                                            INTERMOUNTAIN INSURANCE SERVICE OF VAIL, LIMITED
                                            LIABILITY COMPANY, THOMAS A. DAVIES, TAX MATTERS
                                                  PARTNER, PETITIONER v. COMMISSIONER OF
                                                     INTERNAL REVENUE, RESPONDENT *
                                                        Docket No. 25868–06.                           Filed May 6, 2010.

                                                  R filed a motion to vacate the Court’s prior decision and a
                                               motion to reconsider the Court’s prior opinion. R’s motions are
                                               premised on the retroactive application of temporary regula-
                                               tions issued after the Court issued its opinion and entered its
                                               decision. Held: R’s motions to reconsider and to vacate will be
                                               denied.

                                           Steven R. Anderson, for petitioner.
                                           Gary J. Merken, for respondent.
                                                                      SUPPLEMENTAL OPINION

                                         WHERRY, Judge: We issued an opinion and entered our
                                      decision in this case on September 1, 2009. Relying on
                                      Bakersfield Energy Partners, LP v. Commissioner, 128 T.C.
                                      207 (2007), affd. 568 F.3d 767 (9th Cir. 2009), we decided
                                      that the adjustments made in respondent’s final partnership
                                      administrative adjustment (FPAA) on which this case is based
                                      are barred by the general 3-year period of limitations in sec-
                                      tion 6501(a). 1 See Intermountain Ins. Serv. of Vail, LLC v.
                                      Commissioner, T.C. Memo. 2009–195. Respondent subse-
                                      quently issued two temporary regulations, sections
                                      301.6229(c)(2)–1T and 301.6501(e)–1T, Temporary Proced. &
                                      Admin. Regs., 74 Fed. Reg. 49322–49323 (Sept. 28, 2009),
                                        * This Opinion supplements our previously filed opinion in Intermountain Ins. Serv. of Vail,
                                      LLC v. Commissioner, T.C. Memo. 2009–195.
                                        1 Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986,

                                      as amended and in effect for the year at issue, and all Rule references are to the Tax Court
                                      Rules of Practice and Procedure.


                                                                                                                                        211




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                                      and on the basis of the application of those temporary regula-
                                      tions to this case, filed motions to vacate our decision and to
                                      reconsider our opinion. 2 The sole issue now before the Court
                                      is whether the temporary regulations compel us to grant
                                      respondent’s motions.

                                                                               Background
                                        The transactions at the heart of this case took place in
                                      1999 and were reported on the 1999 Form 1065, U.S. Part-
                                      nership Return of Income, of Intermountain Insurance
                                      Service of Vail, LLC (Intermountain), filed on September 15,
                                      2000. The details of the transactions are largely irrelevant to
                                      the issues we face today. Suffice it to say that in the pre-
                                      viously mentioned FPAA that respondent issued on September
                                      14, 2006, respondent determined that the transactions
                                      characterized as a tax shelter ‘‘were a sham, lacked economic
                                      substance and * * * [had] a principal purpose of * * *
                                      [reducing] substantially the present value of * * * [Inter-
                                      mountain’s] partners’ aggregate federal tax liability’’. Criti-
                                      cally, respondent’s determination revolved around Inter-
                                      mountain’s alleged overstatement of partnership basis.
                                        Petitioner timely petitioned this Court for review of the
                                      FPAA and moved for summary judgment on the ground that
                                      respondent had issued the FPAA beyond the general 3-year
                                         2 In our Sept. 1, 2009, opinion, we noted that, although respondent argued that sec.

                                      6501(e)(1)(A) applied, his arguments suggested that he meant to cite sec. 6229(c)(2) instead. See
                                      Intermountain Ins. Serv. of Vail, LLC v. Commissioner, supra n.3. Sec. 6501(e)(1)(A) extends the
                                      3-year period of limitations for assessing tax to 6 years from the due date or the date of the
                                      tax return, whichever is later. See sec. 6501(a). For tax attributable to a partnership item,
                                      the period of limitations remains open at least for 3 years after the date the partnership return
                                      was filed or 3 years after the last day, disregarding extensions, for filing the partnership return,
                                      whichever is later. See sec. 6229(a). Sec. 6229(c)(2) extends the sec. 6229(a) period. Although
                                      there is no period of limitations within which the Commissioner must issue an FPAA, partner-
                                      ship item adjustments made in an FPAA are time barred at the partner level if the FPAA is
                                      not issued within the applicable period of limitations for assessing tax against a partner attrib-
                                      utable to partnership items. See generally Curr-Spec Partners, L.P. v. Commissioner, 579 F.3d
                                      391 (5th Cir. 2009), affg. T.C. Memo. 2007–289; Rhone-Poulenc Surfactants & Specialties, L.P.
                                      v. Commissioner, 114 T.C. 533, 534–535, 542 (2000).
                                         Respondent has not provided support for his argument that sec. 6501(e)(1)(A) or sec.
                                      301.6501(e)–1T, Temporary Proced. & Admin. Regs., 74 Fed. Reg. 49322–49323 (Sept. 28, 2009),
                                      applies to this case. Respondent has only addressed an omission from Intermountain’s partner-
                                      ship return and time periods running from the filing of that return. Nevertheless, the parties
                                      refer to the temporary regulations in tandem. Respondent states in his motion to reconsider that
                                      ‘‘The temporary regulations apply to petitioner’s 1999 tax year’’. For the purposes of this Opin-
                                      ion, and because sec. 6501(e)(1)(A) and sec. 301.6501(e)–1T, Temporary Proced. & Admin. Regs.,
                                      supra, could affect the outcome of this case if a partner’s period of limitations was still open
                                      when the FPAA was issued, we will follow the parties’ lead and refer to the temporary regula-
                                      tions in tandem.




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                                      period of limitations for assessing tax against Intermoun-
                                      tain’s partners. See secs. 6229(a), 6501(a). Respondent con-
                                      ceded that the 3-year limitations period had expired but
                                      argued that an extended 6-year period of limitations applied
                                      instead as a result of Intermountain’s basis overstatement. 3
                                      See secs. 6229(c)(2), 6501(e)(1)(A). A dispute over the proper
                                      interpretation of sections 6229(c)(2) and 6501(e)(1)(A) ensued.
                                         Generally, a 6-year limitations period is triggered when a
                                      taxpayer or partnership ‘‘omits from gross income an amount
                                      properly includible therein which is in excess of 25 percent
                                      of the amount of gross income stated in the return’’. Sec.
                                      6501(e)(1)(A) (taxpayer); see sec. 6229(c)(2) (partnership).
                                      The focus of the parties’ dispute was whether an overstate-
                                      ment of basis constitutes an omission from gross income for
                                      purposes of triggering a 6-year limitations period.
                                         This was not an issue of first impression. In Bakersfield
                                      Energy Partners, LP v. Commissioner, supra, we held that a
                                      basis overstatement was not an omission from gross income
                                      for purposes of sections 6229(c)(2) and 6501(e)(1)(A). In
                                      reaching our conclusion, we applied the holding of Colony,
                                      Inc. v. Commissioner, 357 U.S. 28, 33 (1958), in which the
                                      Supreme Court was faced with identical language in section
                                      6501(e)(1)(A)’s predecessor—section 275(c) of the Internal
                                      Revenue Code of 1939. See Bakersfield Energy Partners, LP
                                      v. Commissioner, supra at 215 (‘‘We are unpersuaded by
                                      respondent’s attempt to distinguish and diminish the
                                      Supreme Court’s holding in Colony, Inc. v. Commissioner’’).
                                      The Supreme Court’s holding, as we described it, was ‘‘that
                                      the extended period of limitations applies to situations where
                                      specific income receipts have been ‘left out’ in the computa-
                                      tion of gross income and not when an understatement of
                                      gross income resulted from an overstatement of basis.’’ Id. at
                                      213. The Supreme Court had reviewed the statute’s legisla-
                                      tive history and determined that Congress had not intended
                                         3 The bar of the period of limitations is an affirmative defense, and petitioner bore the burden

                                      of proof. See Rules 39, 142(a); see also Highwood Partners v. Commissioner, 133 T.C. 1, 9 (2009).
                                      Petitioner established a prima facie case that the general 3-year period of limitations had ex-
                                      pired as of the date the FPAA was issued in this case, and respondent conceded as much. Ac-
                                      cordingly, and because respondent never suggested any other reason why the period of limita-
                                      tions with respect to any partner remained open, the burden of going forward shifted to respond-
                                      ent to establish that there was a greater-than-25-percent omission of gross income on a partner’s
                                      or the partnership’s return. See Highwood Partners v. Commissioner, supra at 9; see also Inter-
                                      mountain Ins. Serv. of Vail v. Commissioner, LLC, supra n.2.




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                                      a basis overstatement to be an omission from gross income.
                                      See Colony, Inc. v. Commissioner, supra at 33, 36.
                                         We adhered to our precedent in Bakersfield Energy Part-
                                      ners, LP v. Commissioner, supra, when we issued our Sep-
                                      tember 1, 2009, opinion in this case. See Intermountain Ins.
                                      Serv. of Vail, LLC v. Commissioner, T.C. Memo. 2009–195.
                                      Accordingly, in our September 1, 2009, order and decision,
                                      we granted petitioner’s motion for summary judgment and
                                      decided that the adjustments in respondent’s FPAA were
                                      barred by the general 3-year limitations period. That was not
                                      the end of the matter, however.
                                         On September 24, 2009, less than a month after our order
                                      and decision in this case, respondent and the Treasury
                                      Department issued temporary regulations under sections
                                      6229(c)(2) and 6501(e)(1)(A). See secs. 301.6229(c)(2)–1T and
                                      301.6501(e)–1T, Temporary Proced. & Admin. Regs., supra.
                                      These temporary regulations were simultaneously issued as
                                      proposed regulations. See sec. 7805(e). On September 28,
                                      2009, notice was published and comments were sought for
                                      sections 301.6229(c)(2)–1 and 301.6501(e)–1, Proposed
                                      Proced. & Admin. Regs., see Notice of Proposed Rulemaking
                                      by Cross-Reference to Temporary Regulations, 74 Fed. Reg.
                                      49354 (Sept. 28, 2009), and the temporary regulations were
                                      published in the Federal Register, see secs. 301.6229(c)(2)–1T
                                      and 301.6501(e)–1T, Temporary Proced. & Admin. Regs.,
                                      supra.
                                         The temporary regulations provide, in pertinent part, that
                                      ‘‘an understated amount of gross income resulting from an
                                      overstatement of unrecovered cost or other basis constitutes
                                      an omission from gross income for purposes of * * * [sections
                                      6229(c)(2) and 6501(e)(1)(A)].’’ See secs. 301.6229(c)(2)–1T
                                      and 301.6501(e)–1T, Temporary Proced. & Admin. Regs.,
                                      supra. The interpretation espoused by the temporary regula-
                                      tions runs contrary to the interpretation adopted by this
                                      Court in Bakersfield Energy Partners, LP v. Commissioner,
                                      128 T.C. 207 (2007), and by the Courts of Appeals for the
                                      Ninth and Federal Circuits in Bakersfield Energy Partners,
                                      LP v. Commissioner, 568 F.3d 767 (9th Cir. 2009), 4 and
                                        4 According to T.D. 9466, 2009–43 I.R.B. 551, 552, the temporary regulations are consistent

                                      with a suggestion by the U.S. Court of Appeals for the Ninth Circuit in Bakersfield Energy Part-
                                      ners, LP v. Commissioner, 568 F.3d 767, 778 (9th Cir. 2009), affg. 128 T.C. 207 (2007), that am-
                                      biguity in the statutory language may make the statutes susceptible to reinterpretation through




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                                      Salman Ranch Ltd. v. United States, 573 F.3d 1362 (Fed.
                                      Cir. 2009), respectively. See T.D. 9466, 2009–43 I.R.B. 551,
                                      552 (‘‘The Treasury Department and the Internal Revenue
                                      Service disagree with these courts that the Supreme Court’s
                                      reading of the predecessor to section 6501(e) in Colony
                                      applies to sections 6501(e)(1)(A) and 6229(c)(2).’’).
                                         Bolstered by the temporary regulations, respondent, on
                                      October 16, 2009, lodged—and on November 25, 2009, was
                                      permitted to file—an otherwise late motion to vacate our
                                      September 1, 2009, decision and a motion to reconsider
                                      our September 1, 2009, opinion. As the moving party,
                                      respondent bears the burden of proving entitlement to relief.
                                      See Kraasch v. Commissioner, 70 T.C. 623, 626 (1978).
                                      Respondent urges us to reconsider the case, this time
                                      eschewing our prior precedent in favor of the temporary
                                      regulations. Petitioner counters that the temporary regula-
                                      tions are either inapplicable, invalid, or otherwise not enti-
                                      tled to deference. On November 25, 2009, we ordered the par-
                                      ties to file briefs. Pursuant to our order, the parties filed
                                      opening briefs on January 5, 2010. Petitioner and respondent
                                      filed reply briefs on January 27 and February 1, 2010,
                                      respectively.

