159 T.C. 5
T.C.2022Background
- Four LLCs (Green Valley, Big Hill, Tick Creek for 2014; Vista Hill for 2015) claimed large syndicated conservation-easement charitable deductions on Forms 1065.
- IRS issued Notice 2017-10 (published Dec. 23, 2016) identifying certain syndicated conservation-easement transactions (dating to Jan. 1, 2010) as "listed transactions" under Treas. Reg. § 1.6011‑4.
- The IRS issued FPAAs disallowing the deductions and asserted multiple penalties, including the § 6662A reportable-transaction penalty premised on Notice 2017‑10.
- Petitioner challenged the FPAAs in Tax Court, moving for summary judgment that § 6662A penalties cannot be imposed because (a) their application would be retroactive and (b) Notice 2017‑10 was issued in violation of the APA (no notice-and-comment).
- Commissioner defended, arguing Notice 2017‑10 was interpretative (or otherwise lawful without APA notice-and-comment) and that § 6662A penalties therefore apply.
- The Court held Notice 2017‑10 is a legislative rule that imposes new duties and penalties, was promulgated without required APA notice-and-comment, set aside Notice 2017‑10, and barred imposition of § 6662A penalties in these cases; the Court did not decide the retroactivity question.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Notice 2017‑10 was a legislative rule requiring APA notice-and-comment | Branch: Notice 2017‑10 was invalid because it failed APA notice-and-comment | Commissioner: Notice 2017‑10 is interpretative or Congress authorized identification without APA procedures | Held: Notice 2017‑10 is a legislative rule imposing new duties and penalties and was improperly issued without notice-and-comment; set aside |
| Whether § 6662A penalties may be imposed here (including retroactive application) | Branch: § 6662A cannot be applied (argues retroactivity and invalid notice) | Commissioner: § 6662A penalties apply to listed transactions identified by Notice 2017‑10 | Held: Court did not reach or decide the retroactivity question; because Notice 2017‑10 is set aside, § 6662A penalties cannot be sustained in these cases |
Key Cases Cited
- Perez v. Mortg. Bankers Ass'n, 575 U.S. 92 (2015) (distinguishing interpretative rules from legislative rules for APA notice-and-comment)
- CIC Servs., LLC v. IRS, 141 S. Ct. 1582 (2021) (agency guidance can be challenged under APA)
- Mann Constr., Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022) (IRS notice‑listing treated as legislative rule requiring APA compliance)
- Marcello v. Bonds, 349 U.S. 302 (1955) (statutory scheme may displace APA if Congress clearly intended it)
- Asiana Airlines v. FAA, 134 F.3d 393 (D.C. Cir. 1998) (test for when a statutory scheme displaces APA notice-and-comment)
- Dorsey v. United States, 567 U.S. 260 (2012) (standards for finding implied modification of statute)
- Lockhart v. United States, 546 U.S. 142 (2005) (discussion of implied repeal/express-statement principles)