Vista Hill Investments, LLC, Bobby A. Branch, Tax Matters Partner ( 2022 )

United States Tax Court
159 T.C. No. 5GREEN VALLEY INVESTORS, LLC, ET AL., 1
BOBBY A. BRANCH, TAX MATTERS PARTNER,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
—————
Docket Nos. 17379-19, 17380-19, Filed November 9, 2022.
17381-19, 17382-19.
—————
P timely petitioned this Court challenging the IRS’s
adjustments in notices of final partnership administrative
adjustment regarding charitable deductions related to
syndicated conservation easement transactions listed
under I.R.S. Notice 2017-10, 2017-4 I.R.B. 544. The parties
filed Cross-Motions for Partial Summary Judgment
seeking summary adjudication as to the imposition of
penalties in these consolidated cases. P principally
contends that I.R.C. § 6662A penalties cannot be imposed
for two reasons: (1) the IRS seeks to improperly impose
such penalties retroactively and (2) the IRS failed to
comply with the notice-and-comment rulemaking
procedures of the Administrative Procedure Act (APA)
when issuing Notice 2017-10. R contends that Notice
2017-10 was properly issued without notice-and-comment
rulemaking and that he is entitled to partial summary
judgment.
1 The following cases are consolidated herewith: Vista Hill Investments, LLC,
Bobby A. Branch, Tax Matters Partner, Docket No. 17380-19; Big Hill Partners, LLC,
Bobby A. Branch, Tax Matters Partner, Docket No. 17381-19; and Tick Creek
Holdings, LLC, Bobby A. Branch, Tax Matters Partner, Docket No. 17382-19.
Served 11/09/22
2
Held: Notice 2017-10 is a legislative rule, improperly
issued by the IRS without notice and comment as required
under the APA.
Held, further, Notice 2017-10 will be set aside by the
Court, and P’s Cross-Motions for Summary Judgment will
be granted in part prohibiting the imposition of I.R.C.
§ 6662A penalties in these consolidated cases.
—————
Vivian D. Hoard, Kip D. Nelson, Richard A. Coughlin, Brian C.
Bernhardt, and Elizabeth K. Blickley, for petitioner.
Emily J. Giometti, Kirsten E. Brimer, Clint J. Locke, Kimberly B. Tyson,
Mary Helen Weber, Travis Vance, and Angela B. Reynolds, for
respondent.
OPINION
WEILER, Judge: On December 3, 2021, the Commissioner of
Internal Revenue (respondent) filed a third Motion for Partial Summary
Judgment, 2 seeking summary adjudication in each of these consolidated
cases (third Motions for Partial Summary Judgment) on the issue of
whether the Internal Revenue Service (IRS) complied with the
requirements of section 6751(b)(1) as applied to the gross valuation
misstatement penalty under section 6662(h), the substantial valuation
misstatement penalty under section 6662(e), the negligence penalty
under section 6662(b)(1) and (c), and the reportable transaction penalty
2 In each of these consolidated cases respondent has twice before moved for
partial summary judgment. By separate order, the court will rule on respondent’s
Motions for Partial Summary Judgment regarding the issue of whether the IRS
complied with the requirements of section 6751(b)(1). Unless otherwise indicated, all
statutory references are to the Internal Revenue Code (Code), Title 26 U.S.C., in effect
at all relevant times, all regulation references are to the Code of Federal Regulations,
Title 26 (Treas. Reg.), in effect at all relevant times, and all Rule references are to the
Tax Court Rules of Practice and Procedure. All dollar amounts are rounded to the
nearest dollar.
3
under section 6662A. 3 Then on December 14, 2021, petitioner 4 in these
consolidated cases filed Motions for Summary Judgment (Cross-Motions
for Summary Judgment) regarding respondent’s assertion of two
penalties—sections 6662(h) and 6662A. 5
In the Cross-Motions for Summary Judgment petitioner makes
two arguments against the penalties asserted under section 6662A.
First, petitioner contends that penalties under section 6662A may not
be asserted in these cases since any assessment of them would be made
retroactively after the issuance of I.R.S. Notice 2017-10, 2017-4 I.R.B.
544; and second, the issuance of Notice 2017-10 failed to comply with
the notice-and-comment provisions of the Administrative Procedure Act
(APA), 5 U.S.C. §§ 551–559, 701–706.
On January 7, 2022, petitioner filed a written objection to
respondent’s third Motions for Partial Summary Judgment. Petitioner’s
principal argument is that respondent cannot assess penalties under
section 6662A as a matter of law.
On February 11, 2022, respondent filed a written objection to
petitioner’s Cross-Motions for Summary Judgment. In the objection, and
among other arguments not relevant to this report, respondent contends
petitioner has failed to show and establish that section 6662A penalties
are not applicable to the transactions at issue in these consolidated cases
pursuant to Notice 2017-10. Respondent further contends that Notice
2017-10 was properly issued without notice-and-comment rulemaking,
and that he is entitled to partial summary judgment as prayed for in his
third Motions for Partial Summary Judgment.
3 The tax year at issue for Green Valley Investors, LLC (Green Valley), Big Hill
Partners, LLC (Big Hill), and Tick Creek Holdings, LLC (Tick Creek), is 2014, while
the tax year at issue for Vista Hill Investments, LLC (Vista Hill), is 2015.
4 In these consolidated cases Bobby A. Branch is the petitioner and tax matters
partner for four entities: Green Valley, Vista Hill, Big Hill, and Tick Creek. We refer
to these entities individually as “LLC” and collectively as “the LLCs.” Since Mr. Branch
is the tax matters partner in each of these consolidated cases, we will collectively refer
to the tax matters partner for the LLCs in the singular and as “petitioner” throughout
this report.
5 This report will address only petitioner’s Motions regarding respondent’s
determination of section 6662A penalties. The Court will, by separate order, address
petitioner’s Cross-Motions for Partial Summary Judgment with respect to section
6662(h) penalties.
4
Background
The following facts are drawn from respondent’s third Motions for
Partial Summary Judgment, petitioner’s Cross-Motions for Summary
Judgment, declarations and exhibits thereto, and the parties’ respective
written objections. These facts are stated solely for purposes of ruling on
the parties’ Motions herein.
By deed recorded on December 31, 2014, Green Valley, Big Hill,
and Tick Creek each granted a conservation easement to Triangle Land
Conservancy (TLC). On December 3, 2015, Vista Hill did the same.
Green Valley, Big Hill, and Tick Creek each timely filed Forms 1065,
U.S. Return of Partnership Income, for tax year 2014, and Vista Hill
timely filed Form 1065 for tax year 2015. On its Form 1065 Green Valley
deducted $22,559,000 for its charitable easement contribution to TLC
for the tax year 2014. Similarly, Big Hill and Tick Creek deducted
contributions of charitable easements of $22,626,000 and $22,605,000,
respectively. Vista Hill deducted $22,498,000 on its Form 1065 for its
charitable easement contribution for tax year 2015.
On December 23, 2016, the IRS issued Notice 2017-10. Notice
2017-10 identified all syndicated conservation easement transactions
beginning January 1, 2010, including all substantially similar
transactions, as “listed transactions” for purposes of Treasury
Regulation § 1.6011-4(b)(2).
The IRS conducted examinations of Green Valley’s, Vista Hill’s,
Big Hill’s, and Tick Creek’s respective Forms 1065. By notices of final
partnership administrative adjustment (FPAA) issued to the LLCs on
June 24, 2019, the IRS disallowed the claimed deductions for noncash
charitable contributions because the LLCs (1) did not establish that the
deductions met all requirements pursuant to section 170 and (2) failed
to establish that the values of the property interests contributed
exceeded zero. In addition each FPAA asserted a gross valuation
misstatement penalty under section 6662(h), a substantial valuation
misstatement penalty under section 6662(e), a negligence penalty under
section 6662(b)(1) and (c), and a substantial understatement penalty
under section 6662(b)(2) and (d). Respondent’s Answers asserted the
additional reportable transaction penalty under section 6662A.
5
On September 20, 2019, petitioner timely petitioned this Court
challenging the FPAA determinations. When the Petitions were filed,
the LLCs’ principal places of business were in North Carolina.
Discussion
I. Summary Judgment
A party may move for summary judgment regarding all or any
part of the legal issues in controversy. See Rule 121(a); Wachter v.
Commissioner, 142 T.C. 140, 145 (2014). We may grant summary
judgment if the pleadings, stipulations and exhibits, and any other
acceptable materials show that there is no genuine dispute as to any
material fact and that a decision may be rendered as a matter of law.
See Rule 121(a) and (b); see also CGG Ams., Inc. v. Commissioner, 147
T.C. 78, 82 (2016); Elec. Arts, Inc. & Subs. v. Commissioner, 118 T.C.
226, 238 (2002). We construe the facts and draw all inferences in the
light most favorable to the nonmoving party to decide whether summary
judgment is appropriate. Sundstrand Corp. v. Commissioner, 98 T.C.
518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994). The moving party has
the burden of proving that there is no genuine issue of material fact.
Naftel v. Commissioner, 85 T.C. 527, 529 (1985). However, the
nonmoving party may not rest upon the mere allegations or denials in
its pleadings but instead must “set forth specific facts showing that
there is a genuine dispute for trial.” Rule 121(d); see Sundstrand Corp.,
98 T.C. at 520.
II. Application of Section 6662A Penalties
Section 6662A was enacted as part of the American Jobs Creation
Act of 2004 (AJCA), Pub. L. No. 108-357, § 812(a), 118 Stat. 1418, 1577.
It is effective for tax years ending after October 22, 2004. Id. § 812(f),
118 Stat. at 1580. Section 6662A(a) provides: “If a taxpayer has a
reportable transaction understatement for any taxable year, there shall
be added to the tax an amount equal to 20 percent of the amount of such
understatement.” The penalty is increased from 20% to 30% of the
amount of the understatement if the disclosure requirements of section
6664(d)(3)(A), requiring disclosure in accordance with the regulations
prescribed under section 6011, are not met. I.R.C. § 6662A(c). Section
6662A penalties apply to any item which is attributable to any “listed
transaction.” I.R.C. § 6662A(b)(2)(A).
After the enactment of the AJCA, temporary regulations were
issued, including Temporary Treasury Regulation § 1.6011-4T(b)(2)
6
defining the term “listed transaction” to include those types of
transactions which the IRS has determined to be tax avoidance
transactions and identified by notice, regulation, or other form of
published guidance. See T.D. 9350, 2007-38 I.R.B. 607. This temporary
regulation was published, and the IRS requested comments. Additional
notice and request for comments was published by the IRS in Notice
2005-11, 2005-1 C.B. 493, and Notice 2005-12, 2005-1 C.B. 494, as
amended. 6 Final regulations were published, the IRS requested
comments as to Treasury Regulation § 1.6011-4, and the term “listed
transaction” continued to be defined as a transaction that is the same or
substantially similar to one of the types of transactions that the IRS has
determined to be tax avoidance transactions and identified by notice,
regulation, or other form of published guidance. Treas. Reg.
§ 1.6011-4(b)(2).
It is undisputed that Notice 2017-10 was issued after the LLCs
filed the returns at issue. It is also undisputed that Notice 2017-10
identified certain syndicated conservation easement transactions as tax
avoidance transactions classified as “listed transactions” for purposes of
Treasury Regulation § 1.6011-4 and sections 6111 and 6112. See Notice
2017-10, § 3, 2017-4 I.R.B. at 545. Petitioner does not dispute that the
transactions at issue are the same or substantially similar to the certain
syndicated conservation easement transactions described in Notice
2017-10.
Effective December 23, 2016, Notice 2017-10 identifies certain
transactions for purposes of Treasury Regulation § 1.6011-4(b)(2) and
sections 6111 and 6112. The notice includes transactions entered into on
or after January 1, 2010, that are the same as or substantially similar
to certain syndicated conservation easement transactions described in
the notice. Notice 2017-10 states that taxpayers who have entered into
a listed transaction or transactions of interest “must disclose the
transactions as described in [Treasury Regulation §] 1.6011-4 for each
taxable year in which the taxpayer participated in the transactions,
provided that the period of limitations for assessment of tax has not
ended on or before December 23, 2016.” On the basis of this text, the
Court finds that Notice 2017-10 is applicable to the 2014 and the 2015
transactions at issue.
6 These notices alerted taxpayers to the recent enactments and invited
comments from the public regarding rules and standards relating to section 6707A and
sections 6662A, 6662, and 6664, as amended.
7
Petitioner cites the definition section found in section 6707A(c)(2)
as an indication that the terms Congress uses are in the past tense.
