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Whirlpool Files Supplemental Authority Letter in Sixth Circuit

JUN. 1, 2021

Whirlpool Financial Corp. et al. v. Commissioner

DATED JUN. 1, 2021
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Whirlpool Financial Corp. et al. v. Commissioner

June 1, 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
Nos. 20-1899, 20-1900 (to be argued June 9, 2021)
Letter of Supplemental Authority Filed Under Federal Rule of Appellate Procedure 28(j)

Dear Ms. Hunt:

Petitioners-Appellants write to advise the Court of Mayo Clinic v. United States, __ F.3d __, 2021 WL 1916000 (8th Cir. May 13, 2021), which is instructive for two reasons.

First, the Eighth Circuit invalidated a decades-old Treasury Regulation because it went beyond the text of the statute. Mayo considered a 1958 regulation that defined “educational organization” to include a requirement not in the statute. Treas. Reg. § 1.170A-9(c)(1). After reviewing the statutory text to determine whether the regulation “stayed within the bounds of [the agency's] statutory authority,” the court held that the rule “invalidly adds conditions Congress did not intend.” Mayo, 2021 WL 1916000, at *2-3 (quotation omitted; citing Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837, 842 (1984)). In so holding, the court stressed that the Tax Code, just like “any statute, is to be given its ordinary meaning.” Id. at *2 (quoting Comm'r v. Brown, 380 U.S. 563, 571 (1965)).

So too here. Section 954(d)(2) authorizes regulations that treat income earned by a branch as FBCSI. Yet Treas. Reg. § 1.954-3(b)(2)(ii)(c) converts income earned outside a branch into FBCSI — adding a whole new category of income to Section 954(d)(2). That rule contravenes the ordinary meaning of Section 954(d)(2) and invalidly enlarges the agency's power. OB29-38; RB4-15. Neither the vintage of the rule nor the snippets of legislative history cited by the government (at 42-45) can overcome the lack of statutory authorization.

Second, the Eighth Circuit declined to grant the taxpayer summary judgment because of unresolved factual issues about whether it was an “educational organization.” Mayo, 2021 WL 1916000, at *10. But the government never made such an argument in the trial court, instead taking an “all-or-nothing approach” like the one it condemns here (at 59). If this Court declines to hold that the regulation is invalid or that Petitioners-Appellants otherwise have no FBCSI as a matter of law, it should at least do what the government urged in Mayo: Find there are material factual issues about the amount of FBCSI (i.e., how to allocate the income between manufacturing and sales) and remand the case. OB47-51; RB21-22.

Respectfully submitted,

Gregory G. Garre
Latham & Watkins LLP
Washington, D.C.

Counsel for Petitioners-Appellants
Whirlpool Financial Corporation, et al.

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