796 F.3d 1051
9th Cir.2015Background
- Bruce Voss and Charles Sophy (unmarried, registered domestic partners) co-owned two qualified residences and were jointly liable on mortgages and a home equity line; average secured debt ~ $2.7M in 2006–07.
- Each filed separate federal returns and each claimed full home mortgage interest deductions; IRS disallowed large portions, treating the statutory $1,000,000 acquisition / $100,000 home‑equity caps as applying to the residence rather than to each taxpayer.
- Tax Court held the statutory debt limits applied per residence (not per taxpayer) and sustained the IRS deficiency determinations.
- Ninth Circuit reviewed de novo and considered statutory text, the married‑person parenthetical (limits for married individuals filing separately), definitions of “qualified residence,” taxable‑year language, and administrative guidance.
- The Ninth Circuit reversed: it held § 163(h)(3)’s debt limits apply per taxpayer for unmarried co‑owners, and remanded for recalculation of deductions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 163(h)(3)’s $1,000,000/$100,000 debt limits apply per taxpayer or per residence for unmarried co‑owners | Voss/Sophy: limits apply per residence but may be allocated between co‑owners so each can treat up to $1.1M of debt (effectively doubling the cap when two taxpayers) | IRS/Tax Court: limits apply per residence; co‑owners together are limited to $1.1M and must apportion that amount | Court held limits apply per taxpayer for unmarried co‑owners; each co‑owner may treat up to $1.1M for deduction limits and remanded for computation |
| Whether deference to IRS Chief Counsel Advice requires affirmance | Voss/Sophy: N/A | IRS: agency interpretation (CCA 200911007) supports per‑residence rule and warrants deference | Court declined to defer: found CCA not persuasive or longstanding and gave limited weight to it; reached a contrary statutory reading |
Key Cases Cited
- Suzy’s Zoo v. Comm’r, 273 F.3d 875 (9th Cir. 2001) (standard of review for Tax Court statutory interpretation)
- Chubb Custom Ins. Co. v. Space Sys./Loral, Inc., 710 F.3d 946 (9th Cir. 2013) (avoid interpreting statutory provisions as surplusage)
- Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156 (U.S. 2012) (Skidmore deference factors for agency interpretations)
- United States v. Mead Corp., 533 U.S. 218 (2001) (limits of Chevron deference and Skidmore guidance)
- Hall v. United States, 132 S. Ct. 1882 (U.S. 2012) (courts may rely on longstanding IRS understandings when present)
- Christensen v. Harris Cnty., 529 U.S. 576 (2000) (agency interpretations in nonbinding formats receive only Skidmore weight)
- Tablada v. Thomas, 538 F.3d 800 (9th Cir. 2008) (rejecting a statutory reading that yields a windfall)