15 W. 17th St. LLC v. Comm'r15 W. 17th St. LLC v. Comm'r
On its 2007 partnership return LLC claimed a charitable contribution deduction of $64,490,000. In order to substantiate a charitable contribution deduction of $250 or more, a taxpayer must secure and maintain in its files a “contemporaneous written acknowledgment” (CWA) from the donee organization.
The substantiation requirements of subparagraph (A) do not apply to a contribution “if the donee organization files a return, on such form and in accordance with such regulations as the Secretary may prescribe,” that includes the information specified in subparagraph (B).
R audited LLC‘s 2007 return and disallowed the charitable contribution deduction in its entirety. After the case was docketed in this Court, the donee organization submitted an amended Form 990, Return of Organization Exempt from Income Tax, that included the information specified in subparagraph (B). P filed a motion for partial summary judgment, contending that this action by the donee eliminated the need for a CWA to substantiate LLC‘s gift.
- Held:
I.R.C. sec. 170(f)(8)(D) sets forth a discretionary delegation of rulemaking authority, and it is not self-executing in the absence of the regulations to which the statute refers. - Held, further, the general rule set forth in subparagraph (A), requiring a CWA meeting the requirements of subparagraph (B), is fully applicable to the gift at issue.
Jeremy M. Klausner, Frank Agostino, and Lawrence Sannicandro, for petitioner.
Marc L. Caine and Carina Campobasso, for respondent.
OPINION
After the petition in this case was filed, the donee organization submitted an amended return for the year in which the gift was made. This amended return described the gift from 15 West 17th Street LLC (LLC) and included a statement that the donee had provided the LLC with no goods or services in consideration for that gift. Petitioner contends that this action by the donee eliminated the need for a CWA, relying on
The Internal Revenue Service (IRS or respondent) advances two arguments in opposition to petitioner‘s motion for partial summary judgment. First, respondent contends that
We conclude that the rulemaking authority delegated in subparagraph (D) is discretionary, not mandatory, and that subparagraph (D) is not self-executing in the absence of regulations. We accordingly hold that the general rule set forth in subparagraph (A), requiring a CWA meeting the requirements of subparagraph (B), is fully applicable to the gift at issue. Because we will deny petitioner‘s motion for partial summary judgment on this ground, we need not address respondent‘s alternative argument.
Background
There is no dispute as to the following facts, which are drawn from the parties’ summary judgment papers and from the stipulations of facts and attached exhibits filed previously. At the time of the filing of the petition, the LLC had its principal place of business in New York.
In September 2005 the LLC purchased, for $10 million, a property in New York City, Borough of Manhattan, known as block 558, lot 43. This property comprised two parcels. The building on the northern parcel, at 126-128 East 13th Street, is the Van Tassell & Kearney Auction Mart (VTK Building). The VTK Building was built in 1903-04 for staging horse auctions. It was later used as a candy factory, as a vocational school for women, and as the studio of Frank Stella, a well-known artist.
The LLC initially planned to demolish the VTK Building. However, the Greenwich Village Society for Historic Preservation petitioned the New York City Landmarks Preservation Commission to designate the VTK Building an individual landmark. The commission calendared an emergency hearing in September 2006 to consider this request. On November 29, 2007, the VTK Building was placed on the National Register of Historic Places, and it thus became a “certified historic structure” within the meaning of
The LLC‘s contribution of the easement to the Trust was completed for Federal tax purposes in 2007. On May 14, 2008, the Trust sent the LLC a letter acknowledging receipt of the easement. This letter did not state whether the Trust had provided any goods or services to the LLC, or whether the Trust had otherwise given the LLC anything of value, in exchange for the easement.
The LLC secured an appraisal concluding that, as of February 8, 2008, the property had a fair market value of $69,230,000 before placement of the easement. The appraisal thus opined that the property--acquired for $10 million in September 2005--had risen in value by almost 600% in 2-1/2 years. Opining that the property was worth only $4,740,000 after the donation, the appraisal concluded that the easement had reduced the property‘s value by $64,490,000.
The LLC filed its 2007 Form 1065, U.S. Return of Partnership Income, on October 17, 2008. On this return, the LLC deducted $64,490,000, the alleged value of the easement, as a charitable contribution to the Trust. The LLC included with its return a copy of the appraisal report, a copy of the Trust‘s May 14, 2008, letter, and Form 8283, Noncash Charitable Contributions, executed by the appraiser and by a representative of the Trust.
On August 19, 2008, the Trust filed Form 990, Return of Organization Exempt From Income Tax, for calendar year 2007. On that return, the Trust did not report receipt of a charitable contribution from the LLC. Nor did it report whether it had provided any goods or services to the LLC in exchange for the easement.