Similarly, petitioner cites Treasury Regulation § 1.6011-4 for the
proposition that the IRS must identify a transaction as being a
reportable transaction prospectively. However, respondent notes that
Treasury Regulation § 1.6011-4(e)(2) addresses the issue at hand—
namely, the duty on taxpayers to disclose a previous transaction within
90 calendar days from the date in which the prior transaction became a
listed transaction or transaction of interest, so long as the period of
limitations for assessment remains open.
We have previously upheld the retroactive application of
penalties, even though the taxpayers became subject to the penalties
after they had entered into the transactions or after their tax returns
had been filed. See Soni v. Commissioner, T.C. Memo. 2013-30, at *8–9;
see also Kenna Trading, LLC v. Commissioner, 143 T.C. 322, 371–72
(2014), aff’d sub nom. Sugarloaf Fund, LLC v. Commissioner, 911 F.3d
854 (7th Cir. 2008); Patin v. Commissioner, 88 T.C. 1086, 1127 n.34
(1987), aff’d without published opinion, 865 F.2d 1264 (5th Cir. 1989),
and aff’d sub nom. Gomberg v. Commissioner, 868 F.2d 865 (6th Cir.
1989), Skeen v. Commissioner, 864 F.2d 93 (9th Cir. 1989), and
Hatheway v. Commissioner, 856 F.2d 186 (4th Cir. 1988) (per curiam)
(unpublished table decision); McGehee Family Clinic, P.A. v.
Commissioner, T.C. Memo. 2010-202.
Petitioner also cites Bowen v. Georgetown University Hospital,
488 U.S. 204, 208 (1988), in which the Supreme Court struck down the
retroactive application of a newly promulgated regulation by the
Department of Health and Human Services.
On the basis of our findings infra Part III, we conclude that these
cases do not require us to decide whether section 6662A penalties can be
applied retroactively. Accordingly, we refrain from doing so.
III. Notice-and-Comment Rulemaking Requirements
The APA provides a three-step procedure for “notice-and-
comment rulemaking” whereby agencies are required to (1) issue a
general notice of proposed rulemaking, (2) allow interested persons an
opportunity to participate, and (3) include in the final rule a “concise
general statement of [its] basis and purpose.” Perez v. Mortg. Bankers
Ass’n, 575 U.S. 92, 96 (2015) (quoting 5 U.S.C. § 553(c)). However, “[n]ot
all ‘rules’ must be issued through the notice-and-comment process. . . .
8
[T]he notice-and-comment requirement ‘does not apply’ to
‘interpretative rules, general statements of policy, or rules of agency
organization, procedure, or practice.’” Id. (quoting 5 U.S.C. § 553(b)(A)).
“The APA also recognizes that Congress may modify these
requirements, but provides that a ‘[s]ubsequent statute may not be held
to supersede or modify this subchapter . . . except to the extent that it
does so expressly.’” Asiana Airlines v. FAA, 134 F.3d 393, 396 (D.C. Cir.
1998) (quoting 5 U.S.C. § 559).
Notably, the Supreme Court has affirmed a material advisor’s
right to challenge an IRS notice as violative of the APA. See CIC Servs.,
LLC v. IRS, 141 S. Ct. 1582 (2021). Other federal courts have recently
wrestled with the issue before this Court. In Mann Construction, Inc. v.
United States, 539 F. Supp. 3d 745 (E.D. Mich. 2021), the district court
held that Congress authorized the IRS to promulgate Notice 2007-83,
2007-2 C.B. 960, without the requirement of having to first provide
notice and comment under the APA; however, this decision was later
reversed by the U.S. Court of Appeals for the Sixth Circuit in Mann
Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022). While
in CIC Services, LLC v. IRS, No. 3:17-CV-110, 2021 WL 4481008 (E.D.
Tenn. Sept. 21, 2021), the district court granted a preliminary injunction
in favor of the taxpayer, finding the taxpayer was likely to prevail on its
challenge of Notice 2016-66, 2016-47 I.R.B. 745, on the basis of the IRS’s
failure to first comply with the APA’s notice-and-comment
requirements. 7
Respondent makes two arguments identical to those made by the
United States in Mann Construction; namely, that (1) Notice 2017-10
was an interpretative rather than legislative rule and (2) even if Notice
2017-10 were a legislative rule, Congress has authorized its issuance by
procedure other than the notice-and-comment requirements under the
APA.
A. Is Notice 2017-10 an Interpretative or Legislative Rule?
Legislative rules impose new rights or duties and change the legal
status of regulated parties. Chen Zhou Chai v. Carroll, 48 F.3d 1331,
1340 (4th Cir. 1995); see Tenn. Hosp. Ass’n v. Azar, 908 F.3d 1029, 1042
(6th Cir. 2018) (explaining that legislative rules impose new rights or
7 See also Liberty Glob., Inc. v. United States, No. 1:20-CV-03501, 2022 WL
1001568 (D. Col. Apr. 4, 2022) (granting partial summary judgment after finding
temporary treasury regulations related to section 245A were invalid since they were
not promulgated in compliance with the APA’s notice-and-comment requirements).
9
duties and change the legal status of the parties, whereas interpretative
rules articulate what an agency thinks a statute means or remind
parties of pre-existing duties). Interpretative rules merely advise the
public of an agency’s construction of the statutes it administers. Mortg.
Bankers Ass’n, 575 U.S. at 97. Unlike interpretative rules, legislative
rules have the force and effect of law. Id. at 96.
The Sixth Circuit recently addressed respondent’s first argument,
finding Notice 2007-83, entitled “Abusive Trust Arrangements Utilizing
Cash Value Life Insurance Policies Purportedly to Provide Welfare
Benefits,” to be a legislative rule requiring the IRS to comply with
notice-and-comment requirements under the APA. Mann Constr., Inc.,
27 F.4th at 1143–44. Like the Sixth Circuit, we find Notice 2017-10 to
be a legislative rule.
Congress tasked the IRS with determining “by regulations” how
taxpayers are to “make a return or statement” and the information they
must provide therein to the IRS. See I.R.C. § 6011(a). Under section
6707A, Congress likewise delegates authority to determine which
transactions are reportable transactions as having “a potential for tax
avoidance” or that are “the same as, or substantially similar to, a
transaction” deemed “a tax avoidance transaction.” I.R.C. § 6707A(c)(1).
Notice 2017-10, 2017-4 I.R.B. at 544–45, purports to carry out this
delegation of authority, and states in part:
This notice alerts taxpayers and their representatives that
the transaction described in section 2 of this notice is a tax
avoidance transaction and identifies this transaction, and
substantially similar transactions, as listed transactions
for purposes of § 1.6011-4(b)(2) of the Income Tax
Regulations (Regulations) and §§ 6111 and 6112 of the
Internal Revenue Code (Code).
The act of identifying a transaction as a listed transaction by the
IRS, by its very nature, is the creation of a substantive (i.e., legislative)
rule and not merely an interpretative rule. 8 See 5 U.S.C. § 553.
8 Many of the provisions discussed infra were enacted or substantially modified
in 2004 as part of AJCA §§ 811–822, 118 Stat. at 1575–87. These provisions
substantially changed the reporting and recordkeeping requirements for listed and
other reportable transactions. This report offers no opinion on whether identifying a
transaction as a listed transaction was substantive rulemaking before the enactment
of the AJCA or whether Congress expressed its intent to exempt from the standard
10
Identifying a transaction as a listed transaction does not merely provide
the IRS’s interpretation of the law or remind taxpayers of preexisting
duties. Rather, and as we will detail below, identifying a transaction as
a listed transaction imposes new duties in the form of reporting
obligations and recordkeeping requirements on both taxpayers and their
advisors. Notice 2017-10 exposes these individuals to additional
reporting obligations and penalties to which they would not otherwise
be exposed but for the notice. Creating new substantive duties and
exposing taxpayers to penalties for noncompliance “are hallmarks of a
legislative, not an interpretive, rule.” Mann Constr., Inc., 27 F.4th
at 1144.
1. Reporting Obligations on Taxpayers
The IRS’s act of identifying a transaction as a listed transaction
imposes a reporting obligation on any taxpayer who participated in such
a transaction. See Treas. Reg. § 1.6011-4. As part of their obligation to
file a tax return, taxpayers must disclose their participation in any
reportable transaction. Id. para. (a). A listed transaction is a type of
reportable transaction. Id. para. (b)(2). A taxpayer is considered to have
participated in a listed transaction if the taxpayer’s return reflects tax
consequences or a tax strategy described in published guidance that lists
the transaction as a listed transaction. Id. para. (c)(3)(i)(A). Without the
IRS identifying the transaction as a listed transaction, no such reporting
obligation exists.
Once a transaction is identified by the IRS as a listed transaction,
a taxpayer’s reporting obligation is significant. Listed transactions are
reported on Form 8886, Reportable Transaction Disclosure Statement.
Unlike most tax forms, which generally require information relating to
calculation of a tax liability, Form 8886 requires narrative information
unrelated to the computation of tax. For example, for the years in issue,
Form 8886 asks the taxpayer to
describe the amount and nature of the expected tax
treatment and expected tax benefits generated by the
transaction for all affected years. Include facts of each step
of the transaction that relate to the expected tax benefits
including the amount and nature of your investment.
Include in your description your participation in the
notice-and-comment procedures transactions that were already listed as of the
enactment of the AJCA.
11
transaction and all related transactions regardless of the
year in which they were entered into. Also, include a
description of any tax result protection with respect to the
transaction.
Form 8886 further requires the taxpayer to
[i]dentify all individuals and entities involved in the
transaction that are tax-exempt, foreign, or related. Check
the appropriate box(es) (see instructions). Include their
name(s), identifying number(s), address(es), and a brief
description of their involvement. For each foreign entity,
identify its country of incorporation or existence. For each
individual or related entity, explain how the individual or
entity is related.[9]
Taxpayers are not merely required to include Form 8886 with
their tax returns. Form 8886 must be attached to each amended return
and a copy sent to the Office of Tax Shelter Analysis at the same time
Form 8886 is first filed by the taxpayer. Treas. Reg. § 1.6011-4(e)(1). If
a transaction becomes a listed transaction after the filing of a taxpayer’s
return that reflects the taxpayer’s participation in the listed transaction,
then the taxpayer is required to file Form 8886 with the Office of Tax
Shelter Analysis within 90 days after the date in which the transaction
became a listed transaction. Id. subpara. (2)(i). This obligation continues
until the period of limitations for that filed return has lapsed. Id. 10
9This information may not be readily known to the taxpayer; however, the IRS
expects the taxpayer to gather this information from third parties who, themselves,
are under no obligation to provide it.
10 That period of limitations may be affected by the IRS’s act of identifying a
transaction as a listed transaction. If a taxpayer does not disclose a listed transaction,
the period of limitations for assessment of tax attributable to that transaction does not
expire until one year after the transaction is disclosed. I.R.C. § 6501(c)(10). And we
have already discussed that the obligation to disclose a listed transaction applies to
previously filed returns. Treas. Reg. § 1.6011-4(e)(2). We are unaware of any cases
deciding whether the IRS’s action of identifying a transaction as a listed transaction
has the effect of holding open the period of limitations on a return that was filed before
the transaction was listed, but at a minimum, the interplay of these two provisions
creates uncertainty.
12
Failure to report a listed transaction to the IRS can have
significant financial consequences for a taxpayer. 11 Section 6707A
imposes a maximum penalty of 75% of the decrease in tax resulting from
a transaction, not to exceed $200,000. I.R.C. § 6707A(b)(1) and (2). This
penalty, however, still applies even if the taxpayer’s tax treatment of the
transaction ultimately proves to be correct. In other words, this penalty
does not require a tax deficiency or that the IRS’s adjustment to the
treatment of the transaction be sustained by the Court. The minimum
penalty for failing to report a listed transaction is $10,000. I.R.C.
§ 6707A(b)(3).
If a penalty is imposed on a taxpayer for failure to disclose a listed
transaction, an additional reporting obligation may arise for some
taxpayers. If the taxpayer is required to file periodic reports with the
Securities & Exchange Commission (SEC), listed or reportable
transaction penalties must be disclosed as part of certain SEC filings.
See I.R.C. § 6707A(e) (flush text). Failure to report these penalties as
part of a taxpayer’s SEC filings can result in yet another penalty under
section 6707A(e).