                                                                                 Discussion
                                      I. Motions To Reconsider and To Vacate
                                         Motions to reconsider and to vacate are governed by Rules
                                      161 and 162, respectively. Those rules establish filing dead-
                                      lines but provide no guidance on when the Court should
                                      grant or deny such motions. In the absence of more specific
                                      guidance, we look to caselaw and the Federal Rules of Civil
                                      Procedure. See Rule 1(b).
                                         The decision to grant motions to reconsider and to vacate
                                      lies within the discretion of the Court. Estate of Quick v.
                                      Commissioner, 110 T.C. 440, 441 (1998) (motion to
                                      reconsider); Kun v. Commissioner, T.C. Memo. 2004–273
                                      (motion to vacate). Motions to reconsider are generally
                                      ‘‘intended to correct substantial errors of fact or law and
                                      allow the introduction of newly discovered evidence that the
                                      moving party could not have introduced by the exercise of
                                      regulations. We address this infra note 24.




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                                      due diligence in the prior proceeding.’’ Knudsen v. Commis-
                                      sioner, 131 T.C. 185, 185 (2008). ‘‘Reconsideration is not the
                                      appropriate forum for rehashing previously rejected legal
                                      arguments or tendering new legal theories to reach the end
                                      result desired by the moving party.’’ Estate of Quick v.
                                      Commissioner, supra at 441–442. Motions to vacate are gen-
                                      erally not granted absent a showing of unusual cir-
                                      cumstances or substantial error, e.g., mistake, inadvertence,
                                      surprise, excusable neglect, newly discovered evidence, fraud,
                                      or other reason justifying relief. See, e.g., Fed. R. Civ. P.
                                      60(b); Brannon’s of Shawnee, Inc. v. Commissioner, 69 T.C.
                                      999 (1978).
                                         Importantly, an intervening change in the law can warrant
                                      the granting of both a motion to reconsider and a motion to
                                      vacate. See Alioto v. Commissioner, T.C. Memo. 2008–185. 5
                                      In Alioto v. Commissioner, T.C. Memo. 2006–199, the Court
                                      held that it lacked jurisdiction over ‘‘stand-alone’’ section
                                      6015(f) cases. After Congress expanded the Court’s jurisdic-
                                      tion to include such cases, see Tax Relief and Health Care
                                      Act of 2006, Pub. L. 109–432, div. C, sec. 408, 120 Stat. 3061,
                                      the taxpayer filed timely motions to reconsider and to vacate,
                                      which the Court granted. See Alioto v. Commissioner, T.C.
                                      Memo. 2008–185 (‘‘We agree that the Court correctly applied
                                      the caselaw as it existed at the time the Court issued Alioto
                                      I; however, we disagree that the motion for reconsideration
                                      should be denied. After the Court’s decision in Alioto I the
                                      law and the Court’s jurisdiction changed.’’ (Fn. ref. omitted.)).
                                         Respondent asks us to grant the motion to vacate in the
                                      ‘‘interests of justice’’ so that we ‘‘may grant the motion for
                                      reconsideration.’’ Citing Alioto v. Commissioner, T.C. Memo.
                                      2008–185, respondent further asserts that the issuance of the
                                      temporary regulations was an ‘‘unusual circumstance’’ war-
                                      ranting reconsideration of our September 1, 2009, opinion.
                                      Petitioner disagrees and attempts to distinguish Alioto v.
                                      Commissioner, T.C. Memo. 2008–185, noting that it involved
                                      ‘‘an act of [C]ongress * * *, not a regulation issued by
                                      Respondent, who was a litigant in the case.’’ Along these
                                      lines, petitioner warns that ‘‘Granting Respondent’s Motion
                                      under the circumstances of this case would give Respondent
                                        5 See also Servants of the Paraclete v. Does, 204 F.3d 1005, 1012 (10th Cir. 2000); Cornell v.

                                      Nix, 119 F.3d 1329, 1332–1333 (8th Cir. 1997); Matarese v. LeFevre, 801 F.2d 98, 106 (2d Cir.
                                      1986); McGrath v. Potash, 199 F.2d 166, 167 (D.C. Cir. 1952).




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                                      license to render litigation futile’’ because ‘‘In every case
                                      where * * * [respondent] receives an adverse decision,
                                      Respondent could simply restate its [sic] unsuccessful argu-
                                      ment as a temporary regulation, and then request
                                      reconsideration based upon the temporary regulation.’’
                                         Petitioner’s concerns are noteworthy; 6 however, they do
                                      not persuade us to deny respondent’s motions without first
                                      considering the applicability and potential impact of the tem-
                                      porary regulations. Ignoring the temporary regulations at
                                      this time would not dispel the evils envisioned by petitioner.
                                      Indeed, respondent could appeal our September 1, 2009, deci-
                                      sion and ask the appellate court to consider the issue of the
                                      temporary regulations in the first instance. Respondent has
                                      already done so in more than one case. 7 By neglecting the
                                      temporary regulations at this time we would not be pro-
                                      tecting the integrity of the judicial system, as petitioner sug-
                                      gests, but merely failing to fully complete our work. We see
                                      no compelling reason to wield our discretion to that end.
                                      Moreover, we question petitioner’s attempt to distinguish
                                      Alioto v. Commissioner, T.C. Memo. 2008–185, in this con-
                                      text. 8
                                         Accordingly, we proceed to consider the applicability and
                                      potential impact of the temporary regulations to this case. If,
                                      as petitioner contends, the temporary regulations do not
                                      apply, are invalid, or are otherwise not entitled to deference,
                                      we will deny respondent’s motions because it would be point-
                                      less to grant them. If, on the other hand, the temporary regu-
                                      lations apply, are valid, and are entitled to deference, we
                                      would be required to ascertain whether, after considering all
                                      other factors, respondent’s motions should be granted. We
                                      turn first to whether the temporary regulations apply to this
                                      case.
                                         6 Tax litigation is expensive, and respondent litigates with taxpayer-provided funds while peti-

                                      tioner and/or the limited liability company or its members must litigate with their own funds.
                                      If the law is allowed to change retroactively after a taxpayer has prevailed in one or more
                                      courts, thereby rendering their victory Pyrrhic, the perverse result will be to significantly dis-
                                      courage taxpayers from asserting their rights under the then-existing law.
                                         7 See Brief for the Appellant at 14, Salman Ranch, Ltd. v. Commissioner, No. 09–9015 (10th

                                      Cir., Feb. 16, 2010); Brief for the Petitioner at 17–18, Commissioner v. M.I.T.A., No. 09–60827
                                      (5th Cir., Mar. 3, 2010).
                                         8 See, e.g., Smiley v. Citibank (S.D.), N.A., 517 U.S. 735, 744 n.3 (1996), which we cited in

                                      our Nov. 25, 2009, order in this case granting respondent’s Oct. 16, 2009, motions for leave to
                                      file out of time the motions to reconsider and to vacate.




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                                      II. The Applicability of the Temporary Regulations
                                         The threshold issue in determining whether the temporary
                                      regulations apply to this case is whether the temporary regu-
                                      lations apply by their own terms. The ‘‘Effective/applicability
                                      date’’ provisions of the temporary regulations provide that
                                      ‘‘The rules of this section apply to taxable years with respect
                                      to which the applicable period for assessing tax did not
                                      expire before September 24, 2009.’’ Secs. 301.6229(c)(2)–1T(b)
                                      and 301.6501(e)–1T(b), Temporary Proced. & Admin. Regs.,
                                      supra.
                                         The starting point for interpreting a regulatory provision is
                                      its plain meaning. See Walker Stone Co. v. Secy. of Labor,
                                      156 F.3d 1076, 1080 (10th Cir. 1998) (‘‘When the meaning of
                                      a regulatory provision is clear on its face, the regulation
                                      must be enforced in accordance with its plain meaning.’’). We
                                      concluded in our September 1, 2009, opinion that the general
                                      3-year limitations period of section 6501(a) was the
                                      applicable period for assessing tax in this case and that it
                                      had expired some time before September 14, 2006. The plain
                                      meaning of the effective/applicability date provisions
                                      indicates that the temporary regulations do not apply to this
                                      case.
                                         Respondent argues to the contrary and in doing so begs the
                                      question 9 by advancing a notably convoluted interpretation
                                      of the effective/applicability date provisions:
                                      To determine whether the temporary regulations are applicable under the
                                      effective date provision, the Court must determine whether a six-year
                                      statute of limitations would be open for the taxable year at issue, as of
                                      September 24, 2009, without regard to what the standard for applying the
                                      statute of limitations might be. If the six-year limitations period could be
                                      open under some standard as of September 24, 2009, then the temporary
                                      regulations apply.

                                        Under respondent’s interpretation, the Court must depart
                                      from our precedent in Bakersfield Energy Partners, LP v.
                                      Commissioner, 128 T.C. 207 (2007), affd. 568 F.3d 767 (9th
                                           9 See   IRS Chief Counsel Notice CC–2010–001 (Nov. 23, 2009) stating:
                                      The temporary regulations apply to taxable years with respect to which the applicable period
                                      of limitations for assessing tax did not expire before September 24, 2009. Accordingly, the tem-
                                      porary regulations apply to any docketed Tax Court case in which the period of limitations
                                      under sections 6229(c)(2) and 6501(e)(1)(A), as interpreted in the temporary regulations, did not
                                      expire with respect to the tax year at issue, before September 24, 2009, and in which no final
                                      decision has been entered.




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                                      Cir. 2009), which held that a 3-year limitations period
                                      applies under the circumstances of this case. We must then
                                      launch a quest for some hypothetical standard that could
                                      trigger a 6-year limitations period. If we discover such a
                                      standard—and the temporary regulations conveniently
                                      supply us with one—then we must apply that standard to
                                      determine whether the period of limitations in this case
                                      could have been open as of September 24, 2009. If the limita-
                                      tions period could have been open under the hypothetical
                                      standard, then the temporary regulations apply to this case.
                                         Essentially, the key, according to respondent, is not
                                      whether the limitations period was actually open on Sep-
                                      tember 24, 2009, under then-applicable law but whether the
                                      limitations period could have been open on that date under
                                      hypothetical law. Distilled even further, respondent’s
                                      rationale suggests that the temporary regulations apply to
                                      this case because their application would trigger a 6-year
                                      limitations period. Respondent had phrased this argument
                                      more simply in his motion to reconsider: ‘‘The temporary
                                      regulations apply to petitioner’s 1999 tax year, because the
                                      period of limitations under sections 6229(c)(2) and
                                      6501(e)(1)(A), as interpretated in the regulations, remains
                                      open with respect to that year.’’ (Emphasis added.) 10
                                         Ordinarily, an agency’s interpretation of its own regulation
                                      is controlling unless it is ‘‘plainly erroneous or inconsistent
                                      with the regulation.’’ Auer v. Robbins, 519 U.S. 452, 461
                                      (1997) (internal quotation marks omitted). 11 Here, however,
                                      the Court concludes that respondent’s interpretation of the
                                      temporary regulations’ effective/applicability date provisions
                                      is erroneous and inconsistent with the regulations. Specifi-
                                      cally, we find the interpretation to be irreparably marred by
                                      circular, result-driven logic and the wishful notion that the
                                      temporary regulations should apply to this case because
                                      Intermountain was involved in what he believes was an abu-
                                      sive tax transaction. For these reasons, we refuse to accord
                                      respondent’s interpretation deferential treatment.
                                           10 See
                                               supra note 9.
                                           11 See
                                               also Ariz. Pub. Serv. Co. v. U.S. EPA, 562 F.3d 1116, 1123 n.5 (10th Cir. 2009); Solis
                                      v. Summit Contractors, Inc., 558 F.3d 815, 823 (8th Cir. 2009); Estate of Focardi v. Commis-
                                      sioner, T.C. Memo. 2006–56 (‘‘Our view is further supported by the well-established principle
                                      that the judiciary should accord substantial deference to the Commissioner’s interpretation of
                                      Treasury regulations’’).