The IRS selected the LLC‘s 2007 return for examination. On August 28, 2011, the IRS mailed the LLC a notice of final partnership administrative adjustment (FPAA), which was followed by a supplementary FPAA on September 27, 2011. In the supplementary FPAA the IRS disallowed the charitable contribution deduction in full because “[i]t has not been
On November 2, 2011, the LLC‘s tax matters partner timely petitioned this Court for review of the supplementary FPAA. On June 16, 2014, the Trust prepared an amended Form 990 for 2007 and mailed it to the IRS Service Center in Ogden, Utah. Part III of Form 990 is captioned “Statement of Program Service Accomplishments.” On its original Form 990 filed in 2008, the Trust had described these accomplishments in an attached statement, which summarized the easement donations it had received during 2007. On the amended Form 990 filed in 2014, the Trust added the following two sentences to that description: “One of the New York donations received during 2007 included the donation by 15 West 17th Street LLC of an Historic Preservation Deed of Easement * * *. The Trust provided no goods or services to 15 West 17 Street LLC in consideration for its donation of the Historic Preservation Deed of Easement.”
The Ogden Service Center received the amended Form 990 on June 23, 2014. Respondent does not dispute petitioner‘s assertion that the Service Center accepted this amended return for filing. The record does not reveal whether the Service Center personnel were aware that the LLC‘s return had previously been examined or that this case was pending in litigation.
Discussion
The purpose of summary judgment is to expedite litigation and avoid unnecessary and time-consuming trials. See FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). We may grant partial summary judgment when there is no genuine dispute of material fact and a decision may be rendered as a matter of law. Rule 121(b); Elec. Arts, Inc. v. Commissioner, 118 T.C. 226, 238 (2002). The parties agree on all facts relevant to disposition of petitioner‘s motion, and the
I. Statutory and Regulatory Framework
A. Governing Statutory Provisions
To address tax-compliance problems that had arisen in connection with quid pro quo contributions, Congress in 1993 enacted
The requirement that a CWA be obtained for charitable contributions of $250 or more is a strict one. In the absence of a CWA meeting the statute‘s demands, “[n]o deduction shall be allowed.”
(i) The amount of cash and a description (but not value) of any property other than cash contributed.
(ii) Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property described in clause (i).
(iii) A description and good faith estimate of the value of any goods or services referred to in clause (ii) * * *.
An acknowledgment qualifies as “contemporaneous” only if the donee provides it to the taxpayer on or before the earlier of “the date on which the taxpayer files a return for the taxable year in which the contribution was made” or “the due date (including extensions) for filing such return.”
B. Legislative History
“Congress enacted the substantiation requirements of section 170(f)(8) to require charitable organizations that receive quid pro quo contributions * * * to inform their donors that the deduction under section 170 is limited to the amount by which the payment exceeds the value of goods or services provided by the charity.” Addis, 118 T.C. at 536.
Congress enunciated two principal purposes for this compliance provision. The first purpose was “to assist taxpayers in determining the deductible amounts of their charitable contributions.” Durden, 103 T.C.M. (CCH) at 1763; see DiDonato v. Commissioner, T.C. Memo. 2011-153, 101 T.C.M. (CCH) 1739, 1742 (noting purpose “to inform the donor that all or a portion of an amount contributed * * * may not be deductible“). The second purpose was “to assist the Internal Revenue Service in processing tax returns on which charitable contribution deductions are claimed.” Durden, 103 T.C.M. (CCH) at 1763; see DiDonato, 101 T.C.M. (CCH) at 1742 (noting purpose “to ease the administration and audit of charitable contribution deductions“).
The substantiation requirement now codified in
The Ways and Means Committee held a hearing on the President‘s tax proposals in early February 1992. U.S. Economy, and Proposals to Provide Middle-Income Tax Relief, Tax Equity and Fairness, Economic Stimulus and Growth: Hearing Before the H. Comm. on Ways and Means, 102d Cong. 939 (1992). Although the donee reporting provision received little attention, Congressman Schulze worried that it might create “a firestorm that * * * [will] come back to haunt us.” Id. at 1034. He explained:
My concern is, if you make a contribution over $500 and have to put your taxpayer identification number in, and the charity then has to report that as well, and later on that will be matched up. Are we going to have an area where relatively small charities that are somewhat unsophisticated are going to be reporting this, and then it‘s going to be matched at IRS, and people are going to get in trouble if a number is off? We‘ve had some of these problems before, and they have been major problems. I just do not want to see us get into that situation with 501(c)(3)‘s.
Treasury Secretary Brady acknowledged the validity of this concern. Id. He pledged that he and Assistant Secretary
During another Ways and Means Committee hearing, representatives from charitable organizations indicated their support for greater tax compliance. Permanent Extension of Certain Expiring Tax Provisions: Hearing Before the H. Comm. on Ways and Means, 102d Cong. 498, 517-518 (1992). But they likewise expressed concern about the donee reporting provision, which they thought required modification. See id. at 518 (“[B]eneficiary institutions need to accept an equity of burden, although we believe that we need to have a conversation with the Treasury Department so that we can work out how that is done.“).
