Tuesday, November 15, 2022
Andy Grewal (Iowa), The Solicitor General Embraces Phantom Tax Regulations:
As discussed in a prior post, the Sixth Circuit in Whirlpool v. Commissioner, 19 F.4th 944 (6th Cir. 2021), embraced phantom regulations. The court concluded that a statute that contemplated rules applying “under regulations” could operate regardless of whether regulations had been issued under the statute. Though in Whirlpool the Treasury had issued regulations relevant to the dispute, the court ignored them and decided the case based on its own beliefs of what the regulations should say (i.e., the court applied phantom regulations).
In June, Whirlpool filed a petition for certiorari. The Solicitor General recently filed her brief in opposition. Somewhat surprisingly, she has embraced phantom tax regulations. ...
Possibly sensing a remand, and to discourage further review, the Solicitor General claims that the Sixth Circuit made a “statute-specific holding.” Brief at 16. That claim is true, in the sense that courts always reach holdings specific to the statutes in front of them. But there is nothing terribly unique about a statute that contemplates results “under regulations” prescribed by an agency. Statutes in that form pervade the United States Code. In that sense, Whirlpool is hardly “specific.” Instead, it raises tensions with the various Supreme Court and circuit court decisions holding that references to regulations mean precisely what they say. See Grewal, Substance Over Form? Phantom Regulations and the Internal Revenue Code, 7 Houston Bus. & Tax J. 42 (2006).
As always, whether the Court will grant certiorari remains unpredictable. The Solicitor General’s brief does a perhaps admirable job in opposing certiorari. It takes a relatively straightforward question presented and makes it appear wildly impenetrable, which discourages review. However, even if the Court does not now grant certiorari, issues over phantom regulations demand eventual clarification. As the last four decades have shown, the lower courts’ inconsistent and haphazard approach to them has yielded substantial confusion over numerous major areas of federal tax law.