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                                        The plain meaning of the temporary regulations’ effective/
                                      applicability date provisions indicates that the temporary
                                      regulations do not apply to this case because the applicable
                                      period of limitations expired before September 24, 2009. 12 It
                                      would therefore be futile to grant respondent’s motions to
                                      reconsider and to vacate, both of which are premised on the
                                      application of the temporary regulations to this case. While
                                      the foregoing establishes a plausible ground to rule against
                                      respondent’s motions, it becomes compelling when combined
                                      with our discussion below. 13
                                      III. Judicial Deference
                                         We next turn to whether the temporary regulations, if
                                      applicable, deserve judicial deference. Courts have long held
                                      that Federal tax regulations are entitled to some degree of
                                      deference. This is in recognition of the fact that ‘‘Congress
                                      has delegated to the [Secretary of the Treasury and his dele-
                                      gate, the] Commissioner [of Internal Revenue], not to the
                                      courts, the task of prescribing all needful rules and regula-
                                      tions for the enforcement of the Internal Revenue Code.’’
                                      Natl. Muffler Dealers Association, Inc. v. United States, 440
                                      U.S. 472, 477 (1979) (internal quotation marks omitted). Yet,
                                      the exact amount of deference owed to Federal tax regula-
                                      tions remains a source of debate.
                                         Petitioner asserts that the temporary regulations are only
                                      entitled to deference under Skidmore v. Swift & Co., 323
                                      U.S. 134, 140 (1944), because they are interpretive regula-
                                      tions. Respondent counters that the more deferential
                                         12 The Court recognizes that respondent may argue that the decisions we rely upon, Bakers-

                                      field Energy Partners, LP v. Commissioner, 568 F.3d 767 (9th Cir. 2009), and Salman Ranch
                                      Ltd. v. United States, 573 F.3d 1362 (Fed. Cir. 2009), holding that the limitations period had
                                      expired before Sept. 24, 2009, do not, in his opinion, make it so. There are 11 other Courts of
                                      Appeals and the Supreme Court still to be heard from, and by accepting as settled law the Ba-
                                      kersfield and Salman Ranch results our rationale may, in respondent’s view, also beg the ques-
                                      tion. Respondent, however, cites no court authorities equivalent to those of the appellate court
                                      decisions, and although he cites the temporary regulations, courts have traditionally determined
                                      the meaning of statutes. See Chevron U.S.A. Inc. v. Natural Res. Def. Council, 467 U.S. 837,
                                      843 n.9 (1984) (stating that ‘‘The judiciary is the final authority on issues of statutory construc-
                                      tion’’). Thus we believe our position is appropriate. We address in section III below why in addi-
                                      tion to Bakersfield Energy Partners, LP v. Commissioner, supra, and Salman Ranch Ltd. v.
                                      United States, supra, we conclude that the 3-year limitations period applied to this case before
                                      Sept. 24, 2009.
                                         13 We also recognize that respondent could amend the temporary regulations’ effective/applica-

                                      bility date provisions and file renewed motions to reconsider and to vacate based on those
                                      amended provisions, thereby extending this dispute to yet another case. See Murrell v. Shalala,
                                      43 F.3d 1388, 1389 (10th Cir. 1994).




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                                      standard in Chevron U.S.A. Inc. v. Natural Res. Def. Council,
                                      467 U.S. 837, 842–843 (1984), applies and that, if not, then
                                      the temporary regulations at least fall under Natl. Muffler
                                      Dealers Association, Inc. We need not resolve the parties’ dis-
                                      pute on this issue because, even if the temporary regulations
                                      are entitled to review under Chevron, they face a formidable
                                      obstacle to deference—Colony, Inc. v. Commissioner, 357 U.S.
                                      28 (1958). 14
                                         The temporary regulations were not issued on a blank
                                      slate. In its 1958 opinion in Colony, Inc., the Supreme Court
                                      interpreted the same statutory language and held that a
                                      basis overstatement was not an omission from gross income.
                                      Id. More than 50 years later, respondent and the Treasury
                                      Department issued the temporary regulations and reached
                                      the opposite conclusion. The question is whether we are
                                      bound by the agency’s construction of the statute in the tem-
                                      porary regulations or by the Supreme Court’s prior deter-
                                      mination of congressional intent and the Internal Revenue
                                      Code’s requirements, as set forth in Colony, Inc. Assuming
                                      respondent is correct that the temporary regulations are enti-
                                      tled to Chevron deference, the answer to this question lies in
                                      Natl. Cable & Telecomms. Association v. Brand X Internet
                                      Servs., 545 U.S. 967, 982 (2005).
                                         ‘‘A court’s prior judicial construction of a statute trumps an
                                      agency construction otherwise entitled to Chevron deference
                                      only if the prior court decision holds that its construction fol-
                                      lows from the unambiguous terms of the statute and thus
                                      leaves no room for agency discretion.’’ Id. In so holding, the
                                      Supreme Court reasoned as follows:
                                         14 Respondent maintains that Colony, Inc. v. Commissioner, 357 U.S. 28 (1958), does not con-

                                      trol the interpretation of secs. 6229(c)(2) and 6501(e)(1)(A), see T.D. 9466, supra, and that, in
                                      any event, the Supreme Court’s and respondent’s constructions are not necessarily inconsistent.
                                      We held otherwise in Bakersfield Energy Partners, LP v. Commissioner, 128 T.C. 207 (2007),
                                      and in our Sept. 1, 2009, opinion in this case. See Intermountain Ins. Serv. of Vail, LLC v. Com-
                                      missioner, T.C. Memo. 2009–195. We rejected respondent’s arguments in the process, and re-
                                      hashing them now even in this context is not necessary. See Estate of Quick v. Commissioner,
                                      110 T.C. 440, 441 (1998). As we noted previously, we are hesitant to contradict the Supreme
                                      Court’s ruling in Colony. See Intermountain Ins. Serv. of Vail, LLC v. Commissioner, supra n.5.
                                      The Supreme Court has advised lower courts that ‘‘If a precedent of this Court [the Supreme
                                      Court] has direct application in a case, yet appears to rest on reasons rejected in some other
                                      line of decisions, the * * * [lower courts] should follow the case which directly controls, leaving
                                      to this Court the prerogative of overruling its own decisions.’’ Rodriguez de Quijas v. Shearson/
                                      Am. Express, Inc., 490 U.S. 477, 484 (1989). We rule that our analysis here of the legislative
                                      history behind the Colony decision provides further, and we believe determinative, support for
                                      those opinions.




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                                      [A]llowing a judicial precedent to foreclose an agency from interpreting an
                                      ambiguous statute * * * would allow a court’s interpretation to override
                                      an agency’s. Chevron’s premise is that it is for agencies, not courts, to fill
                                      statutory gaps. * * * The better rule is to hold judicial interpretations con-
                                      tained in precedents to the same demanding Chevron step one standard
                                      that applies if the court is reviewing the agency’s construction on a blank
                                      slate: Only a judicial precedent holding that the statute unambiguously
                                      forecloses the agency’s interpretation, and therefore contains no gap for the
                                      agency to fill, displaces a conflicting agency construction. [Id. at 982–
                                      983. 15]

                                        We are therefore directed to apply Chevron step one by
                                      determining whether the Supreme Court in Colony, Inc. v.
                                      Commissioner, supra, found the statutory provision at issue
                                      to be unambiguous. If so, there is no gap left for the tem-
                                      porary regulations to fill with respect to the statutory provi-
                                      sions at issue here. The first step in Chevron’s two-step anal-
                                      ysis is to ask ‘‘whether Congress has directly spoken to the
                                      precise question at issue.’’ Chevron U.S.A. Inc. v. Natural
                                      Res. Def. Council, supra at 842. ‘‘If the intent of Congress is
                                      clear, that is the end of the matter, for the court, as well as
                                      the agency, must give effect to the unambiguously expressed
                                      intent of Congress.’’ 16 Id. at 842–843.
                                        When determining Congress’ intent, Chevron instructs us
                                      to employ ‘‘traditional tools of statutory construction.’’ Id. at
                                      843 n.9. Many courts, including the Courts of Appeals to
                                      which this case might be appealed, 17 have accepted the use
                                      of legislative history as an important element in Chevron
                                        15 In a concurring opinion, Justice Stevens suggested that this holding ‘‘would not necessarily

                                      be applicable to a decision by this Court that would presumably remove any pre-existing ambi-
                                      guity.’’ Natl. Cable & Telecomms. Association v. Brand X Internet Servs., 545 U.S. 967, 1003
                                      (2005) (Stevens, J., concurring). Justice Stevens’ suggestion has indeed sparked debate over the
                                      applicability of Brand X. Although that debate is still largely open, we note, without approval
                                      or disapproval, that the U.S. Court of Appeals for the Tenth Circuit has held that Brand X does
                                      apply when the prior judicial construction is the Supreme Court’s. See Hernandez-Carrera v.
                                      Carlson, 547 F.3d 1237, 1248 (10th Cir. 2008) (‘‘[W]e conclude that the holding of Brand X ap-
                                      plies whether the judicial precedent at issue is that of a lower court or the Supreme Court.’’).
                                        16 The second step of Chevron specifies as follows:


                                      If, however, the court determines Congress has not directly addressed the precise question at
                                      issue, the court does not simply impose its own construction on the statute, as would be nec-
                                      essary in the absence of an administrative interpretation. Rather, if the statute is silent or am-
                                      biguous with respect to the specific issue, the question for the court is whether the agency’s an-
                                      swer is based on a permissible construction of the statute. [Chevron U.S.A. Inc. v. Natural Res.
                                      Def. Council, 467 U.S. at 843; fn. refs. omitted.]
                                         17 In our Sept. 1, 2009, opinion, we indicated that, absent stipulation to the contrary, this case

                                      may be appealable to the Court of Appeals for the Eighth, Tenth, or D.C. Circuit. See Inter-
                                      mountain Ins. Serv. of Vail, LLC v. Commissioner, T.C. Memo. 2009–195 n.4 (citing Golsen v.
                                      Commissioner, 54 T.C. 742, 757 (1970), affd. 445 F.2d 985 (10th Cir. 1971)). We did not answer
                                      the question of proper venue and do not do so now. Id.




