October 17 | October
15 | October 10 | September
21 | July 18 | July 11
25 | June
4 | March
21 | March
14 | March
2 | February
22 | January
30 | January
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
- 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: http://caselaw.lp.findlaw.com/data2/circs/9th/0155770p.pdf
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
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. http://www.whitehouse.gov/news/usbudget/blueprint/budtoc.html.
The document contains the following tax-related proposals:
- Social Security Reform:
- Allow "individuals
to keep some of their payroll taxes in personal retirement
- "The Government itself
must not invest Social Security funds in the private economy."
- Tax Incentives for Purchases of Health
- "[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:
extend the research and experimentation (R&E) Credit.
- Eliminate the estate
- Reduce the marriage
- 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
March 2, 2001
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: http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=000&invol=99-1257
- Supreme Court Places
Important Limits on EPA
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.
- The Use and Misuse of
Executive Orders and Other Presidential Directives
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
To read the memo, visit http://www.heritage.org/library/legalmemo/lm2.html.
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
- 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
- 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. http://www.aei.brookings.org/publications/abstract.asp?pID=108
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. http://www.aei.brookings.org/publications/abstract.asp?pID=98
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.