On July 2, 1992, Senator Moynihan introduced the Charitable Contribution Tax Act of 1992. S. 2979, 102d Cong. (1992). In this bill, the requirement that charities file annual information returns reporting charitable contributions was eliminated. See id. sec. 5. It was replaced by a CWA requirement substantially identical to that now in
Senator Danforth, a co-sponsor of S. 2979, noted that the bill “was the product of lengthy discussion” between the charitable community and policymakers in Congress and the Treasury Department. 138 Cong. Rec. 18038 (1992). He explained: “An earlier version of some of the proposals in this bill appeared in the President‘s 1993 budget. The charitable community was concerned about certain provisions in the reporting requirements area. * * * [Assistant Secretary] Goldberg listened to the views of the charitable community and took primary responsibility for addressing their concerns.” Id.
This Senate bill became part of H.R. 11, which was eventually pocket-vetoed by President George H. W. Bush. H.R. 11, 102d Cong., sec. 8003 (1992) (as reported in the Senate, July 23, 1992); Memorandum of Disapproval for the Revenue Act
there will be increased compliance with present-law rules governing charitable contribution deductions if a taxpayer who claims a charitable contribution of $750 or more is required to obtain substantiation from the donee indicating the amount of the contribution and whether any goods, service, or privilege was received by the donor in exchange for making the contribution.
H.R. Rept. No. 103-111, at 785 (1993), 1993-3 C.B. 167, 361. The report explained that the proposed amendment “does not impose an information reporting requirement upon charities.” Id. Rather, it “places the responsibility upon taxpayers * * * to request (and maintain in their records) substantiation from the charity of their contribution (and any good or service received in exchange).” Id. The Senate version of the bill reduced the $750 monetary threshold, requiring a CWA to substantiate all gifts of $250 or more. H.R. 2264, 103d Cong., sec. 8172 (1993) (as amended by the Senate, June 22, 1993). In this respect the conference report followed the Senate amendment. See H.R. Conf. Rept. No. 103-213, at 565 (1993), 1993-3 C.B. 393, 443. Addressing the concerns charities had expressed about donor privacy, the conference report emphasized that a CWA “need not contain the taxpayer‘s social security number or taxpayer identification number (TIN).” Id. n.30, 1993-3 C.B. at 443 (emphasis in original). The conference report also emphasized that CWAs must be explicit about the absence of a quid pro quo: “If the donee organization provided no goods or services to the taxpayer * * *, the written substantiation is required to include a statement to that effect.” Id. Addressing the back-up mechanism for donee reporting, the conference report explained: “Substantiation is not required if the donee organization files a re-turn with the IRS (in accordance with Treasury regulations) reporting information sufficient to substantiate the amount of the deductible contribution.” Id. at 565.
With the reduction of the monetary threshold to $250, the House provision as set forth in H.R. 2264 was enacted as part of the Omnibus Budget Reconciliation Act of 1993
C. Regulations
In August 1995 the Treasury Department issued proposed regulations providing guidance concerning the implementation of
The IRS received several hundred pages of comments. Only one commenter, an Indianapolis accounting firm, addressed donee reporting. It recommended that donee organizations be allowed to “satisfy the substantiation requirement by reporting directly to the IRS,” but it noted that “the proposed regulations do not provide any such guidance or opportunity.” It urged that “the regulations should be drafted to provide that in certain situations substantiation can be provided directly to the IRS by the filing of a Form 990 or Form 990-PF,” suggesting that “[t]his provision would be particularly helpful to private foundations and small charitable
On December 16, 1996, the Treasury Department promulgated final regulations under
One commenter suggested that the regulations should allow charities to report charitable contributions directly to the IRS on Form 990 or 990-PF. Section 170(f)(8) authorizes the Secretary to prescribe regulations allowing donee organizations to satisfy the requirements of section 170(f)(8) by filing a return that includes the information described in section 170(f)(8)(B). The IRS and Treasury have decided not to implement the suggestion at this time. However, in an effort to reduce paperwork and taxpayer burdens, the IRS will examine whether any existing IRS forms can be modified to assist in their use in substantiating charitable contributions. [T.D. 8690, 1997-1 C.B. at 71.]
During the ensuing 16 years, the IRS received no public request for implementation of donee reporting. On August 9, 2013, the IRS nevertheless put on its Priority Guidance Plan a regulation project to address this subject. U.S. Dep‘t. of the Treasury, Office of Tax Policy and Internal Revenue Service, 2013-2014 Priority Guidance Plan (General Tax Issues, Item 30) (2013). On September 17, 2015, the IRS issued a notice of proposed rulemaking (NPRM) “to implement the exception to the ‘contemporaneous written acknowledgment’ requirement for substantiating charitable contribution deductions of $250 or more.” 80 Fed. Reg. 55802 (Sept. 17, 2015).