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                                      step one. See, e.g., Anderson v. U.S. Dept. of Labor, 422 F.3d
                                      1155, 1180 (10th Cir. 2005) (‘‘To determine whether Congress
                                      had an intent on the precise question at issue, courts utilize
                                      the traditional tools of statutory construction, including the
                                      statutory language and legislative history.’’). 18
                                         Therefore, in determining whether the Supreme Court in
                                      Colony, Inc. v. Commissioner, 357 U.S. 28 (1958), found the
                                      statutory provision at issue to be unambiguous, we will con-
                                      sider the Court’s analysis of both the statutory language and
                                      its legislative history. 19 Respondent calls attention to the
                                      Supreme Court’s statement that ‘‘Although we are inclined to
                                      think that the statute on its face lends itself more plausibly
                                      to the taxpayer’s interpretation, it cannot be said that the
                                      language is unambiguous.’’ 20 Colony, Inc. v. Commissioner,
                                      supra at 33. In doing so, respondent ignores the Supreme
                                      Court’s subsequent review of, and reliance on, the statute’s
                                      legislative history. Although the Supreme Court initially
                                      found the statutory provision ambiguous, that was only a
                                      preliminary conclusion before considering the statute’s legis-
                                      lative history. After thoroughly reviewing the legislative his-
                                      tory, 21 the Supreme Court concluded that Congress’ intent
                                         18 See Catawba County v. EPA, 571 F.3d 20, 35 (D.C. Cir. 2009) (‘‘To be sure, a statute may

                                      foreclose an agency’s preferred interpretation despite such textual ambiguities if its structure,
                                      legislative history, or purpose makes clear what its text leaves opaque.’’); North Dakota ex rel.
                                      Olson v. Ctrs. for Medicare & Medicaid Servs., 403 F.3d 537, 539–540 (8th Cir. 2005); see also
                                      Miccosukee Tribe of Indians v. United States, 566 F.3d 1257, 1273 (11th Cir. 2009); New York
                                      v. U.S. Dept. of Health & Human Servs.’ Admin. for Children & Families, 556 F.3d 90, 97 (2d
                                      Cir. 2009); Natural Res. Def. Council v. U.S. EPA, 526 F.3d 591, 603 (9th Cir. 2008); Wheatland
                                      Tube Co. v. United States, 495 F.3d 1355, 1359–1360 (Fed. Cir. 2007); Succar v. Ashcroft, 394
                                      F.3d 8, 22–23 (1st Cir. 2005). But see United States v. Geiser, 527 F.3d 288, 292 (3d Cir. 2008);
                                      Bankers Life & Cas. Co. v. United States, 142 F.3d 973, 983 (7th Cir. 1998).
                                         The Supreme Court has sent mixed signals about the use of legislative history in Chevron
                                      step one. In Chevron itself, the Court considered legislative history as part of step one. Chevron
                                      U.S.A. Inc. v. Natural Res. Def. Council, 467 U.S. at 862. It has continued to do so in more
                                      recent opinions, and we deduce that it intends to continue this practice. See Gen. Dynamics
                                      Land Sys., Inc. v. Cline, 540 U.S. 581, 587–590, 600 (2004); see also Zuni Pub. Sch. Dist. No.
                                      89 v. Dept. of Educ., 550 U.S. 81, 90–91 (2007). Nevertheless, on occasion, the Court has stopped
                                      short of employing traditional tools of statutory construction, including legislative history. See
                                      Negusie v. Holder, 555 U.S. ll, ll, 129 S. Ct. 1159, 1183 (2009) (Thomas, J., dissenting).
                                         19 Although we have found no opinion in which a court considered legislative history when

                                      applying Brand X, we see no reason why a court—if it considers legislative history when apply-
                                      ing Chevron step one—would not also consider it when applying Brand X.
                                         20 Both parties also refer to the Supreme Court’s observation that ‘‘the conclusion we reach

                                      is in harmony with the unambiguous language of § 6501(e)(1)(A) of the Internal Revenue Code
                                      of 1954.’’ Colony, Inc. v. Commissioner, 357 U.S. at 37. We decline both parties’ requests to at-
                                      tach meaning to that statement.
                                         21 Hearings Before the House Comm. on Ways and Means, 73d Cong., 2d Sess. 139, 149

                                      (1934); H. Rept. 704, 73d Cong., 2d Sess. 35 (1934), 1939–1 C.B. (Part 2) 554, 580; S. Rept. 558,
                                      73d Cong., 2d Sess. 43–44 (1934), 1939–1 C.B. (Part 2) 586, 619.




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                                      was clear and that the statutory provision was unambiguous.
                                      Id. at 33, 36.
                                         Specifically, the Supreme Court found the legislative his-
                                      tory to be ‘‘persuasive evidence that Congress was addressing
                                      itself to the specific situation where a taxpayer actually
                                      omitted some income receipt or accrual in his computation of
                                      gross income, and not more generally to errors in that com-
                                      putation arising from other causes.’’ Id. at 33 (emphasis
                                      added). It further indicated that ‘‘this history shows to our
                                      satisfaction that the Congress intended an exception to the
                                      usual three-year statute of limitations only in the restricted
                                      type of situation already described [an omission of an item
                                      of gross income].’’ Id. at 36. ‘‘We think that in enacting §
                                      275(c) Congress manifested no broader purpose than to give
                                      the Commissioner an additional two years to investigate tax
                                      returns in cases where, because of a taxpayer’s omission to
                                      report some taxable item, the Commissioner is at a special
                                      disadvantage in detecting errors.’’ Id.
                                         In so holding, the Supreme Court found that the statute’s
                                      legislative history clarified its otherwise ambiguous text and,
                                      as a result, explicated Congress’ intent and the meaning of
                                      the statutory provision. Thus, the Supreme Court’s opinion in
                                      Colony, Inc. v. Commissioner, supra, ‘‘unambiguously fore-
                                      closes the agency’s interpretation’’ of sections 6229(c)(2) and
                                      6501(e)(1)(A) and displaces respondent’s temporary regula-
                                      tions. 22 See Natl. Cable & Telecomms. Association v. Brand
                                      X Internet Servs., supra at 983. Consequently, the temporary
                                      regulations 23 are invalid and are not entitled to deferential
                                      treatment. 24
                                        22 We recognize that Colony, Inc. v. Commissioner, 357 U.S. 28 (1958), predated both Chevron

                                      U.S.A. Inc. v. Natural Res. Def. Council, supra, and Natl. Cable & Telecomms. Association v.
                                      Brand X Internet Servs., supra, so that the Supreme Court could not have been aware of the
                                      standards against which its opinion would be tested. We agree, however, with the U.S. Court
                                      of Appeals for the Fourth Circuit, which stated that ‘‘[w]e * * * do not hold that a court must
                                      say in so many magic words that its holding is the only permissible interpretation of the statute
                                      in order for that holding to be binding on an agency.’’ Fernandez v. Keisler, 502 F.3d 337, 347
                                      (4th Cir. 2007).
                                        23 See supra note 2; Intermountain Ins. Serv. of Vail, LLC v. Commissioner, T.C. Memo. 2009–

                                      195 n.3.
                                        24 Respondent suggests that the U.S. Court of Appeals for the Ninth Circuit, in Bakersfield

                                      Energy Partners, LP v. Commissioner, 568 F.3d 767 (9th Cir. 2009), invited respondent to issue
                                      the temporary regulations. The Court of Appeals acknowledged that the Supreme Court in Col-
                                      ony, Inc. v. Commissioner, supra, found sec. 275(c) to be ambiguous and stated that ‘‘The IRS
                                      may have the authority to promulgate a reasonable reinterpretation of an ambiguous provision
                                      of the tax code, even if its interpretation runs contrary to the Supreme Court’s ‘opinion as to
                                      the best reading’ of the provision.’’ Bakersfield Energy Partners, LP v. Commissioner, supra at




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                                      IV. Retroactivity
                                         We next turn to petitioner’s concern that the temporary
                                      regulations would have an impermissible retroactive effect if
                                      we applied them in this case. Respondent attempts to defuse
                                      petitioner’s concern by arguing that the temporary regula-
                                      tions ‘‘are not retroactive as applied in this case’’ but that,
                                      even if they were, they would be permissibly retroactive.
                                      Thus, two issues emerge: First, whether the temporary regu-
                                      lations would have a retroactive effect if applied in this case,
                                      and second, if so, whether the retroactive effect would be
                                      permissible. However, in the light of our holdings above
                                      regarding the regulations’ effective date and their validity,
                                      we need not answer these questions to resolve respondent’s
                                      motions in this case. We therefore leave them for another
                                      day.

                                                                                 Conclusion
                                        In the light of the above holdings, we find it unnecessary
                                      to address petitioner’s other concerns with respect to the
                                      temporary regulations. The Court has considered all of
                                      respondent’s contentions, arguments, requests, and state-
                                      ments. To the extent not discussed herein, we conclude that
                                      they are meritless, moot, or irrelevant.
                                        To reflect the foregoing,
                                                                                  An appropriate order will be issued.
                                        Reviewed by the Court.
                                        COLVIN, WELLS, VASQUEZ, GOEKE, KROUPA, and PARIS, JJ.,
                                      agree with this majority opinion.


                                      778 (quoting Natl. Cable & Telecomms. Association v. Brand X Internet Servs., 545 U.S. at 983).
                                         The Court of Appeals did not indicate definitively whether any such temporary regulations
                                      would actually trump the Supreme Court’s prior judicial construction. This may flow from the
                                      possibly unresolved issue of whether legislative history should be considered when applying
                                      Chevron step one. Compare Natural Res. Def. Council v. U.S. EPA, supra at 603 (‘‘An examina-
                                      tion of the statutory language and its legislative history assists us in this inquiry [Chevron step
                                      one]’’.), with Schneider v. Chertoff, 450 F.3d 944, 955 n.15 (9th Cir. 2006) (‘‘Although we cannot
                                      consider legislative history under the first prong of Chevron, * * * we note that the Secretary’s
                                      regulation subverts the very intent of the Nursing Relief Act.’’). In any event, we will not specu-
                                      late as to the precise meaning of the Court of Appeals’ statement, particularly when, as in this
                                      case, we are not bound by that court’s caselaw because this case is not appealable, absent stipu-
                                      lation to the contrary, to that court. See Golsen v. Commissioner, 54 T.C. at 757.




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                                        GUSTAFSON and MORRISON, JJ., did not participate in the
                                      consideration of this opinion.



                                         COHEN, J., concurring: I concur in the result in this case.
                                      I would reach the same result, however, on narrower grounds
                                      relating to motions to vacate and reconsider or untimely
                                      motions to amend pleadings. Moreover, I would adopt peti-
                                      tioner’s distinction of Alioto v. Commissioner, T.C. Memo.
                                      2008–185, emphasizing the difference between congressional
                                      action there and what occurred here.
                                         I would defer discussion of the difficult and divisive issues
                                      regarding retroactive regulations, temporary regulations
                                      promulgated without notice and an opportunity for comment,
                                      and the degree of deference to which these regulations and
                                      Treasury regulations generally are entitled. Many cases to be
                                      decided in the future, including those now on appeal, will
                                      necessarily present those issues. This petitioner should not
                                      bear the burden of relitigating this case on a playing field
                                      unilaterally redesigned by the adverse party after petitioner
                                      has prevailed at this level.
                                         GALE, THORNTON, and MARVEL, JJ., agree with this
                                      concurring opinion.



                                           HALPERN and HOLMES, JJ., concurring in the result only:
                                      I. Introduction
                                         Respondent asks that, ‘‘in the interests of justice’’, we
                                      vacate our order and decision so that we may reconsider our
                                      opinion ‘‘to correct a substantial error of law’’ resulting from
                                      the ‘‘unusual circumstance’’ of the Secretary’s issuing tem-
                                      porary regulations ostensibly overruling the authority on
                                      which we relied 23 days earlier in deciding this case. 1
                                      Understandably, petitioner cries foul, arguing first and fore-
                                      most that respondent cannot meet the high standards estab-
                                      lished by this Court for granting either a motion to vacate,
                                      see Taylor v. Commissioner, T.C. Memo. 1987–403, or a
                                        1 The temporary regulations in question (the temporary regulations) are secs. 301.6229(c)(2)–

                                      1T and 301.6501(e)–1T, Temporary Proced. & Admin. Regs., 74 Fed. Reg. 49322 (Sept. 28, 2009).




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                                      motion to reconsider, see Estate of Quick v. Commissioner,
                                      110 T.C. 440, 441 (1998). The majority finds no reason to
                                      resolve the merits of that argument, however, because, it
                                      says, even if it were to deny the motions on that ground,
                                      respondent might appeal our decision and, ‘‘[b]y neglecting
                                      the temporary regulations at this time[,] we would not be
                                      protecting the integrity of the judicial system * * * but
                                      merely failing to fully complete our work.’’ Majority op. p.
                                      217. The majority then proceeds to hold that the temporary
                                      regulations are both prospective (and therefore inapplicable
                                      to this case) and, because they are unambiguously in conflict
                                      with the statute, invalid. Principles of judicial restraint
                                      counsel against making unnecessarily broad pronouncements
                                      when a case can be fully resolved on a narrower ground. Cf.
                                      Greater New Orleans Broad. Association, Inc. v. United
                                      States, 527 U.S. 173, 184 (1999) (discussing constitutional
                                      interpretation). Moreover, by discrediting the substance of
                                      the temporary regulations themselves, the majority has
                                      assured petitioner a trip to a Court of Appeals that he might
                                      avoid were we simply to stamp the motions denied or to dis-
                                      pose of them on grounds particular to this case, as Judge
                                      Cohen suggests. 2
                                        Since the majority has chosen to address the effective date
                                      of the temporary regulations and their substantive validity,
                                      we feel compelled to comment. We are persuaded by neither
                                      of the majority’s analyses and would, before addressing any
                                      aspect of substantive validity, consider first the logically
                                      prior question of the procedural validity of the temporary
                                      regulations. With respect to that question, we believe that
                                      petitioner has the better argument.
                                      II. Applicability of the Temporary Regulations
                                         The majority concludes: ‘‘The plain meaning of the effec-
                                      tive/applicability date provisions indicates that the tem-
                                      porary regulations do not apply to this case.’’ Majority op. p.
                                      218. In fact, the temporary regulations provide: ‘‘The rules of
                                      this section apply to taxable years with respect to which the
                                      applicable period for assessing tax did not expire before Sep-
                                        2 In its haste to protect the integrity of the judicial system and to fully complete its work,

                                      the majority ‘‘question[s]’’ petitioner’s attempts to distinguish Alioto v. Commissioner, T.C.
                                      Memo. 2008–185, but it does not stop to explain or to resolve those questions. Majority op. p.
                                      217.