In addition to the section 6707A reporting penalty, identifying a
transaction as a listed transaction results in enhanced penalties if the
taxpayer’s treatment of the transaction is not upheld. Section 6662(a)
generally imposes an accuracy-related penalty when there is an
underpayment of tax required to be shown on a return. However, if a
transaction is identified as a listed transaction by the IRS, and the
taxpayer’s treatment of that transaction is not upheld by a court, a
penalty can be imposed whether or not there is a tax deficiency. See
I.R.C. § 6662A. The starting point for the calculation of a section 6662A
penalty is not the amount of tax owed; instead, it is the “reportable
transaction understatement” amount. See I.R.C. § 6662A(b)(1)(A)(i). A
11 Notably, the IRS’s identification of a transaction as a listed transaction has
no bearing on the merits of the transaction itself, and the IRS has previously listed,
and subsequently delisted, a transaction that was upheld by courts. In Notice 98-5,
1998-1 C.B. 334, 334, the IRS characterized certain transactions as “abusive tax-
motivated transactions with a purpose of acquiring or generating foreign tax credits
that can be used to shelter low-taxed foreign-source income from residual U.S. tax.”
When the first group of listed transactions was announced, the IRS included
transactions described in Part II of Notice 98-5. Notice 2000-15, 2000-1 C.B. 826. But
the Courts of Appeals for the Eighth and Fifth Circuits upheld the taxpayers’
treatment of transactions described in Notice 98-5. See Compaq Comput. Corp. & Subs.
v. Commissioner, 277 F.3d 778 (5th Cir. 2001); IES Indus., Inc. v. United States, 253
F.3d 350 (8th Cir. 2001). Ultimately, the IRS withdrew Notice 98-5. Notice 2004-19,
2004-1 C.B. 606.
13
section 6662A penalty is not determined on the basis of the taxpayer’s
actual tax rate but at the highest rate of tax imposed. I.R.C.
§ 6662A(b)(1)(A)(ii). To calculate the penalty, this hypothetical
understatement is multiplied by 20%; if the transaction was not
disclosed to the IRS, the penalty rate increases to 30%. 12 This section
6662A penalty is separate from, and in addition to, the penalty for
failure to disclose under section 6707A. It is the IRS’s act of identifying
a transaction as a listed transaction (as it did in Notice 2017-10) that
makes section 6662A and 6707A penalties applicable.
2. Reporting Obligations on Advisors
The identification of a transaction as a listed transaction does not
merely impose new reporting obligations on taxpayers who participate
in the transaction; it also imposes new reporting obligations on tax
advisors. A material advisor 13 with respect to a reportable transaction 14
is required to make a return setting forth detailed information.
12 To explain this calculation using a hypothetical, assume a taxpayer’s return
shows a net loss of $1 million and a tax liability of zero. Assume that a transaction that
generated a $600,000 loss is disallowed. The result of the disallowance of that loss is
that the taxpayer’s return will show a net loss of $400,000 and a tax liability of zero.
Because the taxpayer’s bottomline tax liability is unchanged, there would be no penalty
under the general accuracy-related penalty rules of section 6662. If this is a listed
transaction, however, a penalty would apply. The starting point for calculating the
penalty is the amount of the disallowed loss, or hypothetically here $600,000. The
amount of the reportable transaction understatement is calculated by multiplying that
amount by the highest marginal tax rate. If the taxpayer is an individual, the highest
marginal tax rate is 39.6%, resulting in a reportable transaction understatement of
$237,600. I.R.C. § 1. To calculate the penalty, that amount is multiplied by either 20%
(if the transaction was disclosed) or 30% (if it was not disclosed), yielding a penalty of
up to $71,280 for a transaction that resulted in no understatement of tax. If the IRS
had not listed that transaction, the amount of the penalty would be zero.
13 A material advisor, defined in section 6111(b)(1)(A), is any person—
(i) who provides any material aid, assistance, or advice with
respect to organizing, managing, promoting, selling, implementing,
insuring, or carrying out any reportable transaction, and
(ii) who directly or indirectly derives gross income in excess of
the threshold amount (or such other amount as may be prescribed by
the Secretary) for such aid, assistance, or advice.
The threshold amount is $50,000 in the case of a reportable transaction. See I.R.C.
§ 6111(b)(1)(B)(i).
14 As previously mentioned, when the IRS identifies a new listed transaction,
it is deemed to be a reportable transaction subject to additional reporting obligations.
I.R.C. §§ 6111(b)(2), 6707A(c)(2); Treas. Reg. § 1.6011-4(b)(1) and (2).
14
I.R.C. § 6111(a). Simply described, this rule applies to anyone who
advises with respect to a reportable transaction and receives fees in
excess of a threshold amount. See I.R.C. § 6111(b).
The reporting requirement imposed on a material advisor is
significant. The IRS has adopted Form 8918, Material Advisor
Disclosure Statement, as the form on which material advisor reporting
must be made. Treas. Reg. § 301.6111-3(d). In addition to specific items
of information, Form 8918 also requires several narrative responses.
Some responses require brief descriptions; however, Form 8918 also
requires a rather substantial narrative, as follows:
Describe the reportable transaction for which you provided
material aid, assistance or advice, including but not limited
to the following: the nature of the expected tax treatment
and expected tax benefits generated by the transaction for
all affected years, the years the tax benefits are expected
to be claimed, the role of the entities or individuals
mentioned in [Form 8918] lines 7a or 8a (if any) and the
role of the financial instruments mentioned in [Form 8918]
line 9 (if any). Explain how the Internal Revenue Code
sections listed in [Form 8918] line 12 are applied and how
they allow the taxpayer to obtain the desired tax
treatment. Also, include a description of any tax result
protection with respect to the transaction.
The IRS’s identifying a listed transaction essentially obligates the
taxpayer’s advisor to become an unwilling advisor to the IRS. This
obligation arises only because the IRS has identified the transaction as
a listed transaction.
In addition to the obligation to disclose a listed transaction to the
IRS, material advisors also become records repositories for the IRS.
Material advisors are required to maintain lists identifying each person
they advised. I.R.C. § 6112(a). As with the disclosure under section 6111,
the information required to be maintained as part of these lists under
section 6112 is substantial. Some of the information required to be
maintained is brief and straightforward, see Treas. Reg.
§ 301.6112-1(b)(3)(i), while other items of information are broad and
include a “detailed description of each reportable transaction that
describes both the tax structure of the transaction and the purported tax
treatment of the transaction,” see id. subdiv. (ii). The IRS also requires
material advisors to retain documents such as
15
[c]opies of any additional written materials, including tax
analyses or opinions, relating to each reportable
transaction that are material to an understanding of the
purported tax treatment or tax structure of the transaction
that have been shown or provided to any person who
acquired or may acquire an interest in the transactions, or
to their representatives, tax advisors, or agents, by the
material advisor or any related party or agent of the
material advisor.
Id. subdiv. (iii)(B). The obligation on the part of material advisors to
prepare this list and retain these documents arises solely because the
IRS has identified a transaction as a listed transaction.
A material advisor’s failure to disclose a transaction under section
6111 or to provide a list upon demand can expose the individual to
significant penalties. Like the section 6707A penalty for a taxpayer’s
failure to report a listed transaction, a similar penalty under section
6707 can be imposed on a material advisor. See Treas. Reg. § 301.6707-1.
Failure to furnish the list of information required to be maintained
under section 6112(a) within 20 business days after the date of request
can result in a penalty of $10,000 per day until the list is provided. I.R.C.
§ 6708. Again, it is the IRS’s act of identifying a transaction as a listed
transaction (as it did in Notice 2017-10) that makes section 6707 and
6708 penalties applicable.
In sum, by its issuance, Notice 2017-10 creates new substantive
reporting obligations for taxpayers and material advisors, including
petitioner and the LLCs, the violation of which prompts exposure to
financial penalties and sanctions—the prototype of a legislative rule. See
Mann Constr., Inc., 27 F.4th at 1144. We cannot see how Notice 2017-10
could be considered an interpretative rule; consequently, we find it to be
a legislative rule. See Schwalbach v. Commissioner, 111 T.C. 215,
220–21 (1998).
B. Is Notice 2017-10 Otherwise Exempt from the Notice-and-
Comment Requirements Found Under the APA?
1. Legal Background
Having determined that Notice 2017-10 is a legislative rule, we
are to assume that this IRS action—having the force and effect of law—
must go through notice-and-comment rulemaking under the APA
regime. See 5 U.S.C. § 553. Respondent contends, however, that
16
Congress clearly exempted the IRS from following the APA’s normal
procedures when it enacted section 6707A and that Notice 2017-10 thus
was properly issued without notice-and-comment rulemaking.
Therefore, the remaining question before us is whether Congress has
established procedures so different from those required by the APA that
it intended to displace the norm. For the reasons discussed below, we
reject respondent’s position.
We note how the APA also provides that an agency may depart
from normal notice-and-comment procedures for good cause. See 5
U.S.C. § 553(b)(B). In this instance the IRS elected not to invoke the
good cause exception when issuing Notice 2017-10; consequently, we
have no reason to analyze whether and when the exception may be used.
In other instances the government has invoked the good cause exception
when promulgating temporary Treasury regulations.
As previously stated, the APA limits the ability of a subsequent
statute to modify or supersede its procedures “except to the extent that
it does so expressly.” 5 U.S.C. § 559. Consistent with this limiting text,
appellate courts have held that 5 U.S.C. § 559 “forbids amendment of
the APA by implication.” Lane v. USDA, 120 F.3d 106, 110 (8th Cir.
1997); see Five Points Rd. Joint Venture v. Johanns, 542 F.3d 1121, 1127
(7th Cir. 2008) (“[Title 5 U.S.C. §] 559 therefore prevents a statute from
amending the APA by implication.”). The Supreme Court has likewise
emphasized that “[e]xemptions from the terms of the Administrative
Procedure Act are not lightly to be presumed in view of the statement in
[5 U.S.C. § 559] that modifications must be express.” Marcello v. Bonds,
349 U.S. 302, 310 (1955). 15
Our view on the APA’s express-statement requirement is also
consistent with the Supreme Court’s “already-powerful presumption
against implied repeals.” Lockhart v. United States, 546 U.S. 142, 149
(2005) (Scalia, J., concurring). The Supreme Court has also stated that,
absent a clearly expressed congressional intention, repeals by
implication are disfavored, id. (citing Branch v. Smith, 538 U.S. 254, 273
(2003) (plurality opinion)), and implied repeals will be found only where
provisions in two statutes are in “irreconcilable conflict” or where the
latter act covers the whole subject of the earlier one and “is clearly
15 See also Dickinson v. Zurko, 527 U.S. 150, 155 (1999); Citizens for Resp. &
Ethics in Wash. v. FEC, 993 F.3d 880, 889 (D.C. Cir. 2021) (“The APA imposes a high
bar, met only if ‘Congress has established procedures so clearly different from those
required by the APA that it must have intended to displace the norm.’” (quoting Asiana
Airlines, 134 F.3d at 397)).
17
intended as a substitute,” Posadas v. Nat’l City Bank of N.Y., 296 U.S.
497, 503 (1936).
In Marcello the Supreme Court relied upon statutory text and
legislative history to hold that the 1952 Immigration and Nationality
Act displaced the hearing requirements of the APA. Marcello, 349 U.S.
at 310. In reaching this conclusion, the Supreme Court explained:
[W]e cannot ignore the background of the 1952
immigration legislation, its laborious adaptation of the
Administrative Procedure Act to the deportation process,
the specific points at which deviations from the
Administrative Procedure Act were made, the recognition
in the legislative history of this adaptive technique and of
the particular deviations, and the direction in the statute
that the methods therein prescribed shall be the sole and
exclusive procedure for deportation proceedings.
Id. That is not to say that Congress must “employ magical passwords in
order to effectuate an exemption from the Administrative Procedure
Act.” Id. However, what is needed is an “express[]” indication of
congressional intent. Id. Accordingly, mere differences between a
statutory scheme and the APA are insufficient to establish Congress’
intent to dispense with the standard APA procedures. For example, the
U.S. Court of Appeals for the District of Columbia Circuit has concluded
that the Federal Election Campaign Act and the APA could “readily
coexist,” despite various distinct procedures and requirements in the
former statutory scheme. See Citizens for Resp. & Ethics in Wash., 993
F.3d at 892.
The Supreme Court has further described the necessary indicia
of congressional intent by the terms “necessary implication,” “clear
implication,” and “fair implication.” See Dorsey v. United States, 567
U.S. 260, 274–75 (2012). The Supreme Court has used these terms
interchangeably. Id. at 274. 16
16 In the dissent Justice Scalia agreed that express-statement requirements of
the sort presented in Dorsey are ineffective and noted how congressional repeal can be
by clear implication. Dorsey, 567 U.S. at 289 (Scalia, J., dissenting). Justice Scalia
further agrees that the standard for overcoming the strong presumption against
implicit repeal is accurately described as “necessary implication” or “clear implication”
but took issue with the “fair implication” formulation. Id. at 289–90.