The NPRM began by noting that the Treasury Department in 1997 had “specifically declined to issue regulations under section 170(f)(8)(D) to effectuate donee reporting.” Id. 55803. Having thereafter encountered “few requests * * * to implement a donee reporting system,” the IRS found that “[t]he present CWA system works effectively, with minimal burden on donors and donees.” Id. However, prompted by questions (such as that raised by the instant case) as to whether an amended Form 990 or 990-PF could be used as a vehicle for donee reporting, the Commissioner determined to propose rules governing this subject. Id.
The first threshold issue concerned the appropriate IRS form to be used for such reporting.
The second threshold issue concerned the required contents of the donee‘s report. Unlike a CWA mailed to a taxpayer, “the donee reporting information return will be sent to the IRS, which must have a means to store, maintain, and readily retrieve the return information for a specific taxpayer if and when substantiation is required in the course of an examination.” 80 Fed. Reg. 55804. The NPRM concluded that “[t]he donor‘s taxpayer identification number * * * [would be] necessary in order to properly associate the donation information with the correct donor.” Id. The IRS expressed concern “about the potential risk for identity theft involved * * * given that donees will be collecting donors’ taxpayer identification numbers and maintaining those numbers for some period of time.” Id. The NPRM requested public comments as to whether “additional guidance is necessary regarding the procedures a donee should use * * * to mitigate th[is] risk.” Ibid.
The third threshold issue concerned the time for donee reporting. The IRS noted that ”
The NPRM requested public comments by December 16, 2015. See id. 55802. The number of comments received apparently exceeded 38,000. See Substantiation Requirement for Certain Contributions, http://www.regulations.gov/#!docketDetail;D=IRS-2015-0049 (last visited May 17, 2016). Three weeks later, after considering these comments, the Secretary withdrew the proposed regulations in their entirety. See 81 Fed. Reg. 882 (Jan. 8, 2016).
In withdrawing the proposed regulations, the Secretary explained that the public comments had “questioned the need for donee reporting” and had “expressed significant concerns about donee organizations collecting and maintaining taxpayer identification numbers.” 81 Fed. Reg. 882. Respondent represents that “[a]n overwhelming number of comments expressed significant concerns that even a voluntary system of donee reporting could have a substantial adverse effect on charitable giving by all potential donors.” Ibid. The Treasury Department accordingly “decided against implementing the statutory exception to the CWA requirement,” reiterating its position that this exception “remains unavailable unless and until final regulations are issued prescribing the method for donee reporting.” Ibid.
II. Analysis
This argument is unpersuasive for at least two reasons. The statutory requirement that charities file annual information returns, currently codified in
More fundamentally, the Code contains hundreds of sections authorizing the Secretary to issue regulations. See infra pp. 29-31, 36-40. Apart from general authorizations for rulemaking such as
The same reasoning applies here. When Congress in subparagraph (D) referred to the filing of a return “on such form and in accordance with such regulations as the Secretary may prescribe,” it was referring to regulations that the Secre-tary might in future promulgate, under
This case thus requires us to address a question that has arisen with some frequency: How should a court respond when a taxpayer or the IRS desires to have a particular tax treatment apply in the absence of the regulations to which the statute refers? In some cases, the Secretary may have affirmatively declined to issue regulations, having concluded that they are unnecessary or inappropriate. In other cases, the Secretary may intend to issue regulations but may have encountered delays because of subject matter complexity or the press of other business.
Courts have described the question presented here as whether the statute is “self-executing” in the absence of regulations. Parker-Hannifin Corp. v. Commissioner, 139 F.3d 1090, 1099 (6th Cir. 1998), aff‘g in part, rev‘g in part T.C. Memo. 1996-337; United States v. Mustari, 109 F.2d 438, 440 (7th Cir. 1940); Hillman v. Commissioner, 114 T.C. 103, 111 (2000), rev‘d on this issue, 263 F.3d 338 (4th Cir. 2001).
The courts have struggled to define the proper judicial response in these scenarios. In each case, Congress has delegated to an executive branch agency the task of using its expertise to craft appropriate regulations. Under the Administrative Procedure Act and familiar separation-of-powers principles, a court‘s usual role is to review the regulations an agency has issued, not to conjure what regulations might look like had they been promulgated. On the other hand, if it is absolutely clear that Congress intended that a particular tax benefit or tax treatment should be available, a legitimate question arises as to whether the IRS may prevent that outcome by declining to engage in rulemaking. Commentators have described this scenario as one of “spurned delegations” and the resulting judicial dilemma as one of crafting “phantom regulations.” See Phillip Gall, “Phantom Tax Regulations: The Curse of Spurned Delegations,” 56 Tax Law. 413 (2003); Amandeep Grewal, “Substance Over Form? Phantom Regulations and the Internal Revenue Code,” 7 Houston Bus. & Tax J. 42 (2006).
