the IRA but also for the role that TBOR might play in the ultimate resolution of the case.

In the panel discussion at the judicial conference, we not only discussed this case but discussed the case of Winthrop Towers previously blogged here, the Harris case  we blogged here and the case of Facebook previously blogged here. It is interesting that in the government brief in opposition to the relief requested by Facebook that it took time to distinguish the Winthrop Tower’s case.

As more and more litigants begin to focus on TBOR, it will be interesting to see how the rights enshrined in legislation in 2015 will impact outcomes of cases (and outcomes of administrative action.) National Taxpayer Advocate Nina Olson, who participated on the panel at the judicial conference said that she did not know how this might turn out but she was watching anxiously. She also said that quotes attributed to her in the government’s brief in opposition quoted her discussing the administrative publication of TBOR and not the legislative enactment. She indicated that by putting it into the Code, Congress changed the impact of TBOR in ways that we do not yet know.

Conclusion

In addition to the CDP and TBOR issues brought to light by this case, the case also raises the issue of levy on retirement accounts. The IRS requires that front line employees get approval two levels up in order to levy on retirement accounts. That approval process generally inures to the benefit of holders of those accounts but serves as a disadvantage to someone like Mr. Dang who wants the IRS to make the levy on his retirement account while the revenue officer does not want to go through the trouble. It seems like there should be a relatively easy path to levy upon a retirement account when it is made at the taxpayer’s request. It is also troubling that those with retirement accounts have their assets more protected from IRS collection action than poorer clients whose only retirement is social security and from whom the IRS can take 15% with no extra approval.

 

Housing Law May Provide a Model for Application of the Taxpayer Bill of Rights in Litigation

We welcome first time guest blogger Steve Sharpe, who works for the low-income taxpayer clinic covering Southwest Ohio, including Cincinnati. Steve also has significant experience in housing and consumer advocacy. It’s not unusual for an attorney at a low income tax clinic housed in a legal services organization to arrive in the tax clinic with the type of background Steve possesses rather than a solely tax background. Steve’s cross functional knowledge allows him to provide us with an interesting insight into the importance of the taxpayer bill of rights (TBOR).  

If you read the IRM, you quickly become aware that TBOR is making a difference in tax administration at the IRS in the way it now frames its discussion of many issues concerning taxpayers. You can also find mention of it in GAO reports and TIGTA reports. Since the IRS adoption of TBOR in June of 2014 and its codification in 2015, there has been a debate on whether TBOR will make a difference in case outcomes in litigation. Special Trial Judge Panuthos has mentioned it in a Tax Court case. Facebook mentions it in a complaint it filed in November, 2017, seeking to cause the IRS to allow it the opportunity to meet with Appeals. Maybe over time, other litigants will make more direct arguments about the protections afforded by TBOR and more court opinions will address those protections. Steve provides insight into how TBOR might follow a similar path to an aspirational type of law that exists in the housing arena and provide protections many may not have imagined when TBOR was passed. Keith

As the IRS enters into an intense period of rulemaking and implementation following the passage of the tax overhaul, advocates for taxpayers must be vigilant and ensure that any new rules or other IRS decisions protect our clients’ basic rights.

Advocates will naturally look to the Taxpayer Bill of Rights for guidance, and I suggest we evaluate whether Congress’s decision to codify the Taxpayer Bill of Rights into a statute impacts how the IRS must act. Looking at litigation under Congress’s longstanding national housing policy codified at 42 USC 1441 (hereinafter, the “National Housing Goals”) may be particularly useful and relevant. Under this frame, the Taxpayer Bill of Rights may provide more than general standards and may provide additional legal support for taxpayers challenging IRS decisions, including rulemaking, pursuant to the Administrative Procedure Act (“APA”).

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It is important to note up front that I have not completed a broad survey of recent APA litigation or research into the legislative history for the Taxpayer Bill of Rights. I may be missing something very obvious. The goal of this post is to raise some ideas for people to explore. Obviously, significant research is needed before taking any action.

In 2015, Congress passed the Taxpayer Bill of Rights that were incorporated in 26 U.S.C. 7803(a)(3). The statute codifies basic concepts to ensure that people are treated fairly, pay only the amount of tax they owe, and have the ability address errors, among other things. On their own and divorced from specific procedures, they are important and provide fundamental ideas for the tax system to include.