18
In Asiana Airlines the D.C. Circuit looked to the statutory text in
question and found an express exception granted by Congress justifying
the agency’s departure from standard notice and comment under the
APA. Asiana Airlines, 134 F.3d at 397–98. In interpreting this
exemption from the APA, the D.C. Circuit found irreconcilable
differences between the procedures under the law in question and those
of the APA. Id. at 398. However, the D.C. Circuit also stated generally
that “[w]e have looked askance at agencies’ attempts to avoid the
standard notice and comment procedures, holding that exceptions under
[5 U.S.C.] § 553 must be ‘narrowly construed and only reluctantly
countenanced.’” Id. at 396 (quoting New Jersey Dep’t of Env’t Prot. v.
EPA, 626 F.2d 1038, 1045 (D.C. Cir. 1980)).
Previously, the D.C. Circuit rejected the argument that terms in
the Clean Water Act requiring states to create procedures for “public
notice” and “public hearings” established congressional intent to
displace the APA’s notice-and-comment requirements. See Lake
Carriers’ Ass’n v. EPA, 652 F.3d 1, 6 (D.C. Cir. 2011) (per curiam). For
its part, the U.S. Court of Appeals for the Ninth Circuit found
unconvincing an agency’s argument that Congress’ authorization of
“interim final rules” in the Affordable Care Act context displayed an
intention to displace the APA’s presumed notice-and-comment
rulemaking. See California v. Azar, 911 F.3d 558, 579–80 (9th Cir.
2018).
In the light of the foregoing jurisprudence and in determining
whether Congress expressly intended to exempt the IRS from the
presumed APA procedures when issuing Notice 2017-10, an analysis of
the “listed transaction regime” as created under the AJCA and its
potential departure from the APA takes center stage.
2. Application
Respondent contends that Congress authorized the IRS to
identify listed transactions without notice-and-comment rulemaking.
Respondent points to the text of section 6707A, Treasury Regulation
§ 1.6011-4, and other AJCA provisions, along with the context and
legislative history of the AJCA. 17
17 Some of these arguments were also made by the Commissioner in Green
Rock, LLC v. IRS, No. 2:21-cv-01320 (N.D. Ala. filed Oct. 2, 2021), which is currently
pending before the U.S. District Court for the Northern District of Alabama.
19
We begin with the observation that section 6707A offers no
express indication from Congress exempting the IRS from the standard
notice-and-comment rulemaking of the APA. See 5 U.S.C. § 559.
Likewise, section 6011 (which is referenced by section 6707A) is also
silent on any express congressional intent, and provides: “When
required by regulations prescribed by the Secretary any person made
liable for any tax imposed by this title, or with respect to the collection
thereof, shall make a return or statement according to the forms and
regulations prescribed by the Secretary.” I.R.C. § 6011(a). As the Sixth
Circuit observed, “[t]he statutes do not say anything, expressly or
otherwise, that modifies the baseline procedure for rulemaking
established by the APA.” Mann Constr., Inc., 27 F.4th at 1146. Unlike
Asiana Airlines, where the D.C. Circuit found sufficient evidence of
congressional intent within the statutory text, there is no comparable
text found in the statute before us. Asiana Airlines, 134 F.3d at 399.
Neither section 6011 nor 6707A says anything that would lead us to
conclude that the IRS is exempt from the baseline procedures for
rulemaking under the APA.
Respondent also attempts to fill the void left by Congress in the
foregoing statutory text with the IRS’s own regulations. Specifically,
respondent notes that, before the enactment of section 6707A, Treasury
regulations were issued defining a listed transaction as one “identified
by notice, regulation, or other form of published guidance.” See Treas.
Reg. § 1.6011-4(b)(2). Respondent contends that this regulation apprised
Congress that it would operate outside of the APA by issuing future
notices (such as Notice 2017-10) without notice and comment.
Respondent further maintains that when Congress later defined
reportable transaction in section 6707A(c)(1), it incorporated this
procedure set forth in Treasury Regulation § 1.6011-4. We are not
persuaded. As an initial matter, we are less confident that Congress
understood that the IRS’s reference to the term “notice” within Treasury
Regulation § 1.6011-4 was a clearly defined procedure for identifying
listed transactions separate from traditional APA procedures,
particularly since Congress’ statutory text in no way authorizes such a
course. To the contrary, we believe that Congress operates under the
expectation that administrative agencies respect their APA obligations
except when Congress expressly chooses different procedures. 5 U.S.C.
§ 559.
Furthermore, Congress’ descriptive reference in section
6707A(c)(1) to “regulations prescribed under section 6011” does not
suggest otherwise. To provide the full context, section 6707A(c)(1)
20
defines a reportable transaction as “any transaction with respect to
which information is required to be included with a return or statement
because, as determined under regulations prescribed under section
6011, such transaction is of a type which the Secretary determines as
having a potential for tax avoidance or evasion.” This definitional text
of section 6707A(c) only links the penalty for reportable and listed
transactions to the five different types of reportable transactions
(including listed transactions) specifically designated in Treasury
Regulation § 1.6011-4(b)(2)–(7). In other words, we conclude that section
6707A(c) “addresses a ‘which transactions’ question, not a ‘what process’
question.” See Mann Constr., Inc., 27 F.4th at 1146.
Respondent also emphasizes the phrase “as determined under
regulations prescribed under section 6011,” contending that it refers
solely to the manner of determination under Treasury Regulation
§ 1.6011-4 and implicitly blesses all processes contained therein,
including the IRS’s noncompliance with notice-and-comment
rulemaking. As an initial matter, the general reference to “regulations
prescribed under section 6011” does not establish an express
congressional intention to displace fundamental APA principles for
future reportable transactions. As noted previously, the D.C. Circuit
concluded that statutory text in the Clean Water Act providing for
alternative notice and hearing procedures did not satisfy an express
congressional intent sufficient to deviate from the APA. Lake Carriers’
Ass’n, 652 F.3d at 6. In these cases, the text of section 6707A does not
reference any procedures whatsoever; and accordingly, we cannot
conclude it establishes Congress’ express intention to disregard APA
procedures.
Considering the statutory text before us, we are unable to
reasonably conclude that Congress demonstrated its express intention
to deviate from normal APA procedures by implementing a reticulated
scheme of the sort described in Marcello. To the contrary, we find
respondent has failed to establish that Congress expressed any
alternative procedures “so clearly different from those required by the
APA that it must have intended to displace the norm.” See Asiana
Airlines, 134 F.3d at 397; see also Mann Constr., Inc., 27 F.4th at 1146.
Rather, the “listed transaction regime” procedures as created by
Congress can be reconciled with the APA since the statutes merely
establish a disclosure and penalty regime to be administered by the IRS.
See Mann Constr., Inc., 27 F.4th at 1146; see also Citizens for Resp. &
Ethics in Wash., 993 F.3d at 892. Furthermore, the so-called fair
implication standard of an express congressional intent to replace the
21
APA—as argued by respondent—understates the burden imposed by
Congress and contravenes the Supreme Court’s interchangeable use of
the relevant formulations. Dorsey, 567 U.S. at 274; see supra p. 17. We
therefore reject this argument.
Even if we were to look to the congressional text “regulations
prescribed under section 6011” in conjunction with Treasury Regulation
§ 1.6011-4, respondent’s argument fares no better. Like the statutory
text, Treasury Regulation § 1.6011-4 does not seem very concerned with
setting up processes but rather is directed to naming categories of
transactions subject to IRS reporting requirements. While Treasury
Regulation § 1.6011-4 does include those transactions as determined by
the IRS to be tax avoidance transactions and identified “by notice,
regulation, or other form of published guidance,” we remain convinced
this regulatory text can also be read to demonstrate that the “as
determined” clause was intended to co-exist with the requirements of
the APA and for the IRS to identify future reportable transactions under
the APA’s ordinary regime of notice and comment. See Citizens for Resp.
& Ethics in Wash., 993 F.3d at 892. In any event, our task is to
determine whether Congress, not the IRS, amended the APA’s
presumed application.
We acknowledge that Congress understood that the IRS had
identified listed transactions before the enactment of the AJCA. We also
recognize that Congress, through its enactment of the AJCA, was
acknowledging the IRS’s disclosure framework already in place, with
the goal of strengthening its efficacy. See S. Rep. No. 108-192, at 90
(2003); see also H.R. Rep. No. 108-548, pt. 1, at 261 (2004). 18 But, we
cannot accept the enactment of the AJCA as Congress’ blanket approval
of the IRS’s method of identifying a syndicated conservation easement
as a listed transaction in Notice 2017-10 without notice and comment.
Next, respondent contends that Congress is “presumed to [have
been] aware” of the IRS’s actions when it amended section 6707A to
enhance the monetary penalties for taxpayers through subsequent
enactment; however, Congress is likewise equally aware of the normal
APA rulemaking requirements, which it must “expressly” override. See
18 Respondent also points to repealed text found in section 6707A, which
required the IRS to submit an annual report to Congress’ two tax writing committees,
as congressional oversight and evidence sufficient to supplant the standard APA
procedures. It is true that at one point in recent history there was an annual
mandatory reporting requirement; however, we do not see how the IRS’s prior
reporting obligation establishes Congress’ clear intent to override the APA.
22
5 U.S.C. § 559; see also Mayo Found. for Med. Educ. & Rsch. v. United
States, 562 U.S. 44, 55 (2011) (rejecting the concept of carving out unique
treatment for tax law under the APA). Like the Sixth Circuit, we
disagree with respondent’s contention that Congress’ subsequent
inaction means that it was “endorsing and ratifying” the IRS’s practice
to bypass the notice-and-comment requirements for future reportable
transactions. As well stated by the Sixth Circuit, “[i]naction may, but
does not always, mean ratification” and “rarely suffices to show express
modification of the APA’s bedrock procedural guarantees given the raft
of potential explanations for inaction on Capitol Hill.” Mann Constr.,
Inc., 27 F.4th at 1147.
We similarly find it inappropriate to assume Congress expected
that any subsequent amendment or addition to the listed transaction
regime by the IRS would be made without notice and comment under
the APA. In these cases, Notice 2017-10 was not issued until 2016. 19
Accordingly, we cannot subscribe to any alternative theory that prior
notice and comment made at the time of promulgation of Treasury
Regulation § 1.6011-4 satisfies the IRS’s ongoing obligation to comply
with the APA when issuing Notice 2017-10. To the contrary, we find
Congress has made it clear that each substantive rule of general
applicability, including amendment or revision thereto, must comply
with the APA. See 5 U.S.C. § 552.
Finally, we do not find a committee print from 2020 relating to
continued congressional oversight of syndicated conservation easement
transactions to be persuasive evidence that Congress intended to
override the APA’s applicability to the IRS’s listing of transactions. See
Staff of S. Comm. on Finance, 116th Cong., Syndicated Conservation-
Easement Transactions Exhibits 1–133, S. Prt. 116-44 (Comm. Print
2020). 20
We do not dispute the significance of congressional oversight of
so-called “Syndicated Conservation-Easement Transactions” and the
efforts to curtail these transactions. However, we do dispute a
19 We find the matter before us to be limited to the IRS’s actions with respect
to Notice 2017-10, and we do not reach any conclusion as to those listed transactions
the IRS identified when Treasury promulgated Treasury Regulation § 1.6011-4(b)(2).
20 The exhibits included letters from both IRS Acting Commissioner, David J.
Kautter, dated July 12, 2018, and IRS Commissioner Charles P. Rettig, dated
February 12, 2020, regarding congressional requests for information and analyses
related to Notice 2017-10.
23
conclusion that congressional oversight hearings, written statements by
the respective chairs of the Senate Finance Committee at the oversight
hearings, and testimony related to these transactions from executive
branch members can serve as express congressional intent sufficient to
override the requirements of the APA with respect to Notice 2017-10. 21
The foregoing congressional actions alone are insufficient to supplant
the APA, since the Supreme Court has told us exemptions from the
terms of the APA are not presumed and must be expressed by Congress.
See Marcello, 349 U.S. at 310 (considering legislative history in
conjunction with the final operative statutory text to find Congress’
express intent to override the APA).
After considering these additional arguments, we remain
unconvinced that Congress expressly authorized the IRS to identify a
syndicated conservation easement transaction as a listed transaction
without the APA’s notice-and-comment procedures, as it did in Notice
2017-10.
IV. Conclusion
We determine summary adjudication to be appropriate in
petitioner’s favor as to prohibiting the imposition of section 6662A
penalties against the LLCs in these cases since Notice 2017-10 was
issued without notice and comment as required under the APA.
