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Tax Notes

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Tax Notes



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I like big ideas. The opportunity to work with them, and hopefully to add to them, is one of the joys of academic life. But perspective also is required. Not everything genuinely presents "macro" issues. As Freud supposedly said, “Sometimes a cigar is just a cigar.”

In Swallows Holding Ltd. v. Commissioner, the Tax Court, over three dissenting opinions, invalidated a return-filing timing rule in a Treasury regulation under section 882 of the !RC. It is clear that what drove the majority opinion was the perception that the timing rule was contrary to many previous cases interpreting the statute. As I read the majority and dissenting opinions, the prospect of writing about great issues danced in my head: matters such as (1) the relationship between Chevron and competing standards of deference, and (2) the significance for tax law of the Supreme Court's Brand X decision, dealing with when administrative rules may displace prior case law.

However, when I read the cases on which the Swallows majority relied, the need for a “plan B” became apparent. When those cases are carefully analyzed, the perceived tension between them and the regulation disappears. Indeed, understood in the context of the proper roles of the courts and Treasury, the cases actually support the validity of the regulation. As a result, Swallows does not present the “regulation versus case law” conflict that would sharpen Brand X and Chevron issues. Yet Swallows remains an interesting and important case, particularly because, in my opinion, the Swallows majority distorted the National Muffler' standard, converting it from a shield of deference to a sword of invalidation.

Accordingly, I will write two Swallows reports. This report, the first, treats the decision as it is. It explains why, given the compatibility of the regulation and the prior cases, Swallows was wrongly decided and should be reversed. This article also attempts to bring National Muffler back from the diversion it was taken on by Swallows. A future article will treat Swallows not as it is but as the Tax Court majority viewed it. That is, the second article will assume that the regulation is inconsistent with the prior cases. That assumption will allow exploration of Chevron and Brand X issues.


© 2006 Steve R. Johnson


First published in Tax Notes.

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