The impact of the Taxpayer Bill of Rights, however, may reach well beyond overarching goals and should directly impact actions taken by the IRS. This is not an argument without precedent. Rather, the Taxpayer Bill of Rights shares a similar structure with the National Housing Goals, which have been the subject of housing litigation. According to the Taxpayer Bill of Rights,

In discharging his duties, the Commissioner shall ensure that employees of the Internal Revenue Service are familiar with and act in accord with taxpayer rights as afforded by other provisions of this title, including…

26 U.S.C. 7803(a)(3) (emphasis added). The statute then lists the particular rights that the Commissioner must protect when discharging its duties.

Similarly, the National Housing Goals provide directives for federal agencies addressing housing.

The Department of Housing and Urban Development, and any other departments or agencies of the Federal Government having powers, functions, or duties with respect to housing, shall exercise their powers, functions, and duties under this or any other law, consistently with the national housing policy declared by this Act and in such manner as will facilitate sustained progress in attaining the national housing objective hereby established . . .

42 U.S.C. 1441 (emphasis added). As with the Taxpayer Bill of Rights, the National Housing Goals then list specific objectives for housing agencies to attain.

The National Housing Goals have not simply served as lofty goals that lack practical meeting. Rather, Courts have looked to the National Housing Goals in evaluating whether a housing agency has acted appropriately. For example, in United States v. Winthrop Towers, 628 F.2d 1028 (7th Circuit 1980), HUD sued to foreclose on a low-income housing development. The owner of the development argued that the decision to foreclose was not completely committed to agency discretion. Even if there was no law to apply, the owner argued that the agency had to act consistent with National Housing Goals. The court agreed and stated:

In this case the law to be applied includes s 2 of the National Housing Act, 42            U.S.C. s 1441, which contains a detailed statement of national housing objectives, as well as 42 U.S.C. s 1441a, 42 U.S.C. s 1437 and 12 U.S.C. s 1715l (a). Section 1441 specifically provides that HUD shall exercise its powers and perform its duties “consistently with the national housing policy declared by this Act. . . .” This language compels our conclusion that HUD’s decision to foreclose may be reviewed to determine whether it is consistent with national housing objectives.

Id. at 1034-35 (emphasis added). Simply put, the National Housing Goals went beyond providing general standards – the goals impacted review of agency action. As the Seventh Circuit stated, “the language of s 1441 ‘is not precatory; HUD is obliged to follow these policies. Action taken without consideration of them, or in conflict with them, will not stand.’” Id. at 1035 (emphasis added) (quoting Commonwealth of Pennsylvania v. Lynn, 501 F.2d 848, 855 (D.C.Cir.1974)); see also Russell v. Landrieu, 621 F.2d 1037 (9th Cir. 1980); Lee v. Kemp, 731 F.Supp. 1101 (D.D.C. 1989).

The National Housing Goals have specifically limited agency action in rulemaking as well. In United States v. Garner, 767 F.2d 104 (5th Cir. 1985), borrowers with loans from the Farmers Home Administration (“FmHA”), a subdivision of the USDA, challenged the validity of a regulation that prevented the agency from refinancing its own loans. In reviewing whether the agency acted in an arbitrary and capricious manner, the Fifth Circuit noted that

[I]n enacting the section 502 loan program and its amendments, Congress generally intended the Secretary to exercise his refinancing authority in accordance with the goals of national housing policy as defined in the Act. For our purposes, the most important among these is providing government credit to responsible rural borrowers in jeopardy of losing their homes through no fault of their own. See 42 U.S.C. § 1441.”

Id. at 121. After considering the record, the Fifth Circuit held “the government has failed to demonstrate that regulation 7 C.F.R. § 1944.22(a), prohibiting the FmHA from refinancing its own loans, is a product of reasoned decision making.” Id. at 123.

Again, a substantial amount of research is necessary before advocates start raising these issues. That said, advocates should at least consider the impact of codifying the Taxpayer Bill of Rights on the IRS, and the National Housing Goals provide a useful first step.