Accordingly, we will grant petitioner’s Cross-Motions for Summary
Judgment, in part, and set aside 22 Notice 2017-10, including the
imposition of section 6662A penalties with respect to reportable
transactions.
21 Generally speaking, legislative history related to the Code includes
congressional members’ statements made in markup sessions, congressional tax
writing committees, committee reports, conference committee reports, and
postenactment tax committee reports.
22 Although this decision and subsequent order are applicable only to
petitioner, the Court intends to apply this decision setting aside Notice 2017-10 to the
benefit of all similarly situated taxpayers who come before us.
24
To reflect the foregoing,
An appropriate order will be issued.
Reviewed by the Court.
FOLEY, GUSTAFSON, MORRISON, BUCH, ASHFORD, URDA,
COPELAND, JONES, GREAVES, and MARSHALL, JJ., agree with
this opinion of the Court.
KERRIGAN, PARIS, PUGH, and TORO, JJ., concur in the result,
and TORO, J., agrees with Part III.A.
GALE and NEGA, JJ., dissent.
25
PUGH, J., concurring in the result: I write separately to explain
why, after careful consideration of the history of the statute at issue
alongside the tools of statutory construction and precedent, set forth
below, I reach the same conclusion as the majority.
Section 6707A was enacted in the American Jobs Creation Act of
2004 (AJCA), § 811(a), Pub. L. No. 108-357, 118 Stat. 1418, 1575–76. It
did two things. First, it imposed penalties for failure to disclose
information with respect to a “reportable transaction.” § 6707A(a)
and (b). Second, it defined “reportable transaction” and “listed
transaction” (a subcategory of reportable transaction) by reference to the
IRS’s process for identifying those transactions in the already-existing
regulations under section 6011. Section 6707A(c)(1) confirmed the IRS’s
authority to “determine[] under regulations prescribed under section
6011” whether a transaction is “of a type which the [IRS] determines as
having a potential for tax avoidance or evasion,” thereby making it a
“reportable transaction.” A reportable transaction that is “the same as,
or substantially similar to, a transaction specifically identified by the
[IRS] as a tax avoidance transaction for purposes of section 6011” is a
“listed transaction.” § 6707A(c)(2).
Pursuant to this authority, the IRS identified syndicated
conservation easement transactions as listed transactions in I.R.S.
Notice 2017-10, 2017-4 I.R.B. 544. 1 They joined a list first issued in 2000
that originally included 7 transactions, added 23 more transactions by
the time the AJCA was enacted, and added 5 more by the time Notice
2017-10 was issued (making syndicated conservation easement
transactions the 36th). See Recognized Abusive and Listed Transactions,
IRS, https://www.irs.gov/businesses/corporations/listed-transactions
(last visited Aug. 1, 2022). 2
I agree with the opinion of the Court that Notice 2017-10 is a
legislative rule. “[A] substantive or legislative rule, pursuant to properly
delegated authority, has the force of law, and creates new law or imposes
new rights or duties.” Jerri’s Ceramic Arts, Inc. v. Consumer Prod. Safety
Comm’n, 874 F.2d 205, 207 (4th Cir. 1989). By identifying syndicated
conservation easement transactions as listed transactions, Notice
2017-10 exposed taxpayers and representatives required to disclose
these transactions under Treasury Regulation § 1.6011-4 to stiff
1 The opinion of the Court and my concurrence address the validity of Notice
2017-10 only, not the tax treatment of the underlying transaction.
2 No transactions have been added to the list since Notice 2017-10.
26
penalties under section 6707A for failure to disclose. Notice 2017-10, § 3,
2017-4 I.R.B. at 546; see also op. Ct. pp. 8–15 (discussing obligations
imposed by Notice 2017-10 on taxpayers and material advisors).
And the IRS used authority delegated to it under sections 6011
and 6707A to do so. See CIC Servs., LLC v. IRS, 141 S. Ct. 1582, 1587
(2021) (noting that “the Code [through sections 6011 and 6707A]
delegates to the Secretary of the Treasury, acting through the IRS, the
task of identifying particular transactions with the requisite risk of tax
abuse” and stating the IRS “[u]se[d] that authority” to determine “that
so-called micro-captive transactions must be reported because of their
potential for tax evasion”); see also Mann Constr., Inc. v. United States,
27 F.4th 1138, 1144 (6th Cir. 2022) (stating that “the reality” is “that
the relevant statutory terms [section 6707A(c)] are not self-defining,
which explains why Congress delegated to the IRS authority to
‘determine[]’ and ‘identif[y]’ which transactions need to be reported”).
“When an agency relies on expressly delegated authority to establish
policy . . . courts generally treat the agency action as legislative, rather
than interpretive, rulemaking.” Children’s Hosp. of the King’s
Daughters, Inc. v. Azar, 896 F.3d 615, 622 (4th Cir. 2018) (citations
omitted) (holding that a U.S. Department of Health & Human Services
policy for calculating the amount of financial assistance available to
certain hospitals set forth in a Frequently Asked Questions document is
a legislative rule in part because the agency relied on statutorily
delegated authority to “determine[]” what constitutes “costs incurred”).
In general a legislative rule is subject to the notice-and-comment
requirements of the Administrative Procedure Act (APA) under 5 U.S.C.
§ 553(b). SIH Partners LLLP v. Commissioner, 150 T.C. 28, 41 (2018),
aff’d, 923 F.3d 296 (3d Cir. 2019). The parties agree that issuance of
Notice 2017-10 did not comply with these notice-and-comment
requirements.
The APA enumerates exceptions to its general rule of notice-and-
comment rulemaking, including “when the agency for good cause finds
(and incorporates the finding and a brief statement of reasons therefore
in the rules issued) that notice and public procedure thereon are
impracticable, unnecessary, or contrary to the public interest.” 5 U.S.C.
§ 553(b)(B). The IRS did not invoke the good cause exception when it
issued Notice 2017-10. See op. Ct. p. 16.
Another exception to the notice-and-comment requirement is a
necessary consequence of courts’ applying a basic precept of statutory
27
construction: “[O]ne legislature cannot abridge the powers of a
succeeding legislature.” Fletcher v. Peck, 10 U.S. (6 Cranch) 87, 135
(1810). A succeeding legislature can alter a prior legislative act “when
the legislature shall please to alter it.” Marbury v. Madison, 5 U.S.
(1 Cranch) 137, 177 (1803). As Justice Scalia wrote in his concurrence in
Lockhart v. United States, 546 U.S. 142, 148 (2005):
Among the powers of a legislature that a prior
legislature cannot abridge is, of course, the power to make
its will known in whatever fashion it deems appropriate—
including the repeal of pre-existing provisions by simply
and clearly contradicting them. Thus, in Marcello v. Bonds,
349 U.S. 302 (1955), we interpreted the Immigration and
Nationality Act [(INA), ch. 477, 66 Stat. 163 (1952),] as
impliedly exempting deportation hearings from the
procedures of the [APA], despite the requirement in § 12 of
the APA that “[n]o subsequent legislation shall be held to
supersede or modify the provisions of this Act except to the
extent that such legislation shall do so expressly,” 60 Stat.
244. The Court refused “to require the Congress to employ
magical passwords in order to effectuate an exemption
from the Administrative Procedure Act.” 349 U.S., at 310.
We have made clear in other cases as well, that an express-
reference or express-statement provision cannot nullify the
unambiguous import of a subsequent statute. In Great
Northern R. Co. v. United States, 208 U.S. 452, 465 (1908),
we said of an express-statement requirement that “[a]s the
section . . . in question has only the force of a statute, its
provisions cannot justify a disregard of the will of Congress
as manifested either expressly or by necessary implication
in a subsequent enactment.” (Emphasis added.) A
subsequent Congress, we have said, may exempt itself from
such requirements by “fair implication”—that is, without
an express statement. Warden v. Marrero, 417 U.S. 653,
659–660, n. 10 (1974). See also Hertz v. Woodman, 218 U.S.
205, 218 (1910).
The opinion of the Court cites Justice Scalia’s concurrence in
Lockhart for the proposition that the APA’s express-statement
requirement is consistent with the presumption against implied repeals.
See op. Ct. p. 16. And Justice Scalia acknowledges the Supreme Court’s
admonition in Marcello that exemptions from the APA are “not lightly
to be presumed” in the light of the APA’s express-statement
28
requirement. 5 U.S.C. § 559; Lockhart, 546 U.S. at 148–49; see Marcello,
349 U.S. at 310. But he then states that this assertion “may add little or
nothing to our already-powerful presumption against implied repeals.”
Lockhart, 546 U.S. at 149 (“An implied repeal will only be found where
provisions in two statutes are in irreconcilable conflict, or where the
latter Act covers the whole subject of the earlier one and is clearly
intended as a substitute.” (quoting Branch v. Smith, 538 U.S. 254, 273
(2003))). Justice Scalia’s stated reason for writing separately was to
emphasize that express-statement requirements are not binding and
that “[w]hen the plain import of a later statute directly conflicts with an
earlier statute, the later enactment governs, regardless of its compliance
with any earlier-enacted requirement of an express reference or other
‘magical password.’” Id. at 147, 149; see also Dorsey v. United States, 567
U.S. 260, 274–75 (2012) (quoting this statement when describing the
requisite inquiry as not a search for a magical password but rather for
assurance that “ordinary interpretive considerations point clearly in
th[e] direction” of superseding an express-statement requirement). I
understand Justice Scalia (and the Supreme Court) to be cautioning us
not to elevate express-statement requirements to exalted status or to
gloss over the text of the later enacted statute in the name of
“fundamental APA principles.” See op. Ct. p. 20.
Our task, then, is to read the later statute (section 6707A) and
determine whether its plain import directly conflicts with an earlier
statute (5 U.S.C. § 553(b)). Stated differently, we must decide “whether
Congress has established procedures so clearly different from those
required by the APA that it must have intended to displace the norm.”
Asiana Airlines v. FAA, 134 F.3d 393, 397 (D.C. Cir. 1998) (analyzing a
non-APA statutory scheme for potential conflict with the APA’s baseline
rule of notice and comment).
This analysis will produce a range of results. Some procedures
will fall on the “irreconcilable-with-the-APA” side of the line. See, e.g.,
Marcello, 349 U.S. at 309 (holding that INA procedures superseded the
APA’s notice-and-comment requirement because, among other reasons,
Congress mandated that the INA procedures “shall be the sole and
exclusive procedure for determining the deportability of an alien under
this section” (quoting INA § 242(b), 66 Stat. at 210)); Asiana Airlines,
134 F.3d at 398 (holding statute mandating that the FAA “publish in
the Federal Register an initial fee schedule and associated collection
process as an interim final rule, pursuant to which public comment will
be sought and a final rule issued” superseded the APA’s notice-and-
comment requirement because it required the FAA to follow procedures
29
that could not be reconciled with the APA (quoting 49 U.S.C.
§ 45301(b)(2))). Other procedures will fall on the “coexistence-with-the-
APA” side of the line. See, e.g., Coal. for Parity, Inc. v. Sebelius, 709 F.
Supp. 2d 10, 17, 19 (D.D.C. 2010) (holding statute providing that an
agency “may promulgate any interim final rules as the Secretary
determines are appropriate to carry out this [part]” did not supersede
the APA because the enabling provision was “permissive,” “wide-
ranging,” and “d[id] not contain any specific deadlines for agency
action”).
There is little doubt that in enacting section 6707A Congress
knew about and endorsed the existing administrative procedure for
determining reportable transactions and identifying listed ones. The
statute defines the terms by reference to the procedure by which the IRS
determines or identifies them. See § 6707A(c)(1) (defining a “reportable
transaction” by reference to the IRS’s “determin[ation] under
regulations prescribed under section 6011” that the transaction has a
potential for tax avoidance or evasion); § 6707A(c)(2) (defining “listed
transaction” by reference to “a transaction specifically identified by the
Secretary as a tax avoidance transaction for purposes of section 6011”).
Specifically, the procedure invoked by section 6707A is
“identifi[cation] by notice,[3] regulation, or other form of published
3 Here, “notice” refers to an IRS notice—“a public pronouncement by the
[Internal Revenue] Service that may contain guidance that involves substantive
interpretations of the Internal Revenue Code or other provisions of the law” and is
published in the Internal Revenue Bulletin, Internal Revenue Manual 32.2.2.3.3 (Aug.
11, 2004); it should be distinguished from a “notice of proposed rulemaking” published
in the Federal Register pursuant to the APA, 5 U.S.C. § 553(b); see, e.g., Treas. Reg.
