In Chief Counsel Notice 2020-002, “Communication with Taxpayers or Representatives by Email” the office announces a process for communication between Chief Counsel attorneys and practitioners on case matters. This process has taken a long time to develop and is an important step forward in communication on cases.
Up to this point communicating with Chief Counsel attorneys could prove difficult. The CC attorneys did not have permission to send taxpayer information via email. You could send them information and, if it got through their security filters, they could see the information., But they would not send taxpayer information to you, because they took the position that doing so could create a problem, as someone could access the documents as it crossed through servers. CC attorneys could send email messages that did not contain taxpayer information, such as “we can meet on November 10 at 1:00 in that [“that” being understood by the parties but with no names mentioned] case” but could not go much further without the risk of getting in trouble.
If you needed to prepare a stipulation with a CC attorney, you had no practical means of transmitting the document back and forth to allow each side to make comments and additions. This added unnecessary time and effort to the endeavor. The new procedure should allow parties to work with documents and information much easier.
The October 18, 2019 Notice provides:
Effectively immediately, Chief Counsel employees may exchange PII and return information with taxpayers or their representatives during Tax Court litigation and letter ruling or closing agreement processes, using one of two email encryption methods:
1. The LB&I Secure Email System (SEMS), which authorizes the exchange of encryption certificates under specific circumstances, allowing the exchange of fully-encrypted emails and attachments, and
2. SecureZIP encrypted email attachments, allowing the sending of password-protected encrypted email attachments to anyone with a compatible zip utility.
Counsel should use SEMS with taxpayer representatives that have the technical sophistication needed to use it. For taxpayers and for taxpayer representatives that cannot use SEMS, Counsel may use SecureZIP to send password-encrypted attachments. Before Counsel may use either email encryption method, the taxpayer must execute and return a Memorandum of Understanding (MOU) agreeing to the use of an email encryption method and acknowledging the risks of using email to send PII and return information.
The remainder of the notice deals with the procedures for using the new secured process.
Chief Counsel Notice CC-2019-006 “Policy Statement on Tax Regulatory Process (9-17-2019) addresses the issue of the deference due to certain IRS pronunciations. The policy statement may have resulted from the Supreme Court’s decision last term in Kisor v. Wilkie, 139 S. Ct. 2400 (2019). In the Kisor case, the Supreme Court declined to overrule Auer v. Robbins, 519 U.S. 452 (1997) but did significantly pare it back. The Supreme Court decided Kisor on a 5-4 vote with Chief Justice Roberts joining the four judges generally viewed as more liberal. While the court did not overrule Auer, it criticized the Federal Circuit for its blind deference to agency interpretation and made it clear that days of blind deference had ended. Auer stands for the proposition that an agencies interpretation of its own regulations deserves deference. Kisor now limits the situations in which Auer deference will apply by adopting the 5-part framework proposed by the Solicitor General in its brief:
- Genuine ambiguity: “a court must exhaust all the ‘traditional tools’ of construction.”
- Reasonable construction: this is “a requirement that an agency can fail.”
- Proper authority: The agency construction “must be the agency’s ‘authoritative’ or ‘official’ position.”
- Substantive expertise: Deference is limited to those agency’s constructions that “in some way implicate its substantive expertise.”
- No surprises: The agency’s decision “must reflect ‘fair and considered judgment.’”
The requirement for a genuine ambiguity may prove the most difficult for the government to overcome in seeking to interpret its own writing but each of the five tests provides a limitation on deference to the agency. Many blog posts exist concerning the meaning of Kisor. For those interested in this issue look here for links to posts.
The new Notice from Chief Counsel’s office on the subject acknowledges that it expects no deference to its rulings that do not undergo the notice and comment process:
Treasury and the IRS clarify and affirm their commitment to sound regulatory practices. First, the policy statement provides that Treasury and the IRS will continue to adhere to their longstanding practice of using the notice-and-comment process for interpretative tax rules published in the Code of Federal Regulations. Second, the policy statement provides that future temporary regulations under the Internal Revenue Code will include a statement of good cause in the preamble, will expire within three years of issuance, and will be issued simultaneously with proposed regulations. Third, the policy statement affirms that subregulatory guidance does not have the force and effect of law and provides that Treasury and the IRS will not argue in the United States Tax Court for judicial deference under Auer v. Robbins, 519 U.S. 452 (1997), or Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), to interpretations set forth only in subregulatory guidance. Fourth, the policy statement provides that each future notice of intent to issue proposed tax regulations will state that if no proposed regulations or other guidance is released within 18 months after publication of such notice, taxpayers may continue to rely on the notice but, until additional guidance is issued, Treasury and the IRS will not assert a position adverse to the taxpayer based on the notice.
The Notice represents a significant shift at the IRS but one consistent with judicial trends and trends within this administration. In situations in which deference to the IRS’ interpretation of its own regulations could make a difference or in situations in which the IRS relies on subregulatory guidance in support of its position, the playing field no longer tilts towards the IRS but has leveled significantly.