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                                      tember 24, 2009.’’ Secs. 301.6229(c)(2)–1T(b), 301.6501(e)–
                                      1T(b), Temporary Proced. & Admin. Regs., 74 Fed. Reg.
                                      49322, 49323 (Sept. 28, 2009). The relevant dates are as fol-
                                      lows:
                                             Tax year ...................................................................               1999
                                             Return filed ..............................................................    Sept. 15,   2000
                                             FPAA mailed ............................................................       Sept. 14,   2006
                                             Petition filed ............................................................      Dec. 4,   2006
                                             Order/decision ..........................................................       Sept. 1,   2009
                                             Temp. regs. effective date .......................................             Sept. 24,   2009

                                         Section 6229(a) provides that, except as otherwise provided
                                      in the section, the period of limitations for making assess-
                                      ments with respect to partnership items is 3 years. Section
                                      6229(c)(2) substitutes 6 years for 3 years in the case of a
                                      substantial omission of income. The period for making
                                      assessments—whether 3 years or 6 years—is suspended by
                                      the mailing of an FPAA until our decision in the case becomes
                                      final (or, if no petition is filed, the period to petition expires)
                                      and for 1 year thereafter. See sec. 6229(d). Because of
                                      respondent’s motion to vacate order and decision, our deci-
                                      sion in this case has not yet become final.
                                         The majority claims: ‘‘The plain meaning of the temporary
                                      regulations’ effective/applicability date provisions indicates
                                      that the temporary regulations do not apply to this case
                                      because the applicable period of limitations expired before
                                      September 24, 2009.’’ Majority op. p. 220. According to
                                      respondent, the applicable period of limitations did not expire
                                      before September 24, 2009, because, as a result of the tem-
                                      porary regulations, ‘‘the applicable period for assessing tax’’
                                      is the 6-year period prescribed by section 6229(c)(2), which 6-
                                      year period had not run on September 14, 2006, when the
                                      FPAA was mailed. The filing of the petition then suspended
                                      the running of that 6-year period to and beyond September
                                      24, 2009. The majority counters: ‘‘We concluded in our Sep-
                                      tember 1, 2009, opinion [which antedates the September 24,
                                      2009, temporary regulations] that the general 3-year limita-
                                      tions period of section 6501(a) was the applicable period for
                                      assessing tax in this case and that it had expired some time
                                      before September 14, 2006.’’ Majority op. p. 218. It adds:
                                      ‘‘The plain meaning of the effective/applicability date provi-
                                      sions indicates that the temporary regulations do not apply
                                      to this case.’’ Majority op. p. 218.




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                                         Since the temporary regulations do not define the term
                                      ‘‘applicable period for assessing tax’’ (by stating whether the
                                      regulation itself is to be taken into account in determining
                                      the applicable period), the meaning of the term is less than
                                      plain, so it must be construed. What ground is there, then,
                                      for the majority to conclude that the effective date language
                                      of the temporary regulations precludes their application to
                                      this case? In other words, how can it construe the expression
                                      ‘‘the applicable period for assessing tax’’ to mean ‘‘the 3-year
                                      period for assessing tax’’? Perhaps the majority has in mind
                                      section 7805(b), as applicable to the temporary regulations. 3
                                      As so applicable, the section reads:
                                         SEC. 7805(b). RETROACTIVITY OF REGULATIONS OR RULINGS.—The Sec-
                                      retary may prescribe the extent, if any, to which any ruling or regulation,
                                      relating to the internal revenue laws, shall be applied without retroactive
                                      effect. [Sec. 7805(b) (pre-1996).]

                                      We have said: ‘‘Under section 7805(b) [pre-1996], there is a
                                      presumption that every regulation will operate retroactively,
                                      unless the Secretary specifies otherwise.’’ UnionBanCal Corp.
                                      v. Commissioner, 113 T.C. 309, 327 (1999), affd. 305 F.3d 976
                                      (9th Cir. 2002). Here, undoubtedly, the Secretary did specify
                                      something with respect to the retroactivity (applicability) of
                                      the temporary regulations; viz, the rules therein ‘‘apply to
                                      taxable years with respect to which the applicable period for
                                      assessing tax did not expire before September 24, 2009.’’
                                      Secs. 301.6229(c)(2)–1T(b), 301.6501(e)–1T(b), Temporary
                                      Proced. & Admin. Regs., supra. Perhaps the majority believes
                                      that the Secretary drafted the temporary regulations
                                      intending to limit retroactivity to taxable years for which the
                                      3-year period of limitations had not expired on September 24,
                                      2009, but he (unlike the majority) realizes that that meaning
                                      is less than plain and now has changed his mind and is
                                      taking advantage of his lack of clarity to pull a fast one.
                                        3 In 1996, sec. 7805(b) was amended by the Taxpayer Bill of Rights 2, Pub. L. 104–168, sec.

                                      1101(a), 110 Stat. 1468 (1996), to limit the retroactive application of Treasury tax regulations.
                                      The 1996 amendment is effective with respect to regulations that relate to statutory provisions
                                      enacted on or after July 30, 1996. See id. sec. 1101(b), 110 Stat. 1469. The parties seem to agree
                                      (and the majority does not dispute) that the 1996 amendment does not apply to the temporary
                                      regulations since the statutory provisions in question, secs. 6229(c)(2) and 6501(e)(1)(A), were
                                      enacted before that date. Sec. 301.6229(c)(2)–1T, Temporary Proced. & Admin. Regs., supra, was
                                      issued under the authority of both secs. 6230(k) and 7805, while sec. 301.6501(e)–1T, Temporary
                                      Proced. & Admin. Regs., supra, was issued solely under the authority of sec. 7805. T.D. 9466,
                                      74 Fed. Reg. 49322.




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                                      There is of course no evidence to support that dubious
                                      theory. We believe that the Secretary meant the temporary
                                      regulations to apply if either the 3-year or 6-year period of
                                      limitations were open on September 24, 2009, but that he
                                      was inartful in saying so. Such a reading is supported by IRS
                                      Chief Counsel Notice CC–2010–010 (Nov. 23, 2009), which, in
                                      relevant part, states:
                                      The temporary regulations apply to taxable years with respect to which
                                      the applicable period of limitations for assessing tax did not expire before
                                      September 24, 2009. Accordingly, the temporary regulations apply to any
                                      docketed Tax Court case in which the period of limitations under sections
                                      6229(c)(2) and 6501(e)(1)(A), as interpreted in the temporary regulations,
                                      did not expire with respect to the tax year at issue, before September 24,
                                      2009, and in which no final decision has been entered. [Emphasis added.]

                                         If that is what the Secretary meant, then what ground can
                                      there be for the majority to conclude that the temporary
                                      regulations do not apply to this case because ‘‘the applicable
                                      period for assessing tax’’ was a 3-year period that expired
                                      before September 24, 2009? The possibilities appear to be
                                      that the majority believes either that (1) the Secretary has
                                      no authority under any circumstance to overrule the
                                      Supreme Court’s interpretation of a statute (which implicates
                                      the Supreme Court’s decision in Natl. Cable & Telecomms.
                                      Association v. Brand X Internet Servs., 545 U.S. 967 (2005)),
                                      (2) the Secretary has no authority retroactively to overrule
                                      the Supreme Court (also implicating Brand X), or (3) even if
                                      he does have those authorities, under the so-called law of the
                                      case doctrine, we need not acknowledge the temporary regu-
                                      lations in this case. If the majority believes any of those
                                      things, then it should explain itself. If not, then it should
                                      abandon its effective date analysis (which the majority itself
                                      describes only as ‘‘a plausible ground to rule against respond-
                                      ent’s motions’’, majority op. p. 220) and address petitioner’s
                                      well-founded argument that respondent cannot satisfy the
                                      high standards established by this Court for granting either
                                      a motion to vacate or a motion to reconsider or simply
                                      ground its decision on its reason (which we question) for
                                      finding the temporary regulations invalid.




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                                      III. The Deference Muddle
                                        In Bakersfield Energy Partners, LP v. Commissioner, 568
                                      F.3d 767, 778 (9th Cir. 2009), affg. 128 T.C. 207 (2007), the
                                      Ninth Circuit acknowledged that the Supreme Court in
                                      Colony, Inc. v. Commissioner, 357 U.S. 28 (1958), had
                                      rejected the same interpretation the IRS is proposing in this case. The IRS
                                      may have the authority to promulgate a reasonable reinterpretation of an
                                      ambiguous provision of the tax code, even if its interpretation runs con-
                                      trary to the Supreme Court’s ‘‘opinion as to the best reading’’ of the provi-
                                      sion. Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S.
                                      967, 982–83, 125 S.Ct. 2688, 162 L.Ed.2d 820 (2005); accord Swallows
                                      Holding, Ltd. v. Comm’r, 515 F.3d 162, 170 (3d Cir. 2008). We do not.

                                         We think this is a signal that courts should be especially
                                      careful about not deferring to new regulations that address
                                      this old problem. Instead, the majority engages in a fullblown
                                      analysis of the substantive validity of the regulations even
                                      after concluding they do not apply because the regulations
                                      are prospective only. The analysis has three parts:
                                         • Sidestepping the longrunning issue of whether Treasury
                                      regulations are entitled to deference under Chevron U.S.A.,
                                      Inc. v. Natural Res. Def. Council, 467 U.S. 837 (1984), Nat.
                                      Muffler Dealers Association, Inc. v. United States, 440 U.S.
                                      472 (1979), or merely Skidmore v. Swift & Co., 323 U.S. 134
                                      (1944);
                                         • an assertion that Chevron step one allows, and perhaps
                                      requires, consideration of legislative history in determining
                                      ‘‘whether Congress has directly spoken to the precise ques-
                                      tion at issue’’, Chevron, 467 U.S. at 842–843; and
                                         • an analysis of the additional question we have to answer
                                      after Brand X, 545 U.S. at 984: Did the Supreme Court hold
                                      in Colony that its interpretation of the key phrase ‘‘omits
                                      from gross income an amount properly includible therein’’ is
                                      ‘‘the only permissible reading’’ of the statute?
                                         We agree with the majority that it is wise for us as a trial
                                      court to avoid the issue of what level of deference to give this
                                      regulation. See Swallows Holding, Ltd. v. Commissioner, 126
                                      T.C. 96, 180–181 (2006) (Holmes, J., dissenting) (listing cir-
                                      cuit conflicts), vacated and remanded 515 F.3d 162 (3d Cir.
                                      2008) (holding regulations entitled to Chevron deference).
                                         We are particularly cautious about the majority’s possible
                                      reliance on Rodriguez de Quijas v. Shearson/Am. Express,




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                                      Inc., 490 U.S. 477 (1989), see majority op. note 14, as an
                                      additional justification for invalidating the regulations. We
                                      agree of course that ‘‘the Supreme Court has advised lower
                                      courts that ‘if a precedent of this Court * * * has direct
                                      application in a case, yet appears to rest on reasons rejected
                                      in some other line of decisions, the * * * [lower courts]
                                      should follow the case which directly controls’’. See majority
                                      op. note 14. But this rule, which the Ninth Circuit alluded
                                      to in Bakersfield, is not what is at issue here. It is not our
                                      Court, but the Secretary, who is reaching a different conclu-
                                      sion about the phrase ‘‘omits from gross income an amount
                                      properly includible therein’’. The validity of the regulation
                                      after Brand X cannot depend entirely on whether prior
                                      caselaw conflicts with a later regulation. As the Tenth Cir-
                                      cuit recently reasoned: ‘‘When a court tentatively resolves an
                                      ambiguity in a statute that an agency is empowered to
                                      administer, such a resolution carries the force of law until an
                                      agency issues a definitive interpretation of the kind that
                                      would ordinarily warrant Chevron deference.’’ Hernandez-
                                      Carrera v. Carlson, 547 F.3d 1237, 1246 (10th Cir. 2008)
                                      (upholding regulation contrary to Supreme Court decision
                                      after applying Brand X). We simply can’t reasonably assert,
                                      a quarter-century after Chevron and, now, after Brand X,
                                      that ‘‘courts have traditionally determined the meaning of
                                      statutes,’’ majority op. note 12, if by that we mean that an
                                      agency with regulatory power cannot definitively resolve
                                      ambiguous statutory language. 4
                                        We think that the problems of how to use legislative his-
                                      tory in a Chevron analysis and the effect of Brand X on
                                      reinterpreting old Supreme Court tax cases are both much
                                      more complicated than the majority lets on.
                                                                                          A.

