DOJ Says Whirlpool Arguments Are Misplaced

June 2, 2021

Deborah S. Hunt, Clerk of Court
U.S. Court of Appeals for the Sixth Circuit
540 Potter Stewart U.S. Courthouse
100 E. Fifth Street
Cincinnati, OH 45202-3988

Re: Whirlpool Financial Corp., et al. v. Commissioner (6th Cir. — Nos. 20-1899, 20-1900) (to be argued June 9, 2021) Response to Whirlpool's Letter of Supplemental Authority Filed Under F.R.A.P. 28(j)

Dear Ms. Hunt:

We are writing in response to Whirlpool's letter regarding the Eighth Circuit's Mayo decision. Whirlpool's reliance on Mayo is misplaced.

First, the Eighth Circuit determined that most of the regulation at issue was “valid,” reversing the lower court's contrary decision that the regulation improperly added requirements — “primary-function and merely-incidental tests” — to the statutory term “educational organization.” 2021 WL 1916000, at *1. In upholding those regulatory requirements — even though they were not expressly set out in the statute — the Eighth Circuit relied on “the context of the statute as a whole,” and its “'regulatory background.'” Id. at *2 (citation omitted). The context and background of §954(d)(2) likewise support the validity of the regulation here. Commissioner-Br.2-13, 39-45. Although the Eighth Circuit rejected the regulatory limitation related to “formal instruction,” it did so because (in its view) that limitation “has no long history of congressional acceptance” and conflicted with related, older regulations. Id. at *8. Here, in contrast, the regulation has a long history of congressional acceptance and conflicts with no other regulation. Commissioner-Br.39-41.

Importantly, the Eighth Circuit rejected Mayo's reliance on isolated statutory text, holding that the “statutory criteria” cited by Mayo had to be read in context with surrounding text and “related” statutory provisions. Id. at *9. Whirlpool's contention (Letter-1) that §954(d)(2) authorizes only regulations that treat the branch's income as FBCSI suffers from this same flaw. Commissioner-Br.32-36 & n.14. Moreover, Whirlpool's contention does not further its case. Whirlpool has asserted that the $45 million Whirlpool-LUX derived from selling the Products is “attributable to” a branch in Mexico. Whirlpool-Reply-Br.18-19, 21. Thus, even without the regulations, Whirlpool-LUX has FBCSI under the “bare text of the statute,” as the Tax Court concluded. (R.54(Opinion), Apx.3260.)

Finally, Whirlpool's suggestion (Letter-2) that the Government took an “all-or-nothing-approach” in Mayo, like Whirlpool has done here, is baseless. As the Eighth Circuit recognized, the extent of Mayo's educational activities was “disputed” by the parties but not “reach[ed]” by the lower court, necessitating a remand there. Id. at 10. In contrast, Whirlpool's request for a remand is based on an unpreserved argument that lacks all textual support. Commissioner-Br.59-62.

Sincerely yours,

JUDITH A. HAGLEY
Attorney for the appellee