News 2001

October 17 | October 15 | October 10 | September 21 | July 18 |
July 11 | June 25 | June 4 | March 21 | March 14 | March 2 | February 22 | January 30 | January 1

October 17, 2001

  • Boca Investerings Partnership v. U.S.A., No. CIV. A. 97-0602 (D.D.C. Oct. 5, 2001)

    U.S. District Judge Paul L. Friedman (D.D.C.) dealt a blow to the IRS on October 5 when he rejected its challenge to the utilization by American Home Products Corp. ("AHP") of a well known tax shelter for capital gains developed by Merrill Lynch. The Third Circuit and D.C. Circuit Courts of Appeals have previously considered and upheld IRS challenges to similar transactions in ACM Partnership v. Comm'r, 157 F.3d 231 (3d Cir. 1998), and ASA Investerings Partnership v. Comm'r, 201 F.3d 505 (D.C. Cir. 2000), respectively, although the Third Circuit decision was not unanimous. In a lengthy opinion, Judge Friedman painstakingly summarized the facts surrounding the transaction as executed by AHP and distinguished AHP's facts particularly from those of ASA Investerings. On the basis of his factual findings, Judge Friedman held that the IRS erred in determining that Boca was not a partner-ship and that Boca's ownership and sales of certain investments lacked economic substance for federal income tax purposes. Judge Friedman also rejected several alternative arguments raised by the IRS against the transaction. While there is little doubt that the government will appeal Judge Friedman's decision to the D.C. Circuit, the case nevertheless illustrates the hazards of the government's reliance upon the support of the courts in tax shelter cases and may cause the IRS and the Justice Department to rethink their approach to tax shelter litigation.

October 15, 2001

October 10, 2001

  • Gov. Gray Davis acted illegally when he seized more than $200 million worth of power contracts to keep the now bankrupt California Power Exchange from liquidating them, the 9th U.S. Circuit Court of Appeals has ruled. Judges O'Scannlain and Wood strike down the actions of California's governor in seizing more than $200,000,000.00 in power contracts to keep them from being liquidated during California's most recent energy crise. Judge Alex Kozinski wrote a strong eminent domain dissent. Read the case at:

September 21, 2001

  • Randy May argues that the Federal Advisory Committee Act's open meeting requirements are not applicable to meetings the Administration's Energy Task Force may have held with private persons on an individual basis, and that if FACA were construed to be applicable to such meetings with private individuals, it would be unconstitutional as a violation of separation of powers. Representatives Dingell and Waxman and GAO have been arguing that this information concerning Energy Task Force meetings may be required to be made available under FACA.

July 18, 2001

  • In United States v. Mead Corp., all eight members of the Supreme Court rejected Justice Scalia's view that Chevron deference should apply to all administrative interpretations that are deemed authoritative. Instead, the majority held that courts should infer that Congress intends that Chevron's "controlling weight" deference should be applied only when Congress "provides for relatively formal administrative procedure tending to foster the fairness and deliberation that should underlie a pronouncement of such force." In his July 9 column for Legal times entitled "Tug of Democracy", Randolph J. May agrees with Justice Scalia that the majority's opinion may lead to less certainty about the outcome of particular cases involving review of agency interpretations than would an across-the-board deference rule. But he says that the majority's decision "is more faithful to the constitutional structure envisioned by the Founders in which it is the function of the third branch, not the second, to, as John Marshall declared in Marbury v. Madison, "say what the law is."

July 11, 2001

June 25, 2001

  • United Dominion Industries, Inc. v. United States, Supreme Court Case No. 00-157

The issue in this case was the appropriate method of calculating the product liability loss of an affiliated group of corporations electing to file a consolidated tax return. Writing for an 8-1 majority, Justice Souter adopts the taxpayer’s interpretation of the consolidated return regulations rather than the government’s construction. The consequences for consolidated return filers, if any, notwithstanding, this case is interesting for what it says and does not say about deference and government interpretations in the tax area. Justice Souter’s majority opinion never discusses or even mentions as a possibility whether Chevron or some other deference standard might be appropriate here, but takes a de novo approach instead. Justice Stevens as the lone dissenter argues for deferring to the Secretary of the Treasury’s concerns about potential abuse and greater expertise. Yet Justice Stevens agrees with the majority’s rejection of the government’s approach, and instead would uphold the variation adopted by the Court of Appeals. In response to Justice Stevens’s call for deference, Justice Thomas wrote a concurring opinion in which he advocates construing ambiguous tax statutes and regulations against the government as the drafter.

