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US Tax Court

Types of Tax Court Opinions and Their Precedential Effect

by Kevin Spencer and McDermott Will & Emery | Oct 13, 2016 | Court Procedure Matters, Trial Courts, Uncategorized

Most tax cases are decided by the US Tax Court (Tax Court). The Tax Court issues two categories of opinions: (1) formally published dispositions; and (2) unpublished dispositions. The first category consists of opinions that are published in the Tax Court Reports and technically are called “division opinions” but are more commonly referred to as “T.C. opinions.” The second category consists of three sets of unpublished dispositions: (1) memorandum opinions (commonly referred to as “memo opinions” or “T.C. memos”); (2) summary opinions; and (3) orders. A common question asked by taxpayers relates to the difference between these forms of dispositions in terms of precedential effect. (more…)

Tax Court Anticipates Releasing Revisions to its Rules in the Near Future

by McDermott Will & Emery | Oct 3, 2016 | Court Procedure Matters, Uncategorized

At the ABA Section of Taxation meeting in Boston last week, Chief Judge Marvel of the US Tax Court announced that the court anticipates issuing revisions to its rules in the near future. These rule revisions will address two areas: (1) e-filing matters, including the ability to electronically file a petition; and (2) revisions necessitated by changes made by Congress at the end of 2015 (for our earlier report on this subject, see here). Chief Judge Marvel also noted that the court is continuing to review its rules and prior comments received from the public, and may issue further revisions in the future.

Tax Court Trial Sessions – How a Case is Set for Trial

by McDermott Will & Emery | Aug 11, 2016 | Court Procedure Matters, Trial Courts, Uncategorized

The US Tax Court is physically located in Washington, DC, but its judges travel nationwide to conduct trials in 70 designated cities. At the time the petition is filed with the Tax Court, the taxpayer will request a specific location for trial. The Tax Court will issue a notice setting the case for trial approximately five months before the trial date.

However, before the notice for trial is sent out, the Tax Court will have announced the dates and locations of the trial sessions. The most recent sessions for Fall 2016 and Winter 2017, which were just released by the Tax Court, can be found here and here. Taxpayers who have not yet received a notice setting the case for trial may review the trial session schedules in advance and want to find out which judge will be presiding over those sessions. Although the name of the judge presiding over a trial session is not listed on the Tax Court’s website, a taxpayer can call the Clerk’s Office and ask whether a particular judge has been assigned to the calendar.

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

by Roger J. Jones | Aug 3, 2016 | Appellate Courts, IRS Guidance, Transfer Pricing Resource, Uncategorized

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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Tax Court (Again) Rejects IRS Use of Secret Subpoenas

by McDermott Will & Emery | Jul 11, 2016 | Court Procedure Matters, Privilege and Non-Disclosure, Trial Courts, Uncategorized

On July 8, 2016, Judge Mark V. Holmes of the US Tax Court issued an order in Ernest S. Ryder & Associates, Inc., APLC, et al., v. Commissioner, ordering the Internal Revenue Service (IRS) to serve on the taxpayer all non-party subpoenas that he had issued in the case, together with all responses and documents that nonparties produced after receiving those subpoenas. The order mirrored a prior order issued by Judge Holmes almost a year ago in Kissling v. Commissioner, Dkt. No. 19857 (July 16, 2015).

In both cases, the IRS served subpoenas on third parties (77 subpoenas in the most recent case) and argued to the court that there is no Tax Court rule that requires him to notify taxpayers about whom he is subpoenaing in a Tax Court case, and he would prefer to keep his pretrial preparation secret. Although Judge Holmes agreed that the Tax Court’s rules do not specifically require notice of non-party subpoenas, he disagreed with the IRS that this absence creates an implication that secret subpoenas are favored. Reviewing the history of its rules on subpoenas and the close connection with Fed. R. Civ. Proc. 45, which requires notice to other parties before service of non-party subpoenas for the production of documents, information, or tangible things, Judge Holmes adopted the notification requirement of Fed. R. Civ. Proc. 45 as a modification to the pretrial order that governed the case.

In our experience, the IRS does not view Kissling as the law in the Tax Court and questions its value. It remains to be seen whether the Tax Court will formally adopt the notification requirement in Fed. R. Civ. Proc. 45 or will continue to permit each judge to determine how to deal with secret subpoenas. Unless and until the court amends its rules, issues an opinion on the issue, or the IRS voluntarily follows the approach set forth by Judge Holmes, taxpayers and their counsel should consider as part of their pretrial preparation in Tax Court cases requesting from the IRS notice of all subpoenas issued to non-parties along with copies of all subpoenas, responses and documents produced by the non-parties. This request should be noted as being continuing in nature. If the IRS asserts that no subpoenas have been issued, taxpayers can use this representation against the IRS if they later discover that non-party subpoenas were issued. If the IRS refuses to respond or produce the requested information, taxpayers can point to these two orders as persuasive authority (albeit non-precedential and non-binding) that notice should be provided and the information should be produced.

Two Current Tax Controversies Utilize ‘Quick Peek’ Agreements to Resolve Privilege Disputes

by Joshua M. Ellenberg and Robin L. Greenhouse | May 31, 2016 | Alternative Dispute Resolution, Court Procedure Matters, Privilege and Non-Disclosure, Trial Courts, Uncategorized

Due to the enormous amount of electronic data stored by companies in the modern era, discovery requests can involve millions of documents which need to be reviewed prior to being turned over to the opposing party. In conducting their analysis of this overwhelming quantity of information, litigants must, amongst other things, detect and exclude any privileged material. Should a party inadvertently fail to do so before such records reach the hands of the opposing counsel, he/she will be deemed to waive privilege in many jurisdictions. Given the massive quantity of data, however, such mistakes are practically unavoidable.

Federal Rule of Evidence (FRE) 502 was enacted in 2008 in an attempt to combat the issue of inevitable human error and the costs associated with parties’ efforts to avoid it. FRE 502(d) allows parties to request the court to grant an order stipulating that a disclosure of privileged material does not waive any claims of privilege with respect to those documents. If the court agrees to enter the order, it is controlling on third parties and in any other federal or state proceeding.

FRE 502(d) has led to the possibility of “quick peek” agreements where the parties give over all or a portion of their documents to opposing counsel without any privilege review whatsoever so that the recipient can identify which material he would like to retain. The recipient, in turn, agrees not to assert a waiver claim on any document that the producing party intends to withhold from the requested documents as privileged. These arrangements can dramatically ease the temporal and financial burdens of conducting a privilege review because they allow the producing party to focus only on those documents desired by the recipient while at the same time preserving their right to claim privilege on such documents. (more…)

Update on APA Challenges to Notice of Deficiency

by Jeffrey M. Glassman and McDermott Will & Emery | Apr 21, 2016 | Appellate Courts, Court Procedure Matters, Uncategorized

In an earlier blog post, we discussed the US Tax Court’s ruling in QinetiQ U.S. Holdings, Inc. v. Commissioner, No. 14122-13 (Dec. 27, 2013). The taxpayer had argued that the Internal Revenue Service’s (IRS’) notice of deficiency 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 Tax Court disagreed, emphasizing that it was well settled that the court is not subject to the APA. To refresh, 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. (more…)