Thursday, May 20, 2010
On May 6, the Tax Court unanimously, but on divided rationales, invalidated temporary Treasury regulations retroactively extending the six-year limitations period to income tax deficiencies resulting from basis overstatements. Intermountain Insurance Service of Vail, LLC v. Commissioner, 134 T.C. No 11 (2010). I think the result is correct but only on the procedural ground advanced by two concurring judges: that the regulations violated the Administrative Procedure Act (“APA”) for failure to satisfy the notice-and-comment requirements.Intermountain is “must” reading for tax academics and practitioners. It is the richest decision in years (arguably ever) on issues relating to the procedural and substantive validity of tax regulations. Moreover, the opinions in the case, the subsequent cases that undoubtedly will be decided as to the issue, and commentary on these opinions and cases present genuine opportunity for improvement of the law. I below describes Intermountain. This part may be omitted by those already knowledgeable as to the case and its context. Parts II and III address two of the most interesting aspects of the case. Part II discusses whether the regulations at issue in the case are legislative or interpretive in nature. This matters to the APA argument. Unless another exception applies (and none does in Intermountain), legislative regulatives must go through notice-and-comment, but interpretive regulations need not. I conclude that the challenged regulations are legislative. Part III examines the light shed by Intermountain on the Brand X rule as to when subsequent regulations may trump judicial interpretations of statutes. I conclude that Intermountain and similar cases may help at one level (whether “magic words” must appear in the judicial interpretations) but are unlikely to help at two other levels (what should be done if the precedents’ characterizations are unsupportable and whether the Brand X analysis of the underlying statute turns on the statute’s language or embraces as well pertinent legislative history).