In approaching these cases, the courts have focused principally, as they must, on the text of the delegating provision. “[O]ur inquiry begins with the statutory text, and ends there as well if the text is unambiguous.” BedRoc Ltd. v. United States, 541 U.S. 176, 183 (2004). In conjunction with the text, we have examined the statute‘s legislative history and considered whether it “can be applied without further explication in a regulation.” Temsco Helicopters, Inc. v. United States, 409 F. App‘x 64, 67 (9th Cir. 2010) (citing Francisco v. Commissioner, 119 T.C. 317, 322-323 (2002), aff‘d on other grounds, 370 F.3d 1228 (D.C. Cir. 2004)). In examining the statutory text, it is useful to begin by considering whether Congress couched its delegation of rulemaking authority in mandatory or permissive terms.
A. Delegations for Mandatory Rulemaking
Most of our cases have dealt with delegations of mandatory rulemaking authority (mandatory delegations), where the statute is “framed in terms of commanding the Secretary to prescribe regulations.” First Chicago Corp. v. Commissioner, 88 T.C. 663, 676 (1987), aff‘d, 842 F.2d 180 (7th Cir. 1988); Grewal, supra, at 47 (“The major cases deal largely with mandatory delegations, which the courts usually deem self-executing.“). A mandatory delegation “requires the Secretary to issue regulations that achieve a particular result or that apply a particular rule,” Gall, supra, at 415, and commonly takes the form of “the Secretary shall prescribe regulations” or states that something shall happen “under regulations prescribed by the Secretary,” ibid.
Most of the mandatory-delegation cases have involved “taxpayer friendly” provisions, that is, Code sections in which Congress has made available a credit, deduction, or other tax benefit. See Grewal, supra, at 46. Our first opinions on this subject addressed
In Occidental Petroleum Corp. v. Commissioner, 82 T.C. 819 (1984), we held
Three years later in First Chicago Corp., 88 T.C. at 676, we reached the same result for the same reasons, emphasizing the statute‘s mandatory wording: “[S]ection 58(h) is framed in terms of commanding the Secretary to prescribe regulations. It states that ‘The Secretary shall prescribe
The next wave of cases addressed
Reviewing the legislative history, we discerned that “Congress did not want the estate of a stockholder of a family corporation to be deprived of the benefits of section 2032A.” Estate of Maddox, 93 T.C at 233. However, in order “to deal with the myriad problems and situations that could arise in that connection,” Congress “directed (not merely authorized) the Secretary to prescribe regulations.” Ibid. Citing Occidental Petroleum and First Chicago Corp., we concluded: “[W]e must do the best we can * * * in the absence of the pertinent regulations, since, in our view, the Secretary cannot deprive a taxpayer of rights which the Congress plainly intended to confer.” Id. at 233, 234. In both Estate of Maddox and Estate of Hoover, we emphasized the mandatory nature of the authority Congress had delegated. See Estate of Hoover, 102 T.C. at 782 (noting that the Secretary had failed to issue “the regulations that Congress ordered he ‘shall’ prescribe“);
When addressing “taxpayer unfriendly” statutes, courts have often approached the problem by considering whether Congress directed the Secretary to determine “whether” a particular tax treatment shall apply, or simply to decide “how” a legislatively ordained tax treatment is to be implemented. In Estate of Neumann v. Commissioner, 106 T.C. 216 (1996), we addressed the application of the generation-skipping transfer (GST) tax to “direct skip” transfers by nonresident aliens.
Judge Tannenwald framed the relevant question as follows: “Are the regulations a necessary condition to determining ‘whether’ the GST tax applies, as petitioner contends, or do they constitute only a means of arriving at ‘how’ that tax, otherwise imposed by the statute, should be determined, as respondent contends.” Estate of Neumann, 106 T.C. at 219. We held for the Commissioner, concluding that Congress had clearly imposed the GST tax on “direct skip” transfers by nonresident aliens, thus resolving the “whether” question. Congress had authorized the issuance of regulations, we concluded, simply to address a “how” question, namely, how to fill possible gaps flowing from the fact that “not all the property of nonresident aliens is subject to U.S. estate tax.” Id. at 221. Because none of those gaps complicated the GST
On at least one occasion, an appellate court has held a Code provision for a mandatory delegation to be non-self-executing. In Hillman, 114 T.C. at 111, we considered
The U.S. Court of Appeals for the Fourth Circuit reversed. It held that neither the statute nor the legislative history “clearly express[ed] the congressional intent the * * * [petitioners] need in order to prevail.” Hillman, 263 F.3d at 343.
Congress had expressed its intention that the Secretary issue regulations addressing netting of self-charged interest expenses, while adding that “[s]uch regulations may also, to the extent appropriate, identify other situations in which netting * * * [of expenses] is appropriate.” H.R. Conf. Rept. No. 99-841 (Vol. II), at 147 (1986), 1986-3 C.B. (Vol. 4) 1, 147.
