June 2022 Digest

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Is it hot in here? A fiery debate dominated PT in June over the distinction (if any) between legislative and interpretative regulations. The issue is one that many practitioners may not spend a lot of time thinking about, but as Les points out, it is an issue that is relevant to recent cases where litigants are challenging the procedural validity of tax guidance. My summaries do not delve into all the nuances of each perspective nor discuss any of the comments made, so I encourage you to read the posts and the comments if the debate piques your interest.

The Debate

Update on CIC Services And More On The Legislative vs Interpretive Rule Difference: The Court granted the IRS’s motion for reconsideration in CIC Services and retracted its mandate that the IRS return documents and information it received from nonparties pursuant to the now invalid Notice. This is because the suit was not brought on behalf nonparties and was not a class action suit, but the Court notes the IRS’s unjust enrichment.

This post kicks off the debate by sharing the perspective of Jack Cummings who disagrees with the Sixth Circuit in Mann which held that a regulation or IRB guidance is deemed legislative and requires notice and comment proceduresifnot complying with it might lead to a penalty or higher taxes. For Cummings the distinction depends on the statute that underlies the regulation: if the statute asks the IRS to create a rule, the regulation is legislative; if the IRS is sharing its view on an aspect of a rule, the regulation is interpretative.

More On The Confusion Surrounding The Difference Between Legislative And Interpretive Rules: Jack Townsend shares his perspective and emphasizes that legislative and interpretative are APA concepts, which are not relevant to discussions of deference except for the question of whether the regulation is subject to reasonableness of interpretation testing. Although not required, an agency may utilize notice and comment for interpretative regulations and then the regulation can be tested for procedural regularity as the APA requires, but it does not make the interpretive regulation a legislative one. The APA’s procedural regularity (arbitrary and capricious) test is not the same as the judicial reasonableness of interpretation test.

It’s Time To Let Go:  Treasury Regulations Are Not Interpretative Rules: Kristin Hickman shares her perspective which challenges Jack’s. She asserts that the Supreme Court in Mayo “laid the jurisprudential groundwork” that all Treasury regulations are legally binding (or legislative) for APA purposes and thus subject to notice and comment procedures. She also finds that other courts have been consistently clear about this. She states that continuing to promote the idea that some Treasury regulations are interpretative is dangerous because it allows the IRS and Treasury to continue to not take APA requirements seriously, which undermines taxpayer confidence in the system.

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It’s Time To Get Real: Treasury Regulations Can Certainly Be Interpretive Rules: Bryan Camp chimes in with the first of a three-post series on his perspective, which is similar to Jack’s. His view is that Mayo says nothing about the distinction between interpretative and legislative rules and was only a decision that Treasury regulations should be treated the same as other agency regulations and receive Chevron deference. Despite Kristin’s view, he asserts that Mayo does not stand for the idea that all Treasury regulations are legislative for promulgation purposes. He goes on to consider “myths” that may have led Kristin to believe otherwise.

The APA Is Not A Hammer: Bryan thinks that Kristin views the APA as a hammer requiring all agencies to strictly conform to it, whereas he views it as a safety net allowing for agencies to obey its principals in differing ways. He looks to the history of Treasury regulations and the APA. Treasury regulations existed before the APA and while the APA initially hoped to be a set of uniform rules, it had to settle instead on being a prescribed balancing framework. Notice and comment procedures were intended for agencies who occupied a new space in the government after the New Deal, and Treasury Regulations were generally not subject to the procedures due to time constraints and their technical and legal nature.

The More Things Change The More They Remain The Same: Bryan disagrees with Kristin’s idea that the function of tax administration has transformed from revenue raising to social policy implementation and as a result should require more process. Bryan goes on to present three reasons to doubt claims that tax administration today involves social policies more than it has in the past. He also looks at Oakbrook and Rogerson to show that their decisions required the Court to interpret the statutes in the same way that interpretative regulations do.

Tax Court Updates and Ideas

2021 Tax Court Exam for Nonattorneys: The results of the 2021 Tax Court Exam for Nonattorneys have been released to the exam takers. The 2021 Exam was the first to be conducted in a remote format. This post contains interesting information about the history, format, and content of the exam; the reasons why it is so challenging; how it worked in the remote format; and what else is required for nonattorneys to be admitted to practice before the Court.

Tax Court Building Reopens: The Tax Court building reopened to the public on Monday, June 6, meaning that once again records can be reviewed and received immediately at no cost by anyone willing and able to go there in person. For those who still do not have the option of going to the Court in person, Harvard commented on the Court’s proposed rule changes and recommended ways in which remote viewing of records could be improved.