§ 1.6662-3(b)(2) (“The term ‘rules or regulations’ includes the provisions of the Internal
Revenue Code, temporary or final Treasury regulations issued under the Code, and
revenue rulings or notices (other than notices of proposed rulemaking) issued by the
Internal Revenue Service and published in the Internal Revenue Bulletin.” (Emphasis
added.)).
We have concluded in other contexts that IRS notices are mere statements of
the Commissioner’s position and lack the force of law. Phillips Petroleum Co. v.
Commissioner, 101 T.C. 78, 99 n.17 (1993), aff’d, 70 F.3d 1282 (10th Cir. 1995). Here,
by contrast, we have concluded that Notice 2017-10 is a legislative rule because it
imposes substantive obligations on taxpayers by operation of section 6707A.
Because we are to presume Congress is aware of existing law, including
existing regulations, I am more confident than the majority, see op. Ct. p. 19, that
Congress understood that the IRS had already identified and would continue to
identify transactions as listed, perhaps even by issuing notices. But, as I explain below,
30
guidance.” Treas. Reg. § 1.6011-4. This existing procedure “under
regulations prescribed under section 6011” of determining reportable
transactions and identifying listed ones was introduced in temporary
regulations in 2000 that were finalized in 2003. T.D. 9046, 2003-1 C.B.
614, 616, 68 Fed. Reg. 10,161, 10,163 (Mar. 4, 2003).
“Congress is presumed to be aware of an administrative or
judicial interpretation of a statute and to adopt that interpretation when
it re-enacts a statute without change.” Lorillard v. Pons, 434 U.S. 575,
580–81 (1978) (citations omitted). “So too, where . . . Congress adopts a
new law incorporating sections of a prior law, Congress normally can be
presumed to have had knowledge of the interpretation given to the
incorporated law, at least insofar as it affects the new statute.” Id. at
581. We thus presume that Congress knew of Treasury’s (and the IRS’s)
interpretation of section 6011 in the reportable and listed transaction
disclosure regulations when Congress enacted section 6707A in 2004.
Therefore, section 6707A is a “[s]ubsequent statute” that adopts a
procedure that could potentially “supersede or modify” the general APA
requirement in 5 U.S.C. § 553 that legislative rules must go through
notice and comment. 5 U.S.C. § 559.
The opinion of the Court discounts these principles of statutory
construction and the history of section 6707A. It begins its analysis with
its conclusion that “section 6707A offers no express indication from
Congress exempting the IRS from the standard notice-and-comment
rulemaking.” See op. Ct. p. 19. It is difficult to conjure up what would
satisfy this requirement short of a magical password, to wit, “the APA
is displaced.” And I respectfully disagree with its dismissal of section
6707A(c) as mere “definitional text” that “only links” the statutory
penalties to the regulatory scheme, and its summary adoption of the
U.S. Court of Appeals for the Sixth Circuit’s conclusion that section
6707A(c) “addresses a ‘which transactions’ question, not a ‘what process’
question.” See op. Ct. p. 20 (quoting Mann Constr., 27 F.4th at 1146). 4
I do not believe that this presumption that Congress knew about the IRS procedure for
listing transactions by notice wins the day for the IRS. And on this point, the majority
and I do agree.
4 Our decision in this case is appealable to the U.S. Court of Appeals for the
Fourth Circuit. See § 7482(b)(1); Golsen v. Commissioner, 54 T.C. 742, 756–57 (1970),
aff’d, 445 F.2d 985 (10th Cir. 1971). As a court of nationwide jurisdiction, we should
not simply adopt the opinion of another circuit, but rather are obliged to perform the
necessary analysis of section 6707A ourselves, situating it among the range of
31
Two additional points also respond to this conclusion in the
opinion of the Court. First, whereas the opinion of the Court starts (and
apparently ends) with the heading of section 6707A(c), see op. Ct. p. 20
(“This definitional text . . . .”), I would begin with the text of section
6707A. See Yates v. United States, 574 U.S. 528, 553 (2015) (Kagan, J.,
dissenting). Second, despite (or in contradiction of) its conclusion that
section 6707A addresses a “which transactions” question, the Sixth
Circuit also recognized “the reality that the relevant statutory terms
[section 6707A(c)(1) and (2)] are not self-defining, which explains why
Congress delegated to the IRS authority to ‘determine[]’ and ‘identif[y]’
which transactions need to be reported.” Mann Constr., 27 F.4th at 1144.
That is, the statute points elsewhere: to the “regulations prescribed
under section 6011” and their method for determining reportable
transactions and identifying listed transactions. By failing to follow
where the statute leads, the opinion of the Court implies that Congress
cannot adopt procedures by referencing them in a statute. This abridges
“the power [of Congress] to make its will known in whatever fashion it
deems appropriate.” Lockhart, 546 U.S. at 148 (Scalia, J., concurring).
The remaining question then is whether, in adopting this
procedure by reference, Congress “must have intended to displace the
norm” of APA notice and comment because the adopted procedure is “so
clearly different from” it. Asiana Airlines, 134 F.3d at 397.
The procedures at issue in Marcello and Asiana Airlines set a high
bar for “displacing the norm” of APA notice and comment. In both
Congress mandated that the agency use a procedure different from or in
direct conflict with the one in the APA. The statute in Marcello provided
an alternate procedure and stated that it “shall be the sole and exclusive
procedure.” 349 U.S. at 309 (quoting INA § 242(b)). The statute in
Asiana Airlines required the use of a procedure that, by its terms,
“cannot be reconciled with the notice and comment requirements of [the
APA].” 134 F.3d at 398 (“[T]he agency was to issue not a proposed rule,
but an ‘interim final rule,’ and comment was to be sought ‘pursuant to,’
not in anticipation of, that rule.” (quoting 49 U.S.C. § 45301(b)(2))).
Here, Congress did not mandate a specific alternative rulemaking
procedure different from or in direct conflict with the APA. Rather,
section 6707A authorized the IRS to identify listed transactions “by
notice, regulation, or other form of published guidance,” Treas. Reg.
statutory provisions that may or may not have displaced APA notice-and-comment
rulemaking.
32
§ 1.6011-4(b)(2), permissive text more similar to that in Coalition for
Parity, Inc., 709 F. Supp. 2d at 19. And the procedure “by notice,
regulation, or other form of published guidance” can, by its terms, be
reconciled with the APA; nothing in it directly conflicts with the APA
like the “sole and exclusive” or “interim final rule, pursuant to which
public comment will be sought” procedures at issue in Marcello and
Asiana Airlines.
Any argument to the contrary puts a great deal of weight on the
contention that identification “by notice” is irreconcilable with the APA.
And the weight that the phrase “by notice” can bear is circumscribed by
the adoption of penalties in section 6707A to give force to the listed
transaction regime. To conclude that Congress was ratifying the IRS’s
pre-AJCA practice of listing transactions without notice and comment
we must explain why, after section 6707A added penalties, notice and
comment could not be required for future notices. 5 The imposition of
penalties is, after all, a critical reason we conclude that the listing of a
transaction is a legislative rule subject to APA notice and comment.
I would be loath to supplant the APA requirements even if I could
come up with my own policy justification for their nonapplication; that
is not our place, but Congress’. Congress also is presumed to be aware
that to supersede APA notice and comment, it must do so “expressly,”
see 5 U.S.C. § 559, or by “necessary implication,” “clear implication,” or
“fair implication,” see Dorsey, 567 U.S. at 274–75. And a policy
justification for skipping notice and comment does not necessarily
render a statutory scheme irreconcilable with the APA.
Finally, it is worth noting that if notice-and-comment rulemaking
impedes the IRS’s ability to identify transactions with the potential for
tax avoidance or evasion, the APA and the Internal Revenue Code
already provide options. Under the APA, the IRS could invoke the good
cause exception, as it did when issuing regulations targeting another
listed transaction, the so-called Son-of-Boss transaction, for example.
See T.D. 9062, 2003-2 C.B. 46, 48 (“These temporary regulations are
necessary to prevent abusive transactions of the type described in the
Notice 2000-44. Accordingly, good cause is found for dispensing with
notice and public procedure pursuant to 5 U.S.C. 553(b)(B) and for
5 Our holding does not invalidate notices that had been issued before Congress
enacted penalties. Those notices are not before us today and the circumstances
surrounding their issuance are distinguishable. And Congress would be presumed to
know about and adopt pre-existing notices when it adopted pre-existing procedures for
identifying listed transactions.
33
dispensing with a delayed effective date pursuant to 5 U.S.C. 553(d)(1)
and (3).”). And under section 7805(b)(3), the IRS “may provide that any
regulation may take effect or apply retroactively to prevent abuse.”
In sum, I concur in the result because the procedure referenced
by section 6707A—“identifi[cation] by notice, regulation, or other form
of published guidance” by the IRS, Treas. Reg. § 1.6011-4(b)(2)—is not a
“procedure[] so clearly different from [that] required by the APA that it
must have intended to displace the norm,” Asiana Airlines, 134 F.3d
at 397.
KERRIGAN, PARIS, ASHFORD, and COPELAND, JJ., agree
with this opinion concurring in the result.
34
TORO, J., concurring in the result: As the opinion of the Court
and Judge Pugh correctly conclude, I.R.S. Notice 2017-10, 2017-4 I.R.B.
544, which identified the type of transaction at issue in this case as a
listed transaction, is a legislative rule under the Administrative
Procedure Act (APA). See 5 U.S.C. §§ 551, 553. But the Internal
Revenue Service (IRS) did not follow the APA’s notice-and-comment
procedures when adopting the rule. See 5 U.S.C. § 553(b) and (c).
Therefore, to resolve this case, we must decide whether the American
Jobs Creation Act of 2004 (AJCA), Pub. L. No. 108-357, 118 Stat. 1418,
exempted the Secretary of the Treasury from following the APA’s
requirements for purposes of identifying listed transactions after the
enactment of the AJCA. See 5 U.S.C. § 559. If not, then the
section 6662A penalty determined by the Commissioner here cannot
apply.
The parties’ dispute focuses on section 6707A(c), and in
particular, whether that provision adopted by reference Treasury
Regulation § 1.6011-4, T.D. 9046, 2003-1 C.B. 614, 616, 68 Fed. Reg.
10,163 (Mar. 4, 2003) (2003 regulation). 1 In my view, it is unnecessary
to decide whether Congress did or did not incorporate the 2003
regulation in section 6707A(c). Even if (for the sake of analysis) I were
to agree with the Commissioner that (1) the 2003 regulation established
procedures for identifying listed transactions and (2) Congress adopted
those procedures by reference when enacting section 6707A(c), the
Commissioner still would not prevail because the procedures reflected
in the 2003 regulation are not, by their terms, inconsistent with the
APA. Put another way, the Commissioner could have followed both the
procedures set out in the 2003 regulation and the APA when issuing
Notice 2017-10.
Specifically, contrary to the Commissioner’s position, the
statement in the 2003 regulation that the IRS may identify listed
transactions “by notice,” see Treas. Reg. § 1.6011-4(b)(2), is fully
compatible with the APA. For example, the IRS could comply with the
APA by issuing a notice that establishes good cause for proceeding
without a prior opportunity for comment. See 5 U.S.C. § 553(b)(B).
Moreover, as Judge Pugh observes, see Pugh concurring op. p. 32, “the
weight that the [pre-AJCA regulatory] phrase ‘by notice’ can bear is
1 The regulation has since been amended, but for purposes of this discussion I
focus on the version that was in effect before the adoption of the AJCA. One pre-AJCA
amendment, see T.D. 9108, 2004-1 C.B. 429, 68 Fed. Reg. 75,128 (Dec. 30, 2003), had
no effect on the provisions discussed.
35
circumscribed by [Congress’s] adoption of” a new and significant
enforcement mechanism. “The imposition of penalties is, after all, a
critical reason we conclude that the listing of a transaction is a
legislative rule subject to APA notice and comment.” See Pugh
concurring op. p. 32. I am not persuaded that Congress, when
instituting this penalty regime, intended to strip away the protections
of the APA for future listed transactions, see, e.g., Azar v. Allina Health
Servs., 139 S. Ct. 1804, 1816 (2019) (explaining that the purpose of
notice-and-comment rulemaking is to “give[] affected parties fair
warning of potential changes in the law and an opportunity to be heard
on those changes” while “afford[ing] the agency a chance to avoid errors
and make a more informed decision”); Dep’t of Homeland Sec. v. Regents
of the Univ. of Cal., 140 S. Ct. 1891, 1929 n.13 (2020) (Thomas, J.,
concurring in the judgment in part, dissenting in part) (“[T]he notice and
comment process at least attempts to provide a ‘surrogate political
process’ that takes some of the sting out of the inherently undemocratic
and unaccountable rulemaking process.” (quoting Michael Asimow,
Interim-Final Rules: Making Haste Slowly, 51 Admin. L. Rev. 703, 708
(1999))), or to ratify a practice developed for a fundamentally different
context, i.e., the IRS’s pre-AJCA practice of listing transactions without
notice and comment and without a showing of good cause for not
providing notice and comment.