In sum, this Court and other courts have frequently, but not always, held to be self-executing taxpayer-friendly Code provisions that include a mandatory delegation to the Secretary. One commentator has described this as “the equity approach,” on the theory that “treating such delegations otherwise would inequitably deprive taxpayers of legislatively intended benefits.” Grewal, supra, at 53. In several of these cases, the IRS conceded (or did not seriously dispute) that the statute was self-executing in the absence of regulations. See First Chicago Corp., 842 F.2d at 182 (noting Government‘s concession that
B. Delegations for Permissive Rulemaking
The Code contains hundreds, if not thousands, of sections that authorize the Secretary to issue regulations, without directing or mandating that he do so. Commentators have described these provisions as “discretionary” or “policy” delegations, reasoning that Congress “has not framed the delegation in ‘mandatory’ terms, * * * but has instead left the implementation of the policy objective to the Secretary‘s discretion.” Gall, supra, at 415, 426, 439 (discussing “policy delegations“); Grewal, supra, at 44.
Delegations of permissive or discretionary authority (discretionary delegations) appear in many verbal forms.
Discretionary delegations often arise in Code sections that set forth a definite requirement but allow for the possibility of exemptions. For example,
exemption certificate (in such form and containing such other information as the Secretary may prescribe).”
Another common type of discretionary delegation authorizes the Secretary to implement elections. For example,
Discretionary delegations also arise where Congress has enacted a default rule in the Code but authorized the Secretary to issue regulations providing for an alternative rule, such as a “safe harbor” or a rule of convenience. For example,
Although many discretionary delegations include the words “may prescribe” or “may be prescribed,” other verbal formulas exist. For example,
provides that
This Court appears to have addressed on only one occasion whether a statute including a discretionary delegation is self-executing in the absence of regulations. That case, which generated a unanimous reviewed Opinion by this Court, was Alexander v. Commissioner, 95 T.C. 467 (1990), aff‘d sub nom. Stell v. Commissioner, 999 F.2d 544 (9th Cir. 1993). It involved
The Commissioner argued in Alexander, 95 T.C. at 471-472, adversely to his interest, that
Section 465(c)(3)(D) unambiguously provides that section 465(b)(3) “shall apply only to the extent provided in regulations prescribed by the Secretary” * * * . Regulations have not been prescribed by the
Secretary. Accordingly, we hold that
We noted in Alexander that this conclusion was supported both by the statute’s text and by its legislative history. Describing the future operation of
Under
We begin as we must with the statute’s text. Greyhound Corp. v. Mount Hood Stages, Inc., 437 U.S. 322, 330 (1978). Subparagraph (D) provides that a donee organization may report information specified in subparagraph (B) “on such form and in accordance with such regulations as the Secretary may prescribe.” The word “may” is used “to express possibility or likelihood,” “to express permission,” or “to express contingency.” Webster’s New World Collegiate Dictionary 889 (4th ed. 2010). By its terms, the delegated rulemaking authority is permissive: It grants the Secretary discretion to prescribe regulations governing this matter, but it does not mandate that he do so.
The discretionary nature of this delegated authority is underscored by comparing the text of subparagraph (D) with the text of subparagraph (E). The latter provides that “[t]he Secretary shall prescribe regulations” specifying that “some or all of the requirements of this paragraph do not apply in appropriate cases.”9 The delegation of rulemaking authority
The legislative history shows that Congress, by phrasing this delegation of rulemaking authority in discretionary terms, intended that subparagraph (D) not be self-executing in the absence of regulations. The substantiation requirement now codified in
After many months of study and negotiations, Congress replaced the donee reporting regime proposed by the President
In structural terms,
Because Congress intended that the Secretary exercise his discretion in resolving these questions,
The Secretary received in response 38,000 (mostly negative) comments. He thereupon withdrew the proposed regulations in their entirety, noting that commenters had “expressed significant concerns about donee organizations collecting and maintaining taxpayer identification numbers” for reporting purposes. 81 Fed. Reg. 882. If the expert agency to which Congress has delegated the relevant rulemaking authority encountered such difficulties in implementing donee reporting, a court trying to envision “phantom regulations” governing this subject would be shooting in the dark.
Petitioner has cited, and our own research has discovered, no case in which a court has held to be self-executing a Code provision containing a discretionary delegation that refers to regulations that the Secretary “may prescribe.” Conversely, every judicial decision that has held a Code provision to be self-executing in the absence of regulations has involved a mandatory delegation that included the word “shall.” In many of these cases we emphasized the mandatory nature of the delegation as evidenced by Congress’ use of the word “shall.” See Estate of Hoover, 102 T.C. at 782; Estate of Maddox, 93 T.C. at 233; First Chicago Corp., 88 T.C. at 676. On one occasion we suggested that the result might be different if Congress had instead used the word “may.” See First Chicago Corp., 88 T.C. at 676 n.11.
