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Supreme Court Denies Certiorari in Whirlpool

by Kevin Spencer and McDermott Will & Emery | Nov 21, 2022 | Appellate Courts, Court Procedure Matters, IRS Guidance, Trial Courts

On November 21, 2022, the Supreme Court of the United States denied certiorari in Whirlpool Financial Corp., et al., Petitioners v. Commissioner of Internal Revenue, No. 22-9. This means that the US Court of Appeals for the Sixth Circuit’s decision remains in effect and is binding on the taxpayers who reside in that circuit. However, for taxpayers in other circuits, the Sixth Circuit’s decision is only persuasive authority and not binding precedent. Thus, it remains to be seen whether taxpayers in other jurisdictions will challenge the result reached in Whirlpool, and if they do, how appellate courts outside the Sixth Circuit will rule.

Prior coverage of this case can be found below:

Whirlpool Update: New Filings and Distribution for Supreme Court Conference

by Lowell D. Yoder, David G. Noren, Elizabeth C. Lu and Jonathan D. Lockhart | Nov 4, 2022 | Appellate Courts, Court Procedure Matters, Trial Courts

On November 2, 2022, the Supreme Court of the United States announced that the case of Whirlpool Financial Corp., et al., Petitioners v. Commissioner of Internal Revenue, No. 22-9, has been distributed for consideration at its upcoming conference on November 18, 2022. Meaning, we should have an answer in the next few weeks as to whether the Supreme Court will hear the case.

The Supreme Court’s distribution for the conference follows the government’s brief, submitted on October 19, 2022, in opposition to Whirlpool’s petition for a writ of certiorari.

In its brief, the government summarizes its position as follows:

Petitioners contend (Pet. 17) that 26 U.S.C. 954(d)(2) is “conditioned on the promulgation of regulations” by the Treasury Department and thus may not “be enforced without regard to such regulations.” But as the court of appeals correctly held, Section 954(d)(2)’s text itself establishes clear “conditions” and “consequences,” Pet. App. 12a, and when applied to this case, that text “mandate[s]” that the income at issue is FBCSI, id. at 18a. The phrase “‘under regulations prescribed by the Secretary’” delegates to the Treasury Department authority to “implement the statute’s commands,” but not to “vary from them,” ibid., so the court permissibly declined to articulate a separate rationale in this case based on the implementing regulations. Petitioners concede (Pet. 33) that the decision below does not conflict with that of any other court of appeals. Nor does it conflict with this Court’s precedent because petitioners’ cited cases involved meaningfully distinct statutory schemes. And resolving the question presented lacks practical importance because the Treasury Department’s former regulations would dictate the same result as the statutory text, and the revisions that were made to the regulations in 2008 removed any potential doubt about that result. This Court’s review is unwarranted.

The government’s position is an interesting one. It seems to accept that a court is free to ignore regulations relied on by the public if the court determines that the government’s position is supported by the statutory language and the statute is not entirely conditioned on the operation of a regulation. Additionally, the government believes here that US Congress did not entirely condition operation of Internal Revenue Code (Code) Section 954(d)(2) on regulations.

Perhaps sensing the difficulty in prevailing on this argument, the government (similar to what it did in the rehearing proceedings in the US Court of Appeals for the Sixth Circuit) seeks to limit Whirlpool to the specific statute at issue. However, this ignores the fact that the same or substantially the same language is used in other Code provisions, making it difficult to limit the government’s argument to Code Section 954(d)(2).

In another attempt to discourage review, the government essentially argues that the substantive issue is an issue of first-and-last impression because the regulations at issue were amended for tax years subsequent to Whirlpool’s. Again, this ignores the fact that Whirlpool involves important administrative law issues that will remain regardless of the amendment.

Finally, [...]

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Supreme Court Requests Government Response to Whirlpool’s Petition

by McDermott Will & Emery | Aug 19, 2022 | Appellate Courts, Court Procedure Matters, Trial Courts

We previously discussed the petition for writ of certiorari that was filed in the Supreme Court of the United States by Whirlpool Financial Corporation & Consolidated Subsidiaries and Whirlpool International Holdings S.a.r.l. & Consolidated Subsidiaries (collectively, Whirlpool); the amici briefs filed by The National Association of Manufacturers, the Silicon Valley Tax Directors Group, and three of the “Big 4” accounting firms in support of Whirlpool’s petition; and how the case is now up for consideration at the Supreme Court’s upcoming conference on September 28, 2022. We also noted how the US government waived its right to file a response to Whirlpool’s petition.

In the latest update regarding Whirlpool’s petition, in a minute entry on the docket sheet, the Supreme Court has requested that the government provide a response by September 19, 2022. That response will then be considered by the Supreme Court at its September 28 conference, absent a relisting of the matter for a later conference. We will continue to monitor further developments in Whirlpool’s case and provide any further updates as they are made available.

Amici Support Whirlpool’s Request for Supreme Court Review

by Robert Levin and McDermott Will & Emery | Aug 8, 2022 | Appellate Courts, Court Procedure Matters, Trial Courts

As we previously discussed, toward the end of June Whirlpool Financial Corporation & Consolidated Subsidiaries and Whirlpool International Holdings S.a.r.l. & Consolidated Subsidiaries (collectively, Whirlpool) asked the Supreme Court of the United States to review the US Federal Circuit Court of Appeals for the Sixth Circuit’s decision that income earned by a Luxembourg controlled foreign corporation was foreign base company sales income (FBCSI) under the branch rule of Internal Revenue Code (IRC) section 954(d)(2) and taxable to the corporation as “subpart F income.” (For an excellent dissection of the Sixth Circuit’s decision, please see our colleagues’ article, “Implications of the Sixth Circuit’s Whirlpool Opinion.”)

Several amici recently filed briefs with the Supreme Court supporting Whirlpool. The docket sheet for the case, titled Whirlpool Financial Corp. et al., Petitioners, v. Commissioner of Internal Revenue, No. 22-9, is available here.

On August 3, 2022, the National Association of Manufacturers (NAM) submitted its brief, setting forth two arguments:

First, the Sixth Circuit applied an entirely novel interpretation—not found anywhere in the Code or Treasury regulations and not advanced by the agency nor adopted by the Tax Court—that conflicts with decades-old regulations promulgated contemporaneously with the underlying statute and at Congress’s express command in section 954(d)(2) itself.

Second, reliance on validly promulgated regulations—and therefore regulated parties’ ability to comply with the laws—is the bedrock of administrative law. If taxpayers must follow regulations or face the prospect of civil (and perhaps even criminal) penalties, then so too must the government be held to its binding, published actions.

On August 4, 2022, PricewaterhouseCoopers LLP, Deloitte Tax LLP and KPMG LLP (collectively, Accounting Firms) joined forces to bring the “exceptionally important” nature of the case to the Supreme Court’s attention. (The brief states that Ernst & Young LLP did not participate as amicus curiae because it is Whirlpool’s financial statement auditor.) In their brief, the Accounting Firms assert:

The Sixth Circuit’s disregard of the regulations in its attempt to interpret the requirements of the statute creates substantial uncertainty with respect to the efforts to comply with the Internal Revenue Code and the Amici who advise them. Review by this Court is necessary to reassure taxpayers that when Congress expressly conditions tax provisions on the issuance of Treasury Regulations, courts will take those regulations into account in interpreting the requirements of the Internal Revenue Code.

Also on August 4, a third brief was submitted by the Silicon Valley Tax Directors Group, the National Foreign Trade Council, the Information Technology Industry Council and TechNet. These amici assert:

This Court should alleviate [the] disparate treatment among taxpayers—or even the same taxpayer in different federal courts—by recognizing the importance of the clear statutory command that branch income “shall constitute” FBCSI only “under regulations prescribed by the Secretary [of the Treasury].” 26 U.S.C. § 954(d)(2). Restoring taxpayer reliance on those regulations is crucial for preserving Congress’s desired uniform scheme and [...]

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Will the Supreme Court Rule on Whirlpool’s Subpart F Income Case?

by Kevin Spencer and McDermott Will & Emery | Jul 6, 2022 | Appellate Courts, Court Procedure Matters, IRS Guidance, Trial Courts

A war is currently waging in the tax world over when courts should give deference to the US Department of the Treasury’s regulations. (We have written extensively on this subject here and here.) However, another potential war looms: Can courts disregard validly promulgated regulations relied on by taxpayers in favor of their own statutory interpretation? This question lies at the heart of the Whirlpool case.

On June 30, 2022, Whirlpool asked the Supreme Court of the United States to review the US Federal Circuit Court of Appeals for the Sixth Circuit’s decision that income earned by a Luxembourg controlled foreign corporation was foreign base company sales income (FBCSI) under the branch rule of Internal Revenue Code (IRC) section 954(d)(2) and taxable to the corporation as “subpart F income.”

During the trial phase of the litigation, the US Tax Court held that the branch income regulations (and the regulatory manufacturing exception therein), were validly promulgated and interpreted the regulations in a manner favorable to the Internal Revenue Service (IRS). (See 154 T.C. 142 (2020).)

Whirlpool appealed, and the Sixth Circuit affirmed in a 2-1 decision. (See 19 F.4th 944 (6th Cir. 2021).) Unlike the Tax Court, which reached its decision by harmoniously reading the statute and regulations, the Sixth Circuit ruled in favor of the IRS based solely on its interpretation of IRC section 954(d)(2), ignoring the relevant regulations and how the IRS and other courts have interpreted them. For an excellent dissection of the Court’s ruling, please see our colleagues’ article, “Implications of the Sixth Circuit’s Whirlpool Opinion.”

Whirlpool sought rehearing and rehearing en banc in the Sixth Circuit. The National Association of Manufacturers (NAM) and the Silicon Valley Tax Directors Group also filed amicus briefs supporting Whirlpool (McDermott acted as counsel for NAM in this capacity). However, the Sixth Circuit denied Whirlpool’s request for rehearing and rehearing en banc.

Now, Whirlpool is seeking the guidance of the Supreme Court, asking “whether or in what circumstances a statute that is expressly conditioned on regulations to be promulgated by an agency may be enforced without regard to such regulations.” In seeking certiorari, Whirlpool argues:

The divided Sixth Circuit below held that a tax statute explicitly conditioned on regulations to be promulgated by the Secretary of the Treasury delineating the income subject to taxation could be enforced without consulting the Secretary’s regulations, even though the regulations bound the Internal Revenue Service (“IRS”) and the IRS actually imposed tax based on the regulations. That decision directly contravenes [the Supreme] Court’s precedents and settled administrative-law principles. It upsets the reliance interests of taxpayers who, for more than 50 years, have relied on the regulations in structuring their operations. And this issue is outcome-determinative because — as the dissent below concluded — the income at issue is not taxable under a proper reading of the regulations (emphasis in original).

Whirlpool further argues that left unchecked, the Sixth Circuit’s decision [...]

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Supreme Court Denies Certiorari in Whirlpool

Whirlpool Update: New Filings and Distribution for Supreme Court Conference

Supreme Court Requests Government Response to Whirlpool’s Petition

Amici Support Whirlpool’s Request for Supreme Court Review

Will the Supreme Court Rule on Whirlpool’s Subpart F Income Case?

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