                                         The Chevron test seems quite simple. Step one: Determine
                                      ‘‘whether Congress has directly spoken to the precise ques-
                                      tion at issue.’’ Chevron USA, Inc. v. Natural Res. Def.
                                      Council, 467 U.S. at 842. If so, stop. Step two: If Congress
                                      has not directly spoken to the question or if what it has said
                                        4 Hernandez-Carrera v. Carlson, 547 F.3d 1237, 1246 (10th Cir. 2008), seems to be the first

                                      case to test Brand X’s effect on Supreme Court precedent. But we ought not to simply state
                                      that we take no position on the question in one footnote, majority op. note 15, while seeming
                                      to assert the contrary view in another, majority op. note 14.




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                                      is ambiguous, then determine if the agency’s interpretation
                                      is ‘‘based on a permissible construction of the statute.’’ Id. at
                                      843.
                                          But Chevron’s simplicity ends there. 5
                                          We focus first on the use of legislative history in Chevron
                                      step one: Chevron tells lower courts to use the ‘‘traditional
                                      tools of statutory construction’’ to determine if Congress has
                                      spoken on the precise issue. Id. at 843 n.9. But how does
                                      Congress ‘‘speak’’? Is it only in the enacted language and its
                                      context within a statute, or does it include committee
                                      reports, floor speeches, staff-prepared material, and
                                      postenactment commentary in later Congresses? And if
                                      courts are directed to employ legislative history, when can
                                      they do so—only if the text is ambiguous; only if it shows
                                      congressional intent clearly contrary to the plain meaning of
                                      the text; or whenever it would be helpful in figuring out the
                                      meaning, or maybe the purpose, of the act?
                                          These are far-from-settled issues. As other courts have
                                      noted, the Supreme Court itself has sent what seem to be
                                      mixed signals:
                                          • No consideration at step one—Coeur Alaska, Inc. v. Se.
                                      Alaska Conservation Council, 557 U.S. ll, ll, 129 S. Ct.
                                      2458, 2469 (2009) (implying the statutory text is how Con-
                                      gress speaks directly on an issue); Natl. R.R. Passenger Corp.
                                      v. Boston & Me. Corp., 503 U.S. 407, 417 (1992) (comparing
                                      the agency’s construction only to the statutory text at step
                                      one); K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291 (1988)
                                      (‘‘If the agency regulation is not in conflict with the plain lan-
                                      guage of the statute, a reviewing court must give deference
                                      to the agency’s interpretation of the statute.’’ (citing United
                                      States v. Boyle, 469 U.S. 241, 246 n.4 (1985)));
                                          • consideration only if the text is unclear—Zuni Pub. Sch.
                                      Dist. No. 89 v. Dept. of Educ., 550 U.S. 81, 93 (2007) (‘‘if the
                                      intent of Congress is clear and unambiguously expressed by
                                         5 Commentators have not been kind to judges. See, e.g., Sunstein, ‘‘Chevron Step Zero’’, 92 Va.

                                      L. Rev. 187, 221 (2006) (caselaw in ‘‘chaos’’); Eskridge & Baer, ‘‘The Continuum of Deference:
                                      Supreme Court Treatment of Agency Statutory Interpretations from Chevron to Hamdan’’, 96
                                      Geo. L.J. 1083, 1157 (2008) (caselaw ‘‘a mess’’); Hickman, ‘‘A Problem of Remedy: Responding
                                      to Treasury’s (Lack of) Compliance with Administrative Procedure Act Rulemaking Require-
                                      ments’’, 76 Geo. Wash. L. Rev. 1153, 1200 (2008) (Hickman, ‘‘A Problem of Remedy’’) (‘‘a mess’’);
                                      Beermann, ‘‘End the Failed Chevron Experiment Now: How Chevron Has Failed and Why It
                                      Can and Should Be Overruled’’, 42 Conn. L. Rev. 779, 808 (2010) (‘‘confusing’’); Murphy, ‘‘Judi-
                                      cial Deference, Agency Commitment, and Force of Law’’, 66 Ohio St. L.J. 1013, 1022 (2005) (a
                                      ‘‘confusing mess’’).




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                                      the statutory language at issue, that would be the end of our
                                      analysis.’’); Dept. of HUD v. Rucker, 535 U.S. 125, 132 (2002)
                                      (‘‘reference to legislative history is inappropriate when the
                                      text of the statute is unambiguous’’); Sutton v. United Air
                                      Lines, Inc., 527 U.S. 471, 482 (1999) (declining to consider
                                      legislative history when text was clear);
                                          • legislative history used at step one as a traditional tool—
                                      FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120,
                                      130–155 (2000); Pauley v. BethEnergy Mines, Inc., 501 U.S.
                                      680, 697–699 (1991); Pension Benefit Guar. Corp. v. LTV
                                      Corp., 496 U.S. 633, 649–650 (1990).
                                      There are even a fair number of cases that make it difficult
                                      to discern whether the Court is consulting legislative history
                                      at step one or step two. 6
                                        The majority does acknowledge this difficulty, but discerns
                                      a recent trend toward using legislative history in some way
                                      in step one, majority op. note 18. We think the matter is less
                                      clear. Here’s the current circuit court breakdown:
                                        • First Circuit—Perez-Olivo v. Chavez, 394 F.3d 45, 50 n.2
                                      (1st Cir. 2005) (okay in step one ‘‘merely * * * to confirm
                                      that it does not resolve the [statutory] ambiguity’’); Succar v.
                                      Ashcroft, 394 F.3d 8, 22–23 (1st Cir. 2005) (okay in step one);
                                        • Second Circuit—Cohen v. JP Morgan Chase & Co., 498
                                      F.3d 111, 122–124 (2d Cir. 2007) (noting reluctance to rely
                                      on legislative history in step one, but then doing it);
                                        • Third Circuit—United States v. Geiser, 527 F.3d 288, 293
                                      (3d Cir. 2008) (excludes legislative history in step one);
                                        • Fourth Circuit—Compare Dominion Res., Inc. v. United
                                      States, 219 F.3d 359, 365 (4th Cir. 2000) (okay in step one),
                                      and Brown & Williamson Tobacco Corp. v. FDA, 153 F.3d
                                      155, 162 (4th Cir. 1998) (same), affd. 529 U.S. 120 (2000),
                                      with Granutec, Inc. v. Shalala, 46 U.S.P.Q.2d 1398, 1404
                                      (4th Cir. 1998) (unpublished decision) (only in step two);
                                         6 As numerous commentators have concluded, the application of Chevron has developed not

                                      necessarily in a consistent direction. See, e.g., United States v. Riverside Bayview Homes, Inc.,
                                      474 U.S. 121, 131 (1985) (‘‘our review is limited to the question whether it is reasonable, in light
                                      of the language, policies, and legislative history of the Act’’); Chem. Manufacturers Association
                                      v. Natural Res. Def. Council, Inc., 470 U.S. 116, 126 (1985) (‘‘we conclude that the statutory lan-
                                      guage does not foreclose the agency’s view of the statute. We should defer to that view unless
                                      the legislative history or the purpose and structure of the statute clearly reveal a contrary in-
                                      tent on the part of Congress.’’). See generally Coke v. Long Island Care at Home, Ltd., 376 F.3d
                                      118, 127–129 (2d Cir. 2004) (describing the problem and considering legislative history in both
                                      steps, but ‘‘without attaching primacy’’ in step one), vacated 546 U.S. 1147 (2006).




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                                         • Fifth Circuit—Sierra Club v. U.S. FWS, 245 F.3d 434,
                                      443 n.51 (5th Cir. 2001) (okay in step one (citing INS v.
                                      Cardoza-Fonseca, 480 U.S. 421, 449 (1987)));
                                         • Sixth Circuit—Compare Johnson City Med. Ctr. v.
                                      United States, 999 F.2d 973, 976 (6th Cir. 1993) (okay in step
                                      one even if statute is clear), with Alliance for Cmty. Media
                                      v. FCC, 529 F.3d 763, 778 (6th Cir. 2008) (consider in step
                                      two);
                                         • Seventh Circuit—Compare Univ. of Chi. Hosps. v. United
                                      States, 545 F.3d 564, 569 (7th Cir. 2008) (refusing to consider
                                      legislative history after finding statute unambiguous), with
                                      Khan v. United States, 548 F.3d 549, 556 (7th Cir. 2008) (‘‘we
                                      proceed to Chevron’s second step. * * * In this step, we can
                                      take into account extrinsic sources such as legislative his-
                                      tory.’’);
                                         • Eighth Circuit—Compare Ark. AFL–CIO v. FCC, 11 F.3d
                                      1430, 1440 (8th Cir. 1993) (allows legislative history in step
                                      one, but only if intent is not clear from the statute’s plain
                                      language), with Mayo Found. for Med. Educ. & Research v.
                                      United States, 568 F.3d 675, 681–682 (8th Cir. 2009) (consid-
                                      ering legislative history in step two);
                                         • Ninth Circuit—Compare Natural Res. Def. Council, Inc.
                                      v. U.S. EPA, 526 F.3d 591, 603 (9th Cir. 2008) (considering
                                      legislative history in step one), with Schneider v. Chertoff,
                                      450 F.3d 944, 955 n.15 (9th Cir. 2006) (courts cannot con-
                                      sider legislative history in step one);
                                         • Tenth Circuit—Anderson v. U.S. DOL, 422 F.3d 1155,
                                      1180 (10th Cir. 2005) (okay in step one); Cliffs Synfuel Corp.
                                      v. Norton, 291 F.3d 1250, 1257 (10th Cir. 2002) (same); Utah
                                      v. Babbitt, 53 F.3d 1145, 1148 (10th Cir. 1995) (same);
                                         • Eleventh Circuit—Guar. Fin. Servs., Inc. v. Ryan, 928
                                      F.2d 994, 1003–1004 (11th Cir. 1991) (use in step one after
                                      finding statute ambiguous);
                                         • D.C. Circuit—Sierra Club v. EPA, 551 F.3d 1019, 1027
                                      (D.C. Cir. 2008) (legislative history okay in step one even to
                                      create ambiguity); Am. Bankers Association v. Natl. Credit
                                      Union Admin., 271 F.3d 262, 267 (D.C. Cir. 2001) (same);
                                      Natural Res. Def. Council, Inc. v. Browner, 57 F.3d 1122,
                                      1126–1127 (D.C. Cir. 1995) (same); and
                                         • Federal Circuit—Amber-Messick v. United States, 483
                                      F.3d 1316, 1323–1324 (Fed. Cir. 2007) (used in both steps);




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                                      Star-Glo Associates, LP v. United States, 414 F.3d 1349, 1356
                                      (Fed. Cir. 2005) (used in step one).

                                                                                          B.