Adopting what he calls a “plain meaning” approach, see Foley op. p. 57, Judge Foley in dissent urges that we ignore, as an inconsequential series of prepositional phrases and clauses, that portion of subparagraph (D) consisting of the words “on such form and in accordance with such regulations as the Secretary may prescribe.” These words, in his view, do not link the operative effect of subparagraph (D) to the issuance of regulations, but simply authorize the Secretary to issue regulations if he wishes to do so. All that the statute supposedly requires is that a donee organization file “a
When construing a statute, “[i]t is our duty ‘to give effect, if possible, to every clause and word’” so as to avoid rendering any part of the statute meaningless surplusage. United States v. Menasche, 348 U.S. 528, 538 (1955) (quoting Montclair v. Ramsdell, 107 U.S. 147, 152 (1883)); Market Co. v. Hoffman, 101 U.S. 112, 115 (1879) (construing a statute so that “no clause, sentence, or word shall be superfluous, void, or insignificant”); Marbury v. Madison, 5 U.S. (1 Cranch) 137, 171 (1803) (enunciating “anti-surplusage” canon of construction). The approach of Judge Foley’s dissenting opinion violates these well-established principles of statutory interpretation by rendering subparagraph (D)’s reference to regulations completely meaningless.
As noted earlier, there are hundreds of Code provisions that employ phrases or clauses similar to those in subparagraph (D) to effect discretionary delegations to the Secretary.
The approach in Judge Foley’s dissenting opinion would also produce results plainly at odds with Congress’ intent. The dissent’s conclusion would allow the Trust to satisfy its obligations under
In sum, we conclude that
In the exercise of his discretion, the Secretary determined in 1997, and again in 2016, that a system of donee reporting is neither necessary nor desirable, and he accordingly declined to issue the regulations that the statute says he “may prescribe.” We hold that subparagraph (D) is not self-executing and that it has no operative effect in the absence of the regulations to which the statute refers. The re-quirements of subparagraph (A) therefore remain fully applicable to petitioner’s 2007 gift, notwithstanding the Trust’s filing in 2014 of an amended return including the information described in subparagraph (B).12
An order will be issued denying petitioner’s motion for partial summary judgment.
GALE, THORNTON, GOEKE, HOLMES, KERRIGAN, BUCH, NEGA, and ASHFORD, JJ., agree with this opinion of the Court.
MARVEL and PUGH, JJ., concur in the result only.
HOLMES, J., concurring: I fully agree with the opinion of the Court, but write separately to highlight an interesting aspect of this case--yet another instance of tax law’s wandering away from general principles of administrative law.
Courts frequently face the problem of what to do with an agency that has ignored Congress’s invitation or command to write regulations. Should a court remedy the agency’s refusal to exercise the power delegated to it, and if so, how? This is a practical question that some academics have actually given some considered thought to; and Professor Grewal has concluded, after a thorough review I won’t cut and paste here, that to hold a statute self-executing and invoke “phantom regulations”--a court’s best guess at what regulations an agency might have issued--is never an appropriate response. See Amandeep S. Grewal, “Substance Over Form? Phantom Regulations and the Internal Revenue Code,” 7 Hous. Bus. &
But I also recognize that this isn’t a position that we need to reexamine today. As the Court correctly concludes,
But delegations from Congress can also be mandatory. Mandatory delegations are usually indicated by a command that the agency “shall issue regulations.” Grewal, supra at 43-44. Our current caselaw has created a series of imprecise tests for how to apply the Code when the Secretary fails to heed Congress’s mandate to issue regulations. We have the legislative-history approach, where we “delve[] into extra-statutory sources to determine legislative intent.” Grewal, supra, at 49-50; see Int’l Multifoods Corp. v. Commissioner, 108 T.C. 579, 586 (1997). If we find in the entrails of committee
But we’ve built up this body of tax law in apparently blissful disregard for the APA, which provides a generally applicable procedure to “compel agency action unlawfully withheld or unreasonably delayed.”
The Supreme Court has warned that “we are not inclined to carve out an approach to administrative review good for tax law only”. Mayo Found. for Med. Educ. & Research v. United States, 562 U.S. 44, 55 (2011). We have not been asked to reconsider our
FOLEY, J., dissenting: This case should be decided on the plain and unambiguous language of the statute. See Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 254 (2000) (“[A]s in any case of statutory construction, our analysis begins with the language of the statute . . . . And where the statutory language provides a clear answer, it ends there as well.” (quoting Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438 (1999))). The majority, however, without establishing or even asserting that
The language “files a return, on such form and in accordance with such regulations as the Secretary may prescribe” is found in only one place in title 26,
The majority acknowledges that “the donee reporting provision received little attention”. See op. Ct. p. 13. Indeed the only legislative history relating directly to
[s]ubstantiation is not required if the donee organization files a return with the IRS (in accordance with Treasury regulations) reporting information sufficient to substantiate the amount of the deductible contribution.