June 4, 2001

  • In a recent article, Tom Sykes argues that serious issues arise under the Presentment lause and the separation-of-powers doctrine, as nterpreted by the majority and Justice Kennedy's concurring opinion, espectively, in Clinton v. New York, 524 U.S. 417 (1998), when the executive promulgates a regulation that trumps a federal statute in the course of the regulation's implementation of another federal statute. Sykes further argues that rule of statutory construction set forth inthe Supreme Court's recent decision in Solid Waste Agency v. Army Corpsof Engineers, 121 S.Ct. 675 (Jan. 9, 2001), requires the implemented statute to be construed so as to avoid the constitutional issue unless Congress clearly intended that the Executive promulgate a constitutionally questionable regulation. This rule of statutory construction will often result in the questionable regulation being held invalid as going beyond the authority conferred by the statute that the regulation is designed to implement. This rule of statutory construction will also often result in the regulation not receiving deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Sykes, Powerful New Arguments Against The Duplicated-Loss Provisions of the LDR, 20 Insurance Tax Review 1063 (June 2001) and 91 Tax Notes 465 (April 16, 2001).

March 21, 2001


  • Bush Administration Budget Document.
    The Bush Administration’s latest budget document, a "A Blueprint for New Beginning," was released February 28, 2001. The document contains the following tax-related proposals:
  • Social Security Reform:
    • Allow "individuals to keep some of their payroll taxes in personal retirement accounts."
    • "The Government itself must not invest Social Security funds in the private economy."

  • Tax Incentives for Purchases of Health Care:
    • "[A] a new tax credit for individuals and families who do not have access to employer-sponsored insurance."
    • "[N]ew tax provisions to extend permanently Medical Savings Accounts, help those with long-term care costs, and improve flexible spending accounts."

  • Other Tax Provisions:
    • Permanently extend the research and experimentation (R&E) Credit.
    • Eliminate the estate tax.
    • Reduce the marriage penalty.
    • Replace the current marginal income tax rates of 15, 28, 31, 36, and 39.6 percent with rates of 10, 15, 25, and 33 percent.
    • Expand the charitable deduction to non-itemizers.

  • IRS Funding Initiatives:
    • $400 million over several years to modernize IRS computer systems.
    • Continued funding for IRS's Staffing Tax Administration for Balance and Equity (STABLE) initiative, begun in 2001, to hire new IRS staff.

March 14, 2001

  • Ergonomics Rule Overturned under the Congressional Review Act
    On March 7, 2001, the U.S. House of Representatives voted 223 to 206 to overturn the Clinton Administration's stringent ergonomics rule. The day before, the Senate voted 56 to 44 to overturn the rule. The measure now goes to President Bush, who has indicated he will sign it. This is the first time the Congressional Review Act (CRA) has been used to overturn a major regulation. CRA is an appealing mechanism because it provides for review without hearings, committee approval, and amendments and limits debate to 10 hours. CRA also prohibits the issuance of any rule that is "substantially" the same as the rejected rule.

March 2, 2001

  • Supreme Court Places Important Limits on EPA
The U.S. Supreme Court’s decision in American Trucking, while it did not strike down EPA’s ozone rule under the non-delegation doctrine, did place important limits on EPA’s authority. First, writing for the Court, Justice Scalia bounded EPA’s regulatory authority in the Clean Air context by saying that any new standard needed to be "sufficient, but not more than necessary" to protect public health. This restraint was suggested by the Solicitor General in oral argument. By thus taking a major swipe at lead Industries and reaffirming the Supreme Court’s earlier pronouncement in Benzene, the Court’s application of this standard makes clear that the use of sound science will be necessary in setting standards. Secondly, the Court’s opinion does in fact recognize that the costs of compliance should be taken into account by the EPA and the states in implementing any standards. Again, at the Solicitor General’s suggestion, the Court underscored the relevance of economic efficiency and feasibility to the implementation of standards. To read the full text of this opinion, go to:
  • The Use and Misuse of Executive Orders and Other Presidential Directives
A report by Todd Gaziano of the Heritage Foundation discusses President Bill Clinton’s executive orders. The report begins: "In recent years, there has been renewed interest in the proper use and possible abuse of executive orders and other presidential directives. Many citizens and lawmakers expressed concern over the content and scope of several of President Bill Clinton's executive orders and land proclamations. Congress responded with hearings and the consideration of several bills designed to curb the President's authority to issue such directives. In an exceedingly rare act, the courts reacted by striking down one of President Clinton's executive orders, and litigation to contest the validity of other directives is ongoing.
Despite the increased public attention focused on executive orders and similar directives, public understanding regarding the legal foundation and proper uses of such presidential decrees is limited. Thus, the increased public attention generally has been accompanied by confusion and occasional misunderstandings regarding the legality and appropriateness of various presidential actions. This legal memorandum provides a general overview of the President's use of executive directives, including a discussion of the historical practice, the sources of presidential authority, the legal framework of analysis, and reform proposals related to the use and abuse of presidential Directives."