                                         The fundamental problem in this area—and it’s not one
                                      that we as a trial court can possibly solve on our own—is
                                      that legislative history is a ‘‘traditional tool of statutory
                                      interpretation’’ most commonly used when the language of a
                                      statute is ambiguous on some point. But if the language of
                                      a statute is ambiguous, Chevron tells us to read that ambi-
                                      guity as a delegation of authority to fill the resulting gap
                                      with a regulation. Looked at this way, Colony’s resort to
                                      legislative history in the first place shows a gap that the Sec-
                                      retary is ipso facto allowed to fill. If so, then the Supreme
                                      Court’s sentence ‘‘it cannot be said that the language is
                                      unambiguous’’, Colony, Inc. v. Commissioner, 357 U.S. at 33,
                                      triggered not only that Court’s own look at legislative his-
                                      tory, but the authority of the Secretary to issue the regula-
                                      tion we have before us.
                                         One way to read the many decisions using legislative his-
                                      tory in step one of Chevron is as another check on agency
                                      discretion—another way of finding a lack of ambiguity in
                                      congressional intent. But the confusion in this area becomes
                                      a muddle when one adds in the analysis of whether a pre-
                                      Brand X precedent that uses legislative history is an analysis
                                      that, under Brand X, precludes the choice made by the
                                      agency in a regulation. Pay particular attention to the pas-
                                      sage from Brand X that the majority quotes, majority op. p.
                                      221: ‘‘A court’s prior judicial construction of a statute trumps
                                      an agency construction otherwise entitled to Chevron def-
                                      erence only if the prior court decision holds that its construc-
                                      tion follows from the unambiguous terms of the statute and
                                      thus leaves no room for agency discretion.’’ Brand X, 545
                                      U.S. at 982 (emphasis added).
                                         It is at least possible that the emphasized language is a
                                      direction to lower courts to distinguish pre-Brand X prece-
                                      dents that resorted to legislative history from those that
                                      relied on plain-language analysis as a way of distinguishing
                                      between precedents that allow for their own regulatory
                                      supersession from those that do not. It would suggest in this




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                                      case the Supreme Court’s use of legislative history in Colony
                                      would not trump an agency construction.
                                         Consider AARP v. EEOC, 390 F. Supp. 2d 437 (E.D. Penn.
                                      2005), affd. on other grounds 489 F.3d 558 (3d Cir. 2007). In
                                      an earlier case, the Third Circuit held that the Age Discrimi-
                                      nation in Employment Act banned treating retirees who were
                                      eligible for Medicare differently from those who were not in
                                      providing health benefits. See Erie County Retirees Associa-
                                      tion v. County of Erie, 220 F.3d 193 (3d Cir. 2000). The Court
                                      carefully reviewed the legislative history to reach its conclu-
                                      sion. See id. at 205–208.
                                         Then out popped a contrary regulation from the EEOC. The
                                      District Court judge faced with the regulation-vs.-precedent
                                      question reasoned that
                                      Brand X clarified the Chevron standard itself. In applying Chevron’s first
                                      step to the regulation at issue in Brand X, the Supreme Court did not ask
                                      merely whether Congress had ‘‘spoken to the precise question at issue,’’
                                      Chevron, 467 U.S. at 843, * * * but rather ‘‘whether the statute’s plain
                                      terms ‘directly address the precise question at issue.’ ’’ Brand X, 125 S.Ct.
                                      at 2702 * * * [AARP v. EEOC, 390 F. Supp. 2d at 445.]

                                         The District Court then analyzed the pre-regulation prece-
                                      dent on point, and concluded that ‘‘Like its arguments from
                                      legislative history, the * * * [Third Circuit’s] appeals to gen-
                                      eral congressional intent and the balancing of competing
                                      policy considerations would seem unnecessary if its decision
                                      were the only permissible construction of the statute.’’ Id. at
                                      450 n.10; see also, e.g., Mayo Found. for Med. Educ. &
                                      Research v. United States, 503 F. Supp. 2d 1164, 1174 (D.
                                      Minn. 2007) (drawing similar distinction in light of Brand X),
                                      revd. 568 F.3d 675 (8th Cir. 2009).
                                         AARP is certainly not the last possible word on this sub-
                                      ject. There may well be a distinction between using legisla-
                                      tive history to supply the meaning of a particular word or
                                      phrase and using legislative history to discern the purpose or
                                      goal of the statute in which Congress placed that word or
                                      phrase so as to be able to best construe it in a particular
                                      case. Judge Easterbrook, in his landmark taxonomy on uses
                                      of legislative history, In re Sinclair, 870 F.2d 1340, 1342 (7th
                                      Cir. 1989), suggested that legislative history may be used as
                                      a dictionary of sorts—to determine Congress’s objective
                                      rather than subjective intent. Id. at 1343 (‘‘ ‘we ask, not what




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                                      this man meant, but what those words would mean in the
                                      mouth of a normal speaker of English, using them in the cir-
                                      cumstances in which they were used.’ ’’ (quoting Holmes,
                                      ‘‘The Theory of Legal Interpretation’’, 12 Harv. L. Rev. 417,
                                      417–419 (1899))). Seen in this light, legislative history should
                                      be used to discover the statute’s ‘‘original meaning’’, rather
                                      than the intent of the individual congressman. Id. at 1343
                                      (‘‘An opinion poll revealing the wishes of Congress would not
                                      translate to legal rules’’).
                                         Used in this way, legislative history in step one may
                                      present fewer problems. Rereading Colony, Inc. v. Commis-
                                      sioner, 357 U.S. 28 (1958), with this distinction in mind
                                      might lead one to conclude that the Court was using legisla-
                                      tive history to discern the best reading of ambiguous statu-
                                      tory language in light of the specific problems its drafters
                                      had in mind. See id. at 33–35. If so, the holding of Colony
                                      is not that ‘‘omission’’ necessarily means ‘‘omission of a par-
                                      ticular item’’, but only that that’s the best reading until and
                                      unless a regulation clarifying the admitted ambiguity of
                                      ‘‘omits from gross income an amount properly includible
                                      therein’’ is validly issued.
                                         Few courts have explicitly considered and employed this
                                      possible distinction, and we would not necessarily advocate
                                      its use here. The conclusion we would draw is simply that
                                      the rules for reexamining precedents after Brand X are quite
                                      uncertain. We don’t believe it is beyond the capability of the
                                      Tax Court to address such issues with the necessary sub-
                                      tlety, but the majority doesn’t even try.
                                         We won’t try either, since we prefer to climb onto firmer
                                      ground.
                                      IV. Procedural Validity of the Temporary Regulations
                                        That firmer ground, and the reason we are able to concur
                                      in our colleagues’ result, is that these regulations are proce-
                                      durally invalid under the Administrative Procedure Act
                                      (APA), 5 U.S.C.A. secs. 551–559, 701–706 (West 2007 & Supp.
                                      2009), as amended by the Patient Protection & Affordable
                                      Care Act, Pub. L. 111–148, sec. 6402, 124 Stat. 756 (2010),
                                      which governs rulemaking even by the Secretary.
                                        The APA requires agencies to publish contemplated rules to
                                      allow the public to make comments on their content and




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                                      effect. 5 U.S.C. sec. 553(b) and (c) (2006). To ensure meas-
                                      ured, informed rulemaking, the agency is then required to
                                      take those comments into consideration before promulgating
                                      a final rule. Id. sec. 553(c). The publication of the rule must
                                      occur ‘‘not less than 30 days before its effective date’’. Id. sec.
                                      553(d). The agency must also provide ‘‘reference to the legal
                                      authority under which the rule is proposed’’. Id. sec.
                                      553(b)(2). And these minimum requirements may be modified
                                      or superseded only if Congress does so expressly. Id. sec. 559.
                                         In the case of these regulations, the Secretary stated his
                                      legal authority for the rules—the section 6501(e) regulation
                                      was issued under section 7805 and the section 6229 regula-
                                      tion was issued under sections 7805 and 6230(k). The Sec-
                                      retary didn’t publish the regulations 30 days before their
                                      effective date, but respondent argues—and the majority
                                      essentially concedes—that the Secretary’s power to make
                                      retroactive rules under section 7805(b) (pre-1996) applies.
                                      But the Secretary did not seek comments before publishing
                                      these temporary regulations, nor did he claim good cause for
                                      skipping this step. 7
                                         Respondent first argues that the APA itself excuses his
                                      failure to put the regulations through notice and comment.
                                      The Administrative Procedure Act, 5 U.S.C. section 553(b),
                                      provides:
                                      this subsection does not apply—
                                        (A) to interpretative rules, general statements of policy, or rules of
                                      agency organization, procedure, or practice * * *

                                      The APA provides similar exemptions from the prepublication
                                      requirement. Id. sec. 553(d).
                                        Respondent does not rely on any argument that these
                                      regulations are mere statements of policy or rules of Treas-
                                      ury’s organization, procedure, or practice. For the regulations
                                      to be valid, then, we must find they are interpretive rules,
                                      or we have to accept respondent’s alternative argument that
                                        7 When Treasury regulation drafters find good cause to skip notice and comment, Internal

                                      Revenue Manual pt. 32.1.5.4.7.5.1(4) (Aug. 11, 2004) directs them to include the following text
                                      in the regulations: ‘‘ ‘These regulations are necessary to provide taxpayers with immediate guid-
                                      ance. Accordingly, good cause is found for dispensing with notice and public comment pursuant
                                      to 5 U.S.C. 553(b) and (c)’ ’’. This thin a justification might or might not work, but it is absent
                                      from these regulations or the related Treasury Decision. See T.D. 9466, 74 Fed. Reg. 49321
                                      (Sept. 28, 2009). Respondent concedes in his reply brief that he is not relying on this exception.




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                                      Congress waived the APA’s notice-and-comment requirement
                                      for temporary tax regulations.
                                           A. The Interpretive Exception
                                         The Treasury Decision containing the regulations, without
                                      claiming a particular exception, 8 states: ‘‘It also has been
                                      determined that section 553(b) of the * * * [APA] does not
                                      apply to these regulations.’’ T.D. 9466, 74 Fed. Reg. 49321,
                                      49322 (Sept. 28, 2009). Respondent argues this is because
                                      these regulations are interpretive rules (as opposed to legis-
                                      lative or substantive rules), merely clarifying the phrase
                                      ‘‘omitted from gross income’’ without changing existing law.
                                      Respondent also argues that these regulations are interpre-
                                      tive because they were issued pursuant to the general grant
                                      of authority in section 7805 rather than under a specific
                                      grant of authority directing the Secretary to issue a regula-
                                      tion with specified content.
                                         The Tax Court often labels as ‘‘interpretive’’ those regula-
                                      tions that the Secretary issues under the general authority
                                      of section 7805(a), in contrast to ‘‘legislative’’ regulations, by
                                      which we and other tax specialists mean those regulations
                                      issued under a more specific authority from Congress. 9
                                         But ‘‘interpretive’’ means something different in adminis-
                                      trative law. Berg, ‘‘Judicial Deference to Tax Regulations: A
                                      Reconsideration in Light of National Cable, Swallows
                                      Holding, and Other Developments’’, 61 Tax Law. 481, 486–
                                      487 (2008) (‘‘the Administrative Procedure Act (APA) draws
                                      the line between legislative and other regulations differently
                                      [than tax law].’’ (fn. ref. omitted)). In administrative law,
                                      ‘‘interpretive’’ is a label reserved for regulations that ‘‘advise
                                      the public of the agency’s construction of the statutes and
                                      rules which it administers.’’ Clark, U.S. Dept. of Justice,
                                        8 The Treasury Decision does say that the regulations contain a ‘‘reasonable interpretation’’

                                      of the statutory provisions. T.D. 9466, 74 Fed. Reg. 49321, 49322 (Sept. 28, 2009). Perhaps this
                                      was the Secretary’s attempt to claim the interpretive exception, but it makes little difference
                                      as the APA doesn’t require an explicit assertion of the interpretive-rule exception.
                                        9 Even by this bright-line rule, however, the applicable regulation isn’t clearly interpretive in

                                      the tax-law sense. Though the parties refer to the two regulations in tandem, section 6229 gov-
                                      erns partnerships, meaning that the regulation applicable here is section 301.6229(c)(2)–1T,
                                      Temporary Proced. & Admin. Regs. See majority op. note 2. This regulation was issued under
                                      two sources of authority—section 7805 and 6230(k). The tax-law definition of interpretive has
                                      largely been limited to regulations issued solely under section 7805. See Asimow, ‘‘Public Partici-
                                      pation in the Adoption of Temporary Tax Regulations’’, 44 Tax Law. 343, 358 (1991); see also
                                      Berg, ‘‘Judicial Deference to Tax Regulations: A Reconsideration in Light of National Cable,
                                      Swallows Holding, and Other Developments’’, 61 Tax Law. 481, 485–486 (2008).