Absent conflict in the instructions Congress provided in the AJCA
and the instructions Congress provided in the APA, the Commissioner
had an obligation to follow both. See Posadas v. Nat’l City Bank, 296
U.S. 497, 503 (1936) (“Where there are two acts upon the same subject,
effect should be given to both if possible.”); see also Dorsey v. United
States, 567 U.S. 260, 274 (2012) (discussing the standard for departures
from the APA); Nat’l City Bank, 296 U.S. at 503 (discussing the standard
for implied repeals); Lockhart v. United States, 546 U.S. 142, 149 (2005)
(Scalia, J., concurring) (discussing the standard for implied repeals). As
all agree, this the Commissioner did not do. Accordingly, the section 6662A
penalty may not be sustained, as the opinion of the Court properly
concludes.
I write separately to offer a few observations on the extent to
which section 6707A(c) might be viewed as incorporating the 2003
regulation, given the focus on this issue by the parties and my
colleagues.
36
AJCA Background
To begin with, I agree with Judge Pugh and the Commissioner
that the context in which Congress enacted section 6707A and the other
provisions of the AJCA is important. See Marcello v. Bonds, 349 U.S.
302, 310 (1955) (noting that the Court could not “ignore the background
of the . . . legislation”). To summarize the context here, in 2000, in an
effort to address tax shelters, the U.S. Department of the Treasury and
the IRS issued temporary and proposed regulations under section 6011.
See Temp. Treas. Reg. § 1.6011-4T, 65 Fed. Reg. 11,205 (Mar. 2, 2000);
Prop. Treas. Reg. § 1.6011-4, 65 Fed. Reg. 11,271 (Mar. 2, 2000). The
regulations, which were finalized in 2003 after several rounds of
revision, 2 required taxpayers to provide information with respect to
“reportable transactions,” see Treas. Reg. § 1.6011-4(a), a category that
was defined to include “listed transactions,” see id. para. (b)(1) and (2).
Thus, the statutory terms we are focused on in this case were first
defined by temporary and proposed regulations culminating in the 2003
regulation.
When it adopted the AJCA in 2004, Congress established new
penalties and other rules that hinged on the terms “reportable
transaction” and “listed transaction.” See, e.g., AJCA §§ 811 and 812,
814–816, 118 Stat. at 1575–84. 3 Congress appears to have drawn on the
regulatory definitions of those terms to craft the statutory definitions.
See I.R.C. § 6707A(c); Treas. Reg. § 1.6011-4(b)(1) and (2). Additionally,
the statutory definitions refer to “determin[ations] under regulations
prescribed under section 6011,” see I.R.C. § 6707A(c)(1), and to
“identif[ications] . . . for purposes of section 6011,” see I.R.C.
§ 6707A(c)(2). So, in my view, there is no doubt that Congress
“legislated against the backdrop of [the 2003 regulation]” when it
enacted the AJCA, as the Commissioner contends, see Resp’t’s Mem. in
Supp. of Obj. to Mot. for Partial Summ. J. 35, and that Congress sought,
2 The revisions included changes made later in 2000, see Temp. Treas. Reg.
§ 1.6011-4T, 65 Fed. Reg. 49,909 (Aug. 16, 2000); Prop. Treas. Reg. § 1.6011-4, 65 Fed.
Reg. 49,955 (Aug. 16, 2000), one set of changes in 2001, see Temp. Treas. Reg. § 1.6011-
4T, 66 Fed. Reg. 41,133 (Aug. 7, 2001); Prop. Treas. Reg. § 1.6011-4, 66 Fed. Reg. 41,169(Aug. 7, 2001), and two sets of changes in 2002, see Temp. Treas. Reg. § 1.6011-4T, 67
Fed. Reg. 41,324 (June 18, 2002); Prop. Treas. Reg. § 1.6011-4, 67 Fed. Reg. 41,362(June 18, 2002); Temp. Treas. Reg. § 1.6011-4T, 67 Fed. Reg. 64,799 (Oct. 22, 2002);
Prop. Treas. Reg. § 1.6011-4, 67 Fed. Reg. 64,840 (Oct. 22, 2002).
3 These penalties and rules appear in sections 6111, 6112, 6501, 6662A, 6664,
6707, and 6707A, among others.
37
at least to some extent, to incorporate the structure Treasury and the
IRS had established there into the new penalty regime.
But this general observation is insufficient to determine with
precision what Congress incorporated when it enacted section 6707A(c).
To answer that question, I turn to the text of the provisions at issue. See
Nat’l Fed’n of Indep. Bus. v. Sebelius (NFIB), 567 U.S. 519, 544 (2012)
(“[T]he best evidence of Congress’s intent is the statutory text.”); United
States v. Am. Trucking Ass’ns, 310 U.S. 534, 543 (1940) (“There is . . . no
more persuasive evidence of the purpose of a statute than the words by
which the legislature undertook to give expression to its wishes.”);
Grajales v. Commissioner, 156 T.C. 55, 61 (2021) (“NFIB, 567 U.S. 544,
directs us to look to the statutory text as ‘the best evidence of Congress’s
intent.’ ”), aff’d, 47 F.4th 58 (2d Cir. 2022).
Section 6662A Penalty and Section 6707A(c) Definitions
The question ultimately before the Court is whether petitioner
may be held liable for the penalty imposed by section 6662A. That
penalty applies if a taxpayer’s return reflects a “reportable transaction
understatement,” which includes, among others, items attributable to
“any listed transaction.” I.R.C. § 6662A(a) and (b). Section 6662A(d)
defines the terms “listed transaction” and “reportable transaction” by
reference to “the respective meanings given to such terms by section
6707A(c).”
Section 6707A(c)(2) tells us that “[t]he term ‘listed transaction’
means a reportable transaction which is the same as, or substantially
similar to, a transaction specifically identified by the Secretary as a tax
avoidance transaction for purposes of section 6011.” In other words, a
listed transaction is a reportable transaction with certain characteristics.
The term “reportable transaction” is also a defined term. It
means “any transaction with respect to which information is required to
be included with a return or statement because, as determined under
regulations prescribed under section 6011, such transaction is of a type
which the Secretary determines as having a potential for tax avoidance
or evasion.” I.R.C. § 6707A(c)(1).
Analysis
Several observations relevant to the APA analysis follow from the
statutory text. First, neither section 6662A nor section 6707A (or, for
that matter, section 6011) refers to the APA. Second, although
38
section 6707A(c)(2), which defines listed transactions, contemplates
that the Secretary must “specifically identif[y]” certain types of
transactions as having the characteristics required to be listed
transactions, the statute is silent on how that identification should be
made. Third, section 6707A(c)(1), which defines reportable transactions,
is more explicit about the Secretary’s procedural responsibilities. It
provides that the authority contemplated by it—that is, the authority to
require certain information to be included with a return or statement
for a specific reason—will be exercised “as determined under regulations
prescribed under section 6011.”
Nothing in the statutory text thus expressly turns off the APA
requirements that would otherwise govern the Secretary’s designation of
a listed transaction under section 6707A(c)(2). See 5 U.S.C. § 559.
Moreover, I see nothing in the text of section 6707A(c)(2) that gives rise
to a “fair” implication of a departure from the APA requirements, let
alone a “necessary” or “clear” one. See Dorsey, 567 U.S. at 274.
The Commissioner, however, contends that Congress’s use of the
clause “as determined under regulations prescribed under section 6011”
in defining reportable transactions, I.R.C. § 6707A(c)(1), signals its wish
to supplant the APA’s procedures in favor of the 2003 regulatory
provision. That regulation defines listed transactions to include
transactions that the IRS “identified by notice, regulation, or other form
of published guidance as a listed transaction.” Treas. Reg. § 1.6011-
4(b)(2). I am skeptical that the “as determined” clause bears the weight
the Commissioner places on it, for a few reasons.
To begin, it is worth noting that the “as determined” clause (with
its reference to regulations under section 6011) appears in the definition
of the term “reportable transaction” in section 6707A(c)(1), but is absent
from the definition of the term “listed transaction” in section 6707A(c)(2).
The term that matters most in deciding this case is “listed transaction,”
not “reportable transaction.” 4 And courts assume that when Congress
includes specific language in one provision and excludes it from a
neighboring provision, it does so intentionally. See, e.g., Loughrin v.
United States, 573 U.S. 351, 358 (2014) (“We have often noted that when
‘Congress includes particular language in one section of a statute but
4 The Commissioner asserts that the returns in this case improperly reported
a listed transaction. See I.R.C. § 6662A(a) and (b)(1) and (2)(A). He does not assert
that the returns reported a reportable transaction other than a listed transaction with
a significant purpose of avoiding or evading federal income tax. See I.R.C.
§ 6662A(b)(2)(B).
39
omits it in another’—let alone in the very next provision—this Court
‘presume[s]’ that Congress intended a difference in meaning.” (quoting
Russello v. United States, 464 U.S. 16, 23 (1983))); Grajales v.
Commissioner, 47 F.4th at 62 (2d Cir. 2022) (“When Congress uses
certain language in one section of the statute yet omits it in another
section of the same Act, ‘it is generally presumed that Congress acts
intentionally and purposefully in the disparate inclusion or exclusion’ of
that language.” (quoting Homaidan v. Sallie Mae, Inc., 3 F.4th 595, 602
(2d Cir. 2021))), aff’g 156 T.C. 55. Thus, whatever meaning one is
intended to glean from the “as determined” clause for purposes of section
6707A(c)(1), it does not shed much light on the procedural steps the
Secretary must take in making the specific identification called for by
section 6707A(c)(2). And it would be curious for Congress to signify its
decision to depart from APA procedures with respect to listed
transactions by adding the “as determined” clause to section 6707A(c)(1)
(which defines a reportable transaction), rather than section 6707A(c)(2)
(which defines a listed transaction). Put differently, one would have
expected instructions about how the Secretary must “specifically
identif[y]” the transactions that should be listed in the definition of that
term, rather than in the definition of the more general “reportable
transaction.”
Furthermore, the 2003 regulation was focused on the
characteristics of reportable transactions and not on processes for
identifying them. Indeed, it did not contain any overall provisions
prescribing any process the Secretary would follow in identifying
reportable transactions. Rather, it simply provided that “[a] reportable
transaction is a transaction described in any of the paragraphs (b)(2)
through (7) of this section.” Treas. Reg. § 1.6011-4(b)(1). It went on to
explain that “[t]here are six categories of reportable transactions: listed
transactions, confidential transactions, transactions with contractual
protection, loss transactions, transactions with a significant book-tax
difference, and transactions involving a brief asset holding period.” Id.The only text that may be fairly viewed as process focused in the entire
2003 regulation is a phrase of nine words in the definition of a listed
transaction, as described below. In the absence of any overall direction
in the 2003 regulation about process, it seems difficult to agree with the
Commissioner’s view that the “as determined” clause was intended to
signify a congressional decision to depart from the APA-mandated
process for administrative rulemaking.
Of course, as the Commissioner would surely point out, we are
concerned specifically with listed transactions in this case. And in
40
defining listed transactions, the 2003 regulation did specify a process,
as follows:
A listed transaction is a transaction that is the same as or
substantially similar to one of the types of transactions
that the Internal Revenue Service (IRS) has determined to
be a tax avoidance transaction and identified by notice,
regulation, or other form of published guidance as a listed
transaction.
Treas. Reg. § 1.6011-4(b)(2) (emphasis added). In the Commissioner’s
view, the “as determined” clause in section 6707A(c)(1) incorporated this
regulatory definition, including the nine procedural words highlighted
above.
This argument, however, overlooks a critical fact: When it
enacted the AJCA, Congress adopted its own statutory definition of
“listed transaction” at section 6707A(c)(2):
The term “listed transaction” means a reportable [ 5]
transaction which is the same as, or substantially similar
to, a transaction specifically identified by the Secretary as
a tax avoidance transaction for purposes of section 6011.
Comparing the two definitions, one can see that the statute essentially
paraphrases the regulatory definition with one key difference: It omits
the nine procedural words italicized above. The Commissioner’s entire
case rests on those nine words, and their omission in the statute is
notable in light of the otherwise parallel definitions.
To put this point in another way, if Congress had intended to
adopt a specific process for the Secretary to use in identifying listed
transactions, Treasury Regulation § 1.6011-4(b)(2) provided a ready
model. Yet, despite apparently incorporating other words from the
regulation into the statutory definition, Congress did not incorporate the
nine procedural words. Instead, it chose to modify them, omitting any
mention of process from section 6707A(c)(2). Faced with that
Congressional choice, I would be disinclined to read section 6707A(c)(1)
5 The regulatory definition begins by stating that a listed transaction is “a
transaction” instead of “a reportable transaction.” But the inclusion of the word
“reportable” in the statutory definition is consistent with the structure of the 2003
regulation, which defined listed transactions as a subset of reportable transactions.
See Treas. Reg. § 1.6011-4(b)(1) and (2).
41
and the “as determined” clause as a back-door way of establishing a
process for identifying listed transactions under section 6707A(c)(2) (as
the Commissioner urges). See Knight v. Commissioner, 552 U.S. 181,
188 (2008) (“The fact that [Congress] did not adopt [a] readily available
and apparent alternative strongly supports rejecting [a] reading . . .
[that relies on the rejected alternative text].”).
To summarize then, the Commissioner argues that
section 6707A(c)(1) overrides the APA by cross-referencing the 2003
regulation. But he overlooks that (1) the regulation is barely concerned
with process, mentioning it in just nine words in the definition of listed
transaction; (2) Congress adopted a statutory definition of listed
transaction that paraphrases the regulation but excludes the nine
procedural words; and (3) unlike the definition of reportable transaction
in section 6707A(c)(1), the definition of listed transaction in
section 6707A(c)(2), which is what we are primarily concerned with
here, does not include a cross-reference to regulations under
section 6011.
All of this suggests that the “as determined” clause in
section 6707A(c)(1) is an awfully thin reed to support an express or
implied departure from the APA. See 5 U.S.C. § 559. Although I do not
think we need to decide the issue to dispose of this case, it seems to me
difficult to conclude that Congress incorporated in section 6707A(c) the
process set in the 2003 regulation when Congress seems to have gone
out of its way to exclude the process-related words of the regulation from
the text that it used.
With these observations, I agree with the opinion of the Court’s
disposition of the section 6662A penalty issue.
COPELAND, J., agrees with this opinion concurring in the result.
42
GALE, J., dissenting: In my view, in enacting section 6707A, with
its express reference to the regulations under section 6011, Congress
intended to except the identification of “listed transactions” from the
notice-and-comment requirements of the Administrative Procedure Act
(APA). See 5 U.S.C. § 553(b). I would first note that I agree with the
lion’s share of the analysis in Judge Pugh’s concurring opinion,
including the conclusion that the Internal Revenue Service’s
identification of syndicated conservation easement transactions as
listed transactions is a legislative rule. Importantly, I agree with its
critique of the opinion of the Court’s and the Court of Appeals for the
Sixth Circuit’s conclusion that the reference in section 6707A to the
section 6011 regulations “addresses a ‘which transactions’ question, not
a ‘what process’ question.” See op. Ct. p. 20 (quoting Mann Constr., Inc.
v. United States, 27 F.4th 1138, 1146 (6th Cir. 2022)). Instead, I
conclude that the reference to the section 6011 regulations goes to the
heart of the process question.
And, as Judge Pugh notes, the procedure in the section 6011
regulations for making a transaction a “listed” one, subject to disclosure
requirements, that is referenced in section 6707A for penalty purposes,
is “identifi[cation] by notice, regulation, or other form of published
guidance.” Treas. Reg. § 1.6011-4(b)(2) (2003) (emphasis added). The
reference to identification “by notice” is significant. A “notice” is a long
recognized species of written guidance published by the Internal
Revenue Service “when the Service determines that a public concern
requires a speedy response” and is correspondingly “[i]ssued without
public notice and comment.” Stephanie Hunter McMahon, Classifying
Tax Guidance According to End Users, 73 Tax Law. 245, 256–58 (2020).
This type of “notice” is to be distinguished from the notice entailed in
notice-and-comment rulemaking enumerated in the APA. See 5 U.S.C.
§ 553(b).
Regulations under section 6011 permitting the identification of
listed transactions “by notice” were first promulgated as temporary and
proposed regulations in 2000. See T.D. 8877, 2000-1 C.B. 747; Prop.
Treas. Reg. § 1.6011-4, 65 Fed. Reg. 11,269 (Mar. 2, 2000). The
regulations (Treas. Reg. § 1.6011-4) were made final in 2003. T.D. 9046,
2003-1 C.B. 614. By the time section 6707A was enacted in 2004, the
Service had identified 30 “listed transactions” pursuant to the section
6011 regulations, all without adherence to the notice-and-comment
requirements of the APA. “Congress is presumed to be aware of an
administrative or judicial interpretation of a statute and to adopt that
interpretation when it re-enacts a statute without change.” Lorillard v.
43
Pons, 434 U.S. 575, 580–81 (1978). “So too, where . . . Congress adopts
a new law incorporating sections of a prior law, Congress normally can
be presumed to have had knowledge of the interpretation given to the
incorporated law, at least insofar as it affects the new statute.” Id.
at 581. In this instance, Congress was not only presumptively aware
when cross-referencing the section 6011 regulations of the Service’s
interpretation of its authority under section 6011 to identify a listed
transaction without adhering to the notice-and-comment requirements
of the APA. See 5 U.S.C. § 553(b). Congress was actually aware, having
cited the temporary and final regulations permitting identification “by
notice” in all accompanying committee reports. See H.R. Rep. No.
108-755, at 595 (2004) (Conf. Rep.), as reprinted in 2004 U.S.C.C.A.N.
1341, 1649; S. Rep. No. 108-192, at 89 (2003), 2003 WL 22668223, at
*89; H.R. Rep. No. 108-548, pt. 1, at 260 (2004), 2004 WL 1380512, at
*260. Consistent with the foregoing, Judge Pugh’s concurring opinion
finds “little doubt that in enacting section 6707A Congress knew about
and endorsed the existing administrative procedure for determining
reportable transactions and identifying listed ones.” Pugh concurring
op. p. 29. Since this existing administrative procedure is
“identifi[cation] by notice, regulation or other form of published
guidance,” Judge Pugh acknowledges that it could potentially supersede
or modify the APA’s general requirement that legislative rules must go
through notice and comment. See 5 U.S.C. § 553; Pugh concurring op.
p. 30. Whether the APA has been superseded or modified depends,
Judge Pugh reasons, upon the application of a caselaw test best
summarized as “whether Congress has established procedures so clearly
different from those required by the APA that it must have intended to
displace the norm.” See 5 U.S.C. § 553; Pugh concurring op. p. 28
(quoting Asiana Airlines v. FAA, 134 F.3d 393, 397 (D.C. Cir. 1998)).
I agree with Judge Pugh that this is the appropriate test in the
circumstances. I part ways, however, with her application of the test.
Plainly put, identification of a listed transaction “by notice” cannot be
reconciled with APA notice-and-comment procedures. See 5 U.S.C.
§ 553. The latter requires prior notice to and opportunity for comment
from the public for an identification to become effective—a significant
and time-consuming set of procedural steps—while the former does not.
Congress cross-referenced and thereby incorporated the former
procedure, well-established at the time, into section 6707A. I find it very
unlikely that, in cross-referencing the extant identification procedures
in the section 6011 regulations, Congress intended as significant a
modification to them as APA notice and comment would require without
any mention of that modification in the accompanying committee
44
reports. The “necessary,” “clear,” or “fair implication,” see Dorsey v.
United States, 567 U.S. 260, 274–75 (2012), of Congress’ action in
incorporating the section 6011 regulations into the statute is that
Congress intended to displace the otherwise applicable notice-and-
comment requirements of the APA. See 5 U.S.C. § 553.
I find further support for this interpretation of section 6707A in
Congress’ subsequent enactment of section 4965 two years later. Section
4965 imposes excise taxes on tax-exempt entities and their managers for
participation in listed transactions. See Tax Increase Prevention and
Reconciliation Act of 2005, Pub. L. No. 109-222, § 516, 120 Stat. 345, 368
(2006). At that time, in its description of then-present law, the
conference report on this legislation described a listed transaction as
follows:
A listed transaction means a reportable transaction which
is the same as, or substantially similar to, a transaction
specifically identified by the Secretary as a tax avoidance
transaction for purposes of section 6011 . . . and identified
by notice, regulation, or other form of published guidance
as a listed transaction.
H.R. Rep. No. 109-455, at 125 (2006) (Conf. Rep.), as reprinted in 2006
U.S.C.C.A.N. 234, 321 (emphasis added). Thus, a subsequent Congress
understood and reconfirmed the authority of the Secretary (and the
Service as his or her designee) to identify a transaction as “listed” merely
“by notice.” The views of a subsequent Congress in a committee report
concerning the interpretation of a prior enactment are entitled to
significant weight. Seatrain Shipbuilding Corp. v. Shell Oil Co., 444
U.S. 572, 596 (1980); Sykes v. Columbus & Greenville Ry., 117 F.3d 287,
293–94 (5th Cir. 1997); United States v. Wilson, 884 F.2d 174, 178 n.7
(5th Cir. 1989); Sorrell v. Commissioner, 882 F.2d 484, 489–90 (11th Cir.
1989), rev’g T.C. Memo. 1987-351; Johnsen v. Commissioner, 794 F.2d
1157, 1163 (6th Cir. 1986), rev’g 83 T.C. 103 (1984).
Because I conclude that Congress intended in section 6707A to
displace the APA requirement of notice and comment for the
identification of listed transactions, I dissent from the opinion of the
Court.
45
NEGA, J., dissenting: The American Jobs Creation Act of 2004
(AJCA), Pub. L. No. 108-357, 118 Stat. 1418, and its legislative history
are consistent with the Congress’ decades-long effort to respond to the
kind of transactions addressed by the AJCA. Such transactions
historically have been viewed as a threat to the voluntary compliance
tax system measured in terms greater than any direct loss in revenue
from the transactions themselves. This long history set the stage for the
AJCA.
Further, I am not aware of any debate over whether the AJCA
was intended to allow the Internal Revenue Service (IRS) to improve the
administration of the tax law and enhance general compliance. In my
view, the legislation does exactly that by limiting the application of the
Administrative Procedure Act (APA), 5 U.S.C. §§ 551–559, 701–706. I
cannot agree that Congress enacted legislation so obviously in
contradiction of the APA as the majority does.
Under one basic rule of statutory interpretation, “Congress is
presumed to be aware of an administrative or judicial interpretation of
a statute and to adopt that interpretation when it re-enacts a statute
without change.” Lorillard v. Pons, 434 U.S. 575, 580–81 (1978). We can
also take judicial notice that Congress would be aware of the inherent
delays were the APA fully applicable. Congress could easily have
decided that the delays inherent in the APA were outweighed by faster
application of the AJCA to tax returns reflecting such transactions. I
believe this to be true.
The issue is whether, in adopting the IRS’s existing regulations
into the statutory scheme, Congress “must have intended to displace the
norm” of APA notice and comment because the adopted procedure is “so
clearly different from” it. Asiana Airlines v. FAA, 134 F.3d 393, 397 (D.C.
Cir. 1998). I find that to be the case.
I believe that the majority’s holding is worryingly close to a
standard requiring “magical passwords in order to effectuate an
exemption from the Administrative Procedure Act.” Marcello v. Bonds,
349 U.S 302, 310 (1955). In that case, after exhaustive analysis, the
Supreme Court found that there was enough evidence to find that the
1952 Immigration and Nationality Act did not violate the APA.
Congress was aware of the IRS’s rulemaking in this area when it
enacted the AJCA to bolster the IRS’s efforts by adding a penalty to the
existing regime. Congress ratified the existing procedures for identifying
46
these transactions even in the absence of strict adherence to the APA’s
notice-and-comment requirements in those procedures. Section
6707A(c)(1) and (2) confirm my understanding. The cross-reference to
the regulations under section 6011 constitutes strong textual evidence
of Congress’ intent to replace the ritual application of the APA in this
area.
I disagree that Congress failed to “expressly” override the
application of the APA to the IRS process incorporated into law by the
AJCA. The nature of the legislation as well as the legislative history
associated with it that the opinion of the Court finds unpersuasive leads
me to the conclusion that Congress did not intend to enact the AJCA
penalty regime subject to the time-consuming notice-and-comment
procedures of the APA. In the light of congressional knowledge of the
existence of the APA when enacting the AJCA, I cannot agree that
Congress added a penalty regime to enforce the existing IRS rulemaking
without addressing an obvious APA vulnerability, at least, to the then-
listed transactions.
For these reasons, I dissent.