To read the memo, visit

February 22, 2001

  • Expanding Congressional Oversight Over Rulemaking.
    On October 17, 2000, President Clinton signed legislation, P.L. 106-312 (S. 1198), into law that is designed to improve congressional oversight of the rulemaking process. The new law creates a pilot program which a chairman or ranking member of a congressional committee with the proper jurisdiction could request that GAO review any federal regulation with a potential annual impact of $100 million or more on the national economy. Once such a request is made, and once a proposed regulation has been published in proposed form, GAO will have 180 days in which to submit a report containing an independent analysis to the appropriate congressional committee. GAO’s analysis must include an evaluation of the potential costs and benefits of the rule, alternative approaches in the rulemaking record, and various impact analyses. GAO would not perform a new cost-benefit analysis, but rather would examine the agency’s analysis of the new regulation. After three years, the pilot program created by the legislation will be evaluated in order to determine whether it should be extended permanently. Proponents of the measure claim that it will give Congress greater power to ensure that laws are being properly implemented.
  • Plan to Challenge Ergonomics Rules Through Congressional Review Act.
    Republican leaders in Congress are now exploring the possibility of using the 1996 Congressional Review Act (P.L. 104-121) as a means of reversing various regulations, including ergonomics rules issued by the Clinton administration last December. The ergonomics standards, which require programs designed to prevent repetitive-motion injuries in the workplace, are strongly opposed by the business community. Although the Occupational Safety and Health Administration estimates that the rule will cost businesses $4.5 billion annually, industry groups claim that the true cost will be closer to $100 billion per year. The regulations are currently scheduled to take place in October.

Senator Michael B. Enzi (R-WY) has announced plans to introduce a resolution to overturn the rules under the Congressional Review Act. Under that Act, Congress can invalidate any regulations by passing a resolution of disapproval by a simple majority vote of both houses and unlike other legislation, such a resolution is not subject to filibuster in the Senate. Although the Act permits Congress to reject an entire regulation, Congress may not modify the regulation or disapprove only a portion of it. In addition, the statute bars agencies from issuing any new rules in the same area after a disapproval vote.

The Act also provides that in order for Congress to disapprove a major regulation costing $100 million or more per year, it must do so within 60 "legislative days" in the House and within 60 "session days" in the Senate after it is published in the Federal Register. In addition, when a new rule is submitted near the end of a Congress or after it adjourns, these time limits start on the 15th day of the new session. Based on the terms of the statute and the timing of regulations last year, the House Parliamentarian has concluded that Congress can review any regulation published on or after July 13, 2000, so long as it takes action by the 60 day deadline which is scheduled to arrive sometime in mid-Spring.

In addition to the ergonomics rules, congressional leaders are also considering action to roll back certain other regulations, including those (1) withholding federal contracts from companies engaging in certain labor and other practices, (2) requiring heavy-duty trucks and busses to drastically cut tail pipe emissions by the year 2006, and (3) blocking logging and road building on 60 million acres of federal land.

  • Open Competition and Fairness Act of 2001.
    Congress is also considering legislation to directly reverse the new so-called "blacklisting" regulations aimed at withholding federal contracts from companies that engage in certain labor practices. H.R. 99, introduced on January 3, 2001 by Rep. J.D. Hayworth (R-AZ), would amend the National Labor Relations Act to prohibit discrimination against any bidder on a federally-funded contract if the discrimination is based in whole or in part on a requirement that the bidder enter into a collective bargaining agreement. This legislation is being considered an alternative to the Congressional Review Act approach. Although H.R. 99 has been referred to the House Education and the Workforce Committee, no further action has been scheduled.

  • On January 3, 2001, Rep. Gary Condit (D-CA) introduced legislation that would make it harder for Congress to pass legislation that imposes costly regulations on private business. H.R. 54 would require a Congressional Budget Office analysis and special procedures on legislation that would cost the private sector more than $100 million per year to implement. The bill would amend the Congressional Budget Act of 1974 to require the Director of CBO, in preparing estimates of the direct costs of a federal private sector mandate, to estimate the impact of the mandate on consumers, workers and small businesses, including any disproportionate impact in particular regions or industries. In addition to the CBO analysis, the bill would also allow members of Congress to raise a point of order against any covered bill, permitting a twenty-minute debate on the cost issue and a roll call vote. Similar measures are currently in effect for legislation that would cost state and local governments $50 million a year or more. Rep. Condit sponsored similar legislation, H.R. 350, in the 106th Congress. Although that bill passed the House in February 1999, it never came to a vote in the Senate.