H.R. Conf. Rept. No. 103-213, at 565 (1993), 1993-3 C.B. at 443. This statement is consistent with the unambiguous language of the statute. The majority fails to cite anything that establishes Congressional intention to cede to Treasury the authority to determine whether
COLVIN, VASQUEZ, GUSTAFSON, PARIS, and MORRISON, JJ., agree with this dissent.
GUSTAFSON, J., dissenting:
(D) Substantiation not required for contributions reported by the donee organization.-- Subparagraph (A) shall not apply to a contribution if the donee organization files a return, on such form and in accordance with such regulations as the Secretary may prescribe, which includes the information described in subparagraph (B) with respect to the contribution. [Emphasis added.]
I would hold that petitioner’s donee organization successfully employed this alternative when it filed its amended Form 990, “Return of Organization Exempt from Income Tax”. In holding otherwise, the majority opinion makes a simple misreading of the phrase in (f)(8)(D) referring to “regulations”. This misreading appears no later than the headnote, which observes that “the Secretary has not issued regulations to implement the donee-reporting regime referred to in subparagraph (D).” See op. Ct. p. 1 (emphasis added). Strictly speaking, this observation is correct; but in fact the statute makes no mention of regulations to implement such a regime.1
Subparagraph (A) shall not apply to a contribution if the donee organization files a return which includes, on such form and in accordance with such regulations as the Secretary may prescribe, the information described in subparagraph (B) with respect to the contribution.
Rather, the statute provides that
For tax-exempt charitable organizations,2 the regulations already did (and still do) prescribe a “return”--i.e., Form 990, “Return of Organization Exempt from Income Tax”:
§ 1.6033-2. Returns by exempt organizations * * * (a) In general.--(1) * * * [E]very organization exempt from taxation under
section 501(a) shall file an annual information return
A hypothetical statute worded thus might support the argument that the donee reporting regime itself was to be the subject of regulations. But instead, in the statute as actually enacted, the only subject of regulations is the “return”.
specifically setting forth its items of gross income, gross receipts and disbursements, and such other information as may be prescribed in the instructions issued with respect to the return * * *.
(2)(i) * * * [E]very organization exempt from taxation under
section 501(a) , and required to file a return undersection 6033 and this section ... shall file its annual return on Form 990. * * *(ii) The information generally required to be furnished by an organization exempt under
section 501(a) is: * * *(f) The total of the contributions, gifts, grants and similar amounts received by it during the taxable year, and the names and addresses of all persons who contributed, bequeathed, or devised $5,000 or more (in money or other property) during the taxable year. * * * [Emphasis added.]
As the Commissioner has acknowledged on brief: “The legislative history suggests that, when Congress referred to ‘return,’ it meant the return under
As in effect in 1992--i.e., before the legislative initiative described in the opinion of the Court--the Form 990 had no prescribed schedule for identifying donors, but the instructions for Form 990 stated (at 8):
Line 1d-- Total contributions, etc.-- Enter the total of amounts reported on lines 1a through 1c.
Attached schedule.-- Schedule of contributors (not open to public inspection)
Caution: See Note (2) below.
Attach a schedule listing contributors who gave the organization, directly or indirectly, money, securities, or other property worth $5,000 or more during the year. If no one contributed the reportable minimum, the organization does not need to attach a schedule. Show each contributor’s
name and address, the total amount received, and the date received. Contributors include individuals, fiduciaries, partnerships, corporations, associations, trusts, or exempt organizations. * * * Note (2): Caution: If the organization files a copy of Form 990 and attachments with any state, do not include, in the attachments for the state, the schedule of contributors discussed above, unless the schedule is specifically required by the state with which the organization is filing the return. States that do not require the information might nevertheless make it available for public inspection along with the rest of the return.
Thus, under the status quo before the enactment of
When
By 2007, the IRS had prescribed a Schedule B, “Schedule of Contributors”. However, Schedule A, part III, line 3c asked--
Did the organization receive or hold an easement for conservation purposes, including easements to preserve * * * historic structures? If “Yes,” attach a detailed statement
--and the “detailed statement” was, again, to be composed by the organization. It was in such a “detailed statement” attached to its Form 990 that petitioner’s donee organization “include[d]”, in compliance with
When it applies,
Admittedly,
Nor does the legislative history suggest such a de facto veto power. That history, as described by the majority, see op. Ct. pp. 12-18, shows that Congress once considered but did not enact mandatory donee reporting as the primary substantiation of charitable contributions, and that the notion of donee reporting survives in
The Tax Court should not give to Treasury the power to veto
COLVIN, FOLEY, VASQUEZ, PARIS, and MORRISON, JJ., agree with this dissent.