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                                      Attorney General’s Manual on the Administrative Procedure
                                      Act 39 (1947), available at http://www.law.fsu.edu/library/
                                      admin/1947cover.html (providing working definitions). 10 Sub-
                                      stantive or legislative rules, on the other hand, are ‘‘rules,
                                      other than organizational or procedural * * * issued by an
                                      agency pursuant to statutory authority and which implement
                                      the statute * * *. Such rules have the force and effect of
                                      law.’’ Id.; see also Batterton v. Francis, 432 U.S. 416, 425 n.9
                                      (1977) (and cases cited). In other words, legislative rules are
                                      those that are binding. Chrysler Corp. v. Brown, 441 U.S.
                                      281, 301–302 & n.31 (1979); Hickman, ‘‘Coloring Outside the
                                      Lines: Examining Treasury’s (Lack of) Compliance With
                                      Administrative Procedure Act Rulemaking Requirements’’, 82
                                      Notre Dame L. Rev. 1727, 1762–1763 (2007) (Hickman,
                                      ‘‘Coloring Outside the Lines’’); Merrill & Watts, ‘‘Agency
                                      Rules With the Force of Law: The Original Convention’’, 116
                                      Harv. L. Rev. 467, 476–477 (2002).
                                         Courts have applied various tests to distinguish between
                                      legislative and interpretive rules, but the D.C. Circuit’s test
                                      in Am. Mining Cong. v. Mine Safety & Health Admin., 995
                                      F.2d 1106 (D.C. Cir. 1993), has become the ‘‘dominant
                                      standard’’. Hickman, ‘‘Coloring Outside the Lines’’, supra at
                                      1766; see also 1 Pierce, Administrative Law Treatise, sec.
                                      6.4, at 454 (5th ed. 2010) (citing adoption of the test in six
                                      circuits including the Tenth and D.C. Circuits). 11 Am.
                                      Mining Cong. v. Mine Safety & Health Admin., 995 F.2d at
                                      1109, relying on both caselaw and the Attorney General’s
                                      Manual, held that a rule is legislative if Congress has given
                                      the agency authority to issue rules with the force of law and
                                      the agency intended to use that authority. The court listed
                                      four ways an agency could show it intended to issue legisla-
                                      tive rules:
                                        10 Though the Attorney General’s Manual is not a source of binding law, its definitions are

                                      useful as near-contemporaneous constructions of the APA. See Bowen v. Georgetown Univ.
                                      Hosp., 488 U.S. 204, 218 (1988) (Scalia, J., concurring) (referring to the Attorney General’s Man-
                                      ual as ‘‘the Government’s own most authoritative interpretation of the APA * * * which we
                                      have repeatedly given great weight’’, citing examples).
                                        11 See Warder v. Shalala, 149 F.3d 73 (1st Cir. 1998); Mission Group Kan., Inc. v. Riley, 146

                                      F.3d 775 (10th Cir. 1998); Truckers United for Safety v. Fed. Highway Admin., 139 F.3d 934
                                      (D.C. Cir. 1998); Aulenback, Inc. v. Fed. Highway Admin., 103 F.3d 156 (D.C. Cir. 1997); Appa-
                                      lachian States Low-Level Radioactive Waste Commn. v. O’Leary, 93 F.3d 103 (3d Cir. 1996);
                                      Hoctor v. USDA, 82 F.3d 165 (7th Cir. 1996); Chen Zhou Chai v. Carroll, 48 F.3d 1331 (4th
                                      Cir. 1995); N.Y. City Employees’ Ret. Sys. v. SEC, 45 F.3d 7 (2d Cir. 1995).




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                                      (1) whether in the absence of the rule there would not be an adequate
                                      legislative basis for enforcement action or other agency action to confer
                                      benefits or ensure the performance of duties, (2) whether the agency has
                                      published the rule in the Code of Federal Regulations, (3) whether the
                                      agency has explicitly invoked its general legislative authority, or (4)
                                      whether the rule effectively amends a prior legislative rule. If the answer
                                      to any of these questions is affirmative, we have a legislative, not an
                                      interpretive rule. [Id. at 1112.]

                                      These four ways of finding agency intent have developed over
                                      time. A subsequent case in the D.C. Circuit rejected the
                                      second way, calling publication in the CFR merely a ‘‘snippet
                                      of evidence of agency intent’’, and rejecting a claim that rules
                                      were legislative based on publication alone. 12 Health Ins.
                                      Association of Am., Inc. v. Shalala, 23 F.3d 412, 423 (D.C.
                                      Cir. 1994). The Ninth Circuit added a look into whether a
                                      rule binds ‘‘tribunals outside the agency.’’ Erringer v. Thomp-
                                      son, 371 F.3d 625, 631 (9th Cir. 2004) (citing Hemp Indus.
                                      Association v. Drug Enforcement Admin., 333 F.3d 1082,
                                      1088 (9th Cir. 2003)). Other cases have relied upon a cri-
                                      terion discussed but not applied in American Mining—that if
                                      an agency issues a rule interpreting a legislative rule, the
                                      underlying legislative rule cannot be too vague or open-ended
                                      to support the interpretation. See, e.g., Gonzales v. Oregon,
                                      546 U.S. 243 (2006).
                                        Though American Mining’s test is not universally accepted,
                                      the case reconciles the precedents well and is accepted by at
                                      least two of the three potential appellate courts here. See,
                                      e.g., U.S. Telecomm. Association v. FCC, 400 F.3d 29, 34–35
                                      (D.C. Cir. 2005); Mission Group Kan., Inc. v. Riley, 146 F.3d
                                      775, 784 (10th Cir. 1998). 13
                                          12 One scholar noted that it was common for some agencies to publish any rule with ‘‘legal

                                      effect’’ in the CFR (and recognized this phrase was broader than the ‘‘force of law’’), and that
                                      the court didn’t want to discourage this practice because it is beneficial to the public. 1 Pierce,
                                      Administrative Law Treatise, sec. 6.4, at 453 (5th ed. 2010).
                                          13 The Eighth Circuit addressed the characterization of interpretive versus legislative rules in

                                      Drake v. Honeywell, Inc., 797 F.2d 603 (8th Cir. 1986). In a brief discussion, it appeared to adopt
                                      a similar approach of looking to the agency’s intent and whether the agency had a delegation
                                      of law-making authority. Id. at 607–608. Similarly, in Nw. Natl. Bank v. U.S. Dept. of the Treas-
                                      ury, 917 F.2d 1111, 1116–1117 (8th Cir. 1990), the Eighth Circuit relied on the familiar distinc-
                                      tion that an interpretive rule merely reminds parties of existing duties while a legislative rule
                                      ‘‘ ‘has the force of law, and creates new law or imposes new rights or duties.’ ’’
                                          But in Howard E. Clendenen, Inc. v. Commissioner, 207 F.3d 1071, 1074 (8th Cir. 2000), affg.
                                      T.C. Memo. 1998–318, the Eighth Circuit may have held that regulations that the Secretary
                                      issued without specific authority do not have the force of law, though it did refer to them as
                                      law, see id. (‘‘Congress considered then-existing law—namely, Section 402(e)(3), together with
                                      its regulations’’), and appeared to give them legal effect, id. at 1075 (citing the regulations for
                                      its conclusions without further sources).




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                                           1. Does the Secretary Have Authority To Issue Rules With
                                              the Force of Law?
                                         American Mining asks first whether a particular agency
                                      has the authority to issue rules having the force of law. The
                                      Secretary does—Congress delegated authority to him in var-
                                      ious Code sections to create rules and regulations. Sec-
                                      tion 7805(a) contains the broadest of these delegations,
                                      allowing promulgation of ‘‘all needful rules and regulations
                                      for the enforcement of this title’’. (‘‘[T]his title’’ in section
                                      7805(a) refers the entire Internal Revenue Code.) Such regu-
                                      lations carry the force of law, because the Code imposes pen-
                                      alties for failing to follow them. Sec. 6662(b); see also Merrill
                                      & Watts, supra at 477.
                                         And it is also obvious that the regulations in this case, if
                                      valid, would bind both respondent and petitioner. We have
                                      held that both temporary and final regulations have the force
                                      of law, and we give both the same weight. See Schaefer v.
                                      Commissioner, 105 T.C. 227, 229 (1995). Both temporary and
                                      final regulations give rise to penalties. Sec. 6662(b); sec.
                                      1.6662–3(b)(2), Income Tax Regs.; Hickman, ‘‘Coloring Out-
                                      side the Lines’’, supra at 1738–1739. And both general- and
                                      specific-authority regulations also give rise to penalties, so
                                      the Secretary’s issuance of these regulations under section
                                      7805 makes no difference. Hickman, ‘‘Coloring Outside the
                                      Lines’’, supra at 1762–1763 (‘‘Regulations that bind both the
                                      government and regulated parties are legislative, whether
                                      promulgated pursuant to specific or general statutory
                                      authority.’’ (citing Shalala v. Guernsey Meml. Hosp., 514 U.S.
                                      87, 99 (1995), and several other sources)).
                                         We would therefore conclude that both section 7805(a) and
                                      the various more specific Code sections delegate legislative
                                      authority to the Secretary.
                                           2. Did the Secretary Intend To Issue Regulations With the
                                              Force of Law?
                                         The second part of the American Mining test asks whether
                                      the agency intended the regulations to have the force of law.
                                      If we go through American Mining’s list of the specific ways
                                      an agency can show it intends a rule to have the force of law,
                                      we find that two are present here. The first is the Secretary’s
                                      invocation of his general authority to issue regulations,




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                                      plainly noted in the Treasury Decision containing the regula-
                                      tions themselves. Respondent claims that the regulations are
                                      interpretive under the APA, but the Secretary’s cited source
                                      of authority doesn’t quite match that sentiment—he promul-
                                      gated one of these regulations explicitly under section 7805
                                      alone and the other under both section 7805 and section
                                      6230(k), knowing that regulations issued under these sec-
                                      tions carry the force of law.
                                         The second is that these regulations effectively changed (or
                                      at least tried to change) existing law. American Mining
                                      phrased this factor as amending ‘‘a prior legislative rule.’’
                                      This leads to another question left unanswered and
                                      unaddressed by the majority: Does Brand X require an
                                      agency’s interpretation to be embodied in a legislative rather
                                      than an interpretive rule to trump an existing judicial
                                      interpretation? Even assuming an agency interpretation can
                                      displace the Supreme Court’s, see Hernandez-Carrera v.
                                      Carlson, 547 F.3d 1237 (10th Cir. 2008), we think the answer
                                      must be yes, in part because when there is otherwise binding
                                      judicial precedent, an agency interpretation asserting a con-
                                      trary interpretation amounts to a change in the law. 14 Cer-
                                      tainly, as the Ninth Circuit recognized in Bakersfield, 568
                                      F.3d at 768, 778, a Supreme Court decision such as Colony
                                      binds lower courts at least until something changes.
                                      Respondent wants us to vacate our otherwise final decision,
                                      which he could not logically ask us to do without implying
                                      that the Secretary intended that these new rules have the
                                      force of law.
                                         But we don’t need to puzzle this out. American Mining
                                      tells us: ‘‘If the answer to any of these questions is affirma-
                                      tive, we have a legislative, not an interpretive rule.’’ Am.
                                      Mining, 995 F.2d at 1112. So even if our reasoning on this
                                      second way of finding agency intent is wrong, it remains true
                                      that the Secretary explicitly invoked his legislative authority
                                      in promulgating these regulations and Congress entrusted
                                      him with that power. That makes them legislative.
                                        14 The Brand X framework also suggests this result. In Brand X, the Court weighed a prior

                                      judicial interpretation against ‘‘an agency construction otherwise entitled to Chevron deference’’.
                                      Natl. Cable & Telecomms. Association v. Brand X