January 30, 2001

  • Overturning Clinton Rules Possible by Using The Congressional Review Act of 1996

The Congressional Review Act (CRA) of 1996 (5 U.S.C. ' ' 801-808) makes Congress ultimately accountable for the regulations issued by Federal agencies that are charged with implementing the statutes passed by Congress. The CRA requires agencies to send their final regulations to Congress for review before they take effect. Furthermore, a rule may be rejected if Congress passes a joint resolution of disapproval. Unless the President vetoes the resolution, the regulation becomes null and void even if it has already become effective.

The CRA could be used to overturn regulations issued in the last days of the Clinton Administration because of its "hold over" provision. When the CRA was passed, Congress recognized that agencies often promulgate regulations when Congress is not in session. Consequently, Congress preserved for itself the ability to disapprove of a rule within 60 legislative days (or session days in the case of the Senate) of its publication in the Federal Register or submission to Congress. Moreover, if a session of Congress ends before the 60 legislative days have concluded, the rule is "held over" to the next session.

The 106th Congress adjourned on December 15, 2000, thus 60 legislative days prior to adjournment would be July 13, 2000. In other words, any final rule submitted to Congress on or after July 13, 2000 would be held over to the 107th Congress. For purposes of a resolution of disapproval, all of these rules would be treated as though they were submitted to Congress on the 15th legislative day of the 107th Congress. From the 15th legislative day of the new session, Congress will have an additional 60 legislative days to pass a resolution of disapproval on any regulation finalized on or after July 13, 2000.

  • Bush’s Regulatory Review Plan Suspends Rulemaking

On January 24, 2001, President Bush’s Chief of Staff, Andrew H. Card, Jr., published a memorandum in the Federal Register suspending new rulemaking and temporarily delaying the effective date for 60 days for rules that have been published but have not taken effect, 66 FR 7702. This memorandum directs the heads and acting heads of executive department and agencies to withdraw rules sent to the Federal Register but not yet published, and to publish no further rules pending review by the incoming Bush Administration.

An exception is provided for rules issued pursuant to statutory or judicial deadlines. The regulatory review will be implemented by the Director of the Office of Management and Budget, who is authorized to make exceptions for emergency and other situations relating to health and safety. In the interest of sound regulatory practice and the avoidance of costly, burdensome, or unnecessary regulation, independent agencies are encouraged to participate voluntarily in this regulatory review.

  • Two new articles of interest on risk regulation:
  • THE EPA'S RADON RULE: A CASE STUDY IN HOW NOT TO REGULATE RISKS. Robert W. Hahn and Jason K. Burnett. Regulatory Analysis 01-01, January 2001. The Environmental Protection Agency has failed to demonstrate that the benefits of new federal regulations requiring reductions in radon exposure exceed the costs.

    DO FEDERAL REGULATIONS REDUCE MORTALITY? Robert W. Hahn, Randall Lutter and W. Kip Viscusi. November 2000. In some instances, regulations designed to reduce health, safety, and environmental risks can actually increase risk. A study of 24 of those regulations found that unintended risk is likely to result from a majority of them.

January 16, 2001

  • Supreme Court decides Gitlitz tax case.
    In Gitlitz v. Commissioner, the Supreme Court, in an 8-1 decision (Breyer dissenting) reversed the 10th Circuit and held that an S Corporation shareholder could increase the basis in his stock by the amount of discharge of indebtedness income received by the corporation, but excluded from the corporation's income under section 108(a). The Court held that the income was included in income under the general rule of section 61(a)(11), and therefore constituted an "item of income" under the terms of the S Corporation pass-through rules. The fact that, under certain circumstances involving insolvent taxpayers, this item of income was excluded from gross income did not mean that it ceased to be "an item of income." Therefore, it properly was treated as passing through to the shareholders and increasing their basis under the ordinary S Corporation rules. In dissent, Justice Breyer wrote that the terms of the Code were capable of being interpreted either as the petitioner or as the respondent asserted, but that ambiguities in the tax code should be resolved in favor of closing loopholes, not maintaining them.
  • CRS Issues Brief on Tax Issues. On January 5, 2001, the Congressional Research Service published a paper on the major tax issues that might face the 107th Congress. The paper summarizes tax proposals that arose recently in Congress, but were not passed. It also summarizes the tax ideas proposed by Bush during the presidential campaign.
  • 12/29/00. Treasury issues report on taxation of foreign subsidiaries of U.S. corporations. The Treasury Department, on December 29, 2000, released a 226-page report, "The Deferral of Income Earned Through U.S. Controlled Foreign Corporations: A Policy Study." The report concluded that the "subpart F" tax regime should be kept around. Subpart F attempts to impose immediate U.S. tax on the income of foreign subsidiaries of U.S. parent companies, rather than deferring such tax until the subsidiary pays a dividend to the U.S. parent. Critics of Subpart F argue that immediate taxation impairs the competitiveness of U.S.-based multinationals who compete with foreign companies in low-tax countries.



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