Speeding Up Settlement: Some ABA Conference Inspired Thoughts: This post shares thoughts on how the Tax Court could get involved to speed up the settlement process. One idea is that the Court be involved in the pretrial process, or parties could initiate pretrial conferences amongst themselves at an earlier stage. Another idea is that the Court require status reports at an earlier stage to engage the parties and encourage settlement efforts as early as possible.

COVID and DAWSON: In Foster Drive LLC a TEFRA related petition was filed twice due to the delay in the Court’s processing of petitions and uncertainty by the Tax Matters Partner about whether he filed correctly. The post makes two suggestions for the Court: 1) if prompt service is not an option, the Court should enable the Clerk to confirm receipt and correctness of electronically filed petitions, and 2) parties should be given the option to enter more than one email address to receive notifications, which is something that other Courts allow, to improve response times and decrease the risk of missed notifications.

Circuit Court Decision

IRC Levy Exemption for Disability Payments Ends Once Funds Hit Bank Account: In Charpia the IRS levied military disability payments after they were deposited into a bank account. Section 6334(a)(10) prevents levy on “any amount payable to an individual” relating to military disability payments, but the IRS has consistently held that once the money is in a bank account it can be levied. The Fifth Circuit found for the government by looking to other exemptions that extend more broadly to amounts “payable to or received by” an individual and to other Courts that applied of the plain meaning of the word payable. Even though the levy was permitted, the petitioner was able to use Consumer Credit Protection Act to limit how much the IRS could take, which is not an option is most cases.

Tax Court Decisions

Taxpayer Attending Rodeo Misses Receiving Collection Letter And Denied Chance to Challenge Liability in CDP Case: In Hammock, despite having sympathetic facts, the petitioner wasn’t allowed to challenge her liability in a CDP case. There is a presumption of receipt when the IRS mails a notice to a taxpayer’s last known address, but it can be overcome. Appeals also has discretion to consider the liability even in the absence of a statutory right. The Court didn’t inquire into why Appeals didn’t use its discretion to consider the liability, leaving open the question of whether it was an abuse of discretion to not exercise discretion in this case.

IRS Files Motion for Reconsideration in Precedential Tax Court Case: The depth of the IRS’s disagreement with the decision in Treece Financial Service Group was demonstrated when it filed a motion for reconsideration. The issue in the case was whether the Court has jurisdiction to review Voluntary Classification Settlement Program (VCSP) eligibility determinations. The Court thinks it does because the Program involves an act of administrative discretion, and the determination directly impacts the amount of tax the company will owe. The IRS’s position is that the VCSP is a settlement program and does not constitute an examination, the determination is not made in connection with an examination, and the amount of tax is not determined through the Program. The IRS’s motion strongly suggests an appeal of this case is coming.

Tax Court Inconsistent on Economic Hardship: In Pocock, the Court holds that payment of tax liability would create an economic hardship for a petitioner who has low income but equity in property. The decision is at odds with the case of Sleeth which Harvard has appealed to the 11th Circuit.  The liability at issue was incurred when petitioner’s (now ex) husband fraudulently overstated income and withholding to generate large refunds for 11 years. There were many interesting aspects of this case (petitioner and her ex-husband still lived together, there was estate theft and a transfer of property involved) and the IRS conceded that petitioner couldn’t sell her home and meet her reasonable living expenses which may be why the Court found economic hardship unlike in Sleeth.

Update on Litigation Over Whether the Deficiency Petition Filing Deadline is Still Jurisdictional: IRS has responded to the motion to vacate in Hallmark and a link is provided. Additional updates are given on the Tax Court’s pause on dismissing untimely filed deficiency cases; Culp, the Center for Taxpayer Rights amicus brief, and the DOJ’s response to the brief; and a new case brought by an LITC in Tax Court and appealable to the Eighth circuit involving this issue.

Precedential Opinion Regarding Deemed Offer Acceptance: In Brown, the petitioner argued that his offer submitted as part of a CDP hearing should be deemed accepted when it took more than two years for the settlement officer to issue a notice of determination. The Court says the finality of an offer for purposes of 7122(f) (the 24-month rule) and the finality of a CDP hearing for purposes of 6330 are two separate things. Petitioner’s offer was returned to him within seven months because he had other investigations pending. Section 7122(f) uses the term rejected, rather than returned, but the Court finds the regulations address the effect of a return and it results in the same outcome as a rejection: it terminates the 24-month period.

District Court Decisions

Unhappy Appraisers Suing the IRS: The appraisers of conservation easements tried to bring a suit alleging that the IRS is intimidating them and using penalties to prevent them from properly appraising properties. They wanted to bring a Bivens action and sue the individual IRS employees involved in pursuing conservation easements, but their suit couldn’t move forward because they failed to serve all the necessary parties. They also didn’t respond to the issues with service or argue good cause, so the Court was required to dismiss the case.

APA Provides No Basis To Compel IRS To Provide Access To Appeals: In Rocky Branch Timberlands taxpayers in a concluded TEFRA audit tried to invoke the APA to require the IRS to: rescind the FPPA, sign a form 872-P (extending the statute of limitations), and allow the taxpayers the option to go to Appeals pursuant to section 7803(e)(4). The Court found for the IRS based on the Anti-Injunction Act which prevents the Court from restraining assessment and because there was another remedy available (Tax Court), the decision to not sign the 872-P was not a final agency action and signing the 872-P or allowing the taxpayers to go to Appeals was within IRS’s discretion.

Bankruptcy and Taxes

Court Awards Damages When IRS Tried To Collect Following Discharge: Pandemic No Excuse: In McAuliffe, the Court awarded damages to taxpayers under section 7433(e) when the IRS mistakenly sent collection letters after their liability had been discharged in bankruptcy. The IRS tried to blame pandemic-related complications and delays for the mistake, but the Court’s decision reflects disapproval of that excuse and an expectation that the IRS should have done better.


Tax Compliance for Refugees: Free Training Aims to Fill Gap in Tax Assistance: A training was held on June 15 to prepare volunteers to assist refugees with their tax returns for the first year they are in the country. First year returns for refugees are uniquely complicated and cannot be prepared by using typical free preparation resources.

Offer Mills on the IRS Dirty Dozen: The IRS warns taxpayers against using offer mills. The risk of working with a mill are plenty: they prepare offers even for people who are not good candidates, they engage in false advertising, and don’t respond to follow up requests by the IRS. Offers are not easy and if the IRS wants taxpayers to engage in process without seeking assistance, it needs to build a system that is more helpful to taxpayers.

Samantha Galvin About Samantha Galvin

Samantha Galvin is a Clinical Professor of Law and the Director of the Federal Tax Clinic at Loyola University Chicago. She previously taught and directed the LITC at the University of Denver for more than nine years. Professor Galvin has taught tax controversy representation, individual income tax, and tax research and writing. In the FTC, she teaches, supervises and assists students representing low income taxpayers with controversy and collection issues.


  1. Robert Kantowitz says

    A few comments.

    1. From the Tax Court opinion in Altera it is apparent that in application there may be little difference between the prevailing tests: if Treasury did not follow the APA in promulgating a regulation, then the regulation cannot be reasonable, and if a regulation is not reasonable or if the statute is not ambiguous, then the regulation is ipso facto arbitrary and capricious.

    2. With all due respect to Bryan, the assertion that the APA does not apply uniformly to all agencies and/or does not apply in full to Treasury because Treasury predated it is dangerous and is flat-out wrong as a matter of federal law, regardless of Treasury’s many decades of disregarding the APA and of the failure of taxpayers and courts to counter this effectively.
    a. Over half the cabinet departments (including Defense, State and Justice) predate the APA. Can they all thumb their noses at the APA?
    b. It is like saying that because I have used a road for years, I can treat the recently installed stop sign or the recent reduction of the speed limit as nothing more than general suggestions.
    c. If I recall correctly from my Ad Law course (when there were still people around who personally remembered the arguments over the 1946 enactment of the APA), the purpose of the law was precisely to codify and to bring uniformity and order to the procedures that had arisen in the various agencies as the New Deal vastly expanded the administrative state, to balance between the benefits of expertise and the dangers of unaccountability.
    d. What regulations look like today and what they ware intended to accomplish and the practices in 1946 are so different that one cannot inform the other.

    3. I predict (and advocate) that within a short time, any distinction between legislative and interpretive regulations will become irrelevant.
    a. W. Va. v. EPA bars any agency (including Treasury) from addressing a “major question” — in which category I include anything that raises a lot of revenue or affects a lot of taxpayers — without express Congressional authorization.
    b. I believe that the case also requires any express Congressional authorization to be construed narrowly; this will call into question regulations that lard on arguably extraneous factors, tests and limitations as well as some arbitrary time-based presumptions and limitations.
    c. I also expect to see a decision in an appropriate case on non-delegation that seriously limits Congress’s power to give Treasury express authority to write a regulation that is not limited by specifics and standards provided by Congress. We all can think of examples, such as section 382, where over the decades Treasury has never come up with a satisfactory regime, flop-flopping with numerous projects with differing approaches beyond the few factors listed in the statute as well as some provisions that were never contemplated by Congress.
    d. And I expect the Supreme Court to overrule Chevron, leaving agencies to write regulations but not to usurp the legislative function the way some agencies so often do.

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