February 9, 2011
5th Circuit Joins Three Other Circuits: 6-Year SOL N/A to Overstatement of BasisThe Fifth Circuit today sided with the Fourth (Home Concrete & Supply LLC v. United States, No. 09-2353 (4th Cir. Feb. 7, 2011)), Ninth (Bakersfield Energy Partners LP v. Commissioner, 568 F.3d 767 (9th Cir. 2009)), and Federal (Salman Ranch Ltd. v. United States, 573 F.3d 1362 (Fed. Cir. 2009)) Circuits, holding that the extended six-year statute of limitations of § 6501(e)(1)(A) did not apply to the omission of more than 25% of gross income caused by an overstatemnt of basis. Burks v. United States, No. 09-11061 (5th Cir. Feb. 9, 2011). The Seventh Circuit recently upheld the IRS's contrary position. (Beard v. Commissioner, No. 09-3741 (7th Cir. Jan. 26, 2011).) The Fifth Circuit concluded its opinion with this footnote:
Although we hold that § 6501(e)(1)(A) is unambiguous and its meaning is controlled by the Supreme Court’s decision in Colony, we note that even if the statute was ambiguous and Colony was inapplicable, it is unclear whether the Regulations would be entitled to Chevron deference under Mayo Foundation for Medical Research v. United States, 131 S. Ct. 704, 711 (2011). See, e.g., Home Concrete & Supply, LLC v. United States, No. 09- 2353 (4th Cir. Feb. 7, 2011) (declining to afford the Regulations Chevron deference because the statute is unambiguous as recognized by the Supreme Court in Colony). In Mayo, the Court held that the principles underlying its decision in Chevron “apply with full force in the tax context” and applied Chevron to treasury regulations issued pursuant to § 7805(a). Significantly, in Mayo the Supreme Court was not faced with a situation where, during the pendency of the suit, the treasury promulgated determinative, retroactive regulations following prior adverse judicial decisions on the identical legal issue. ...Moreover, Mayo emphasized that the regulations at issue had been promulgated following notice and comment procedures, “a consideration identified . . . as a significant sign that a rule merits Chevron deference.” 131 S. Ct. at 714. Legislative regulations are generally subject to notice and comment procedure pursuant to the Administrative Procedure Act. See 5 U.S.C. § 553(b)(A). Here, the government issued the Temporary Regulations without subjecting them to notice and comment procedures. This is a practice that the Treasury apparently employs regularly. See Kristin E. Hickman, A Problem of Remedy: Responding to Treasury’s (Lack of) Compliance with Administrative Procedure Act Rulemaking Requirements, 76 Geo. Wash. L. Rev. 1153, 1158-60 (2008) (noting that the treasury frequently issues purportedly binding temporary regulations open to notice and comment only after promulgation and often denies the applicability of the notice and comment procedure when issuing its regulations because that requirement does not apply to regulations that are not a significant regulatory action, while continuing to assert that the regulations are entitled to legislative regulation level deference before the courts). That the government allowed for notice and comment after the final Regulations were enacted is not an acceptable substitute for pre-promulgation notice and comment.
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