January 21, 2012
Smith: The APA's Reasoned-Explanation Rule and IRS Deficiency Notices
Patrick J. Smith (Ivins, Phillips & Barker, Washington, D.C.), The APA's Reasoned-Explanation Rule and IRS Deficiency Notices, 134 Tax Notes 331 (Jan. 16, 2012):
The D.C. Circuit’s confirmation in Cohen that the Administrative Procedure Act (APA) applies to the IRS raises the question of what that application will mean. The APA’s arbitrary and capricious standard for judicial review of agency action incorporates a requirement that agencies provide contemporaneous reasoned explanations for their actions, which clearly applies to IRS regulations. This report contends that the APA’s reasoned explanation requirement also applies to IRS deficiency notices. Pre- APA case law held that IRS deficiency notices need not contain any explanation, but this conclusion has not been reexamined in light of the act’s arbitrary and capricious standard. The pre-APA conclusion that IRS deficiency notices need no explanation cannot stand when reconsidered in light of the APA’s reasoned explanation requirement.
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Explanation? We don't need no stinkin' explanation.
Seriously, the IRS will get a pass on this. Though the statutory Notices of Deficiency have only improved marginally in the last 20 years, the courts, especially the Tax Court, are still bend-over-backwards deferential to the US gov't and particularly the IRS. It's about the tax and ever since that Supreme Court justice gave FDR the wink and the nod suggesting a way to get Social Security through the Court, US courts have given the IRS and the Tax Division more respect than they deserve.
I find it particularly galling that in the pleadings of the Tax Division, whether as plaintiff or defendant, it always alleges or answers that, as a party, it is "the sovereign." Nowhere in the Constitution does it say the executive branch is sovereign. To the contrary, the preamble starts with the words "We the People . . . . " But then we don't need no stinkin' explanation.
Posted by: TexEcon | Jan 23, 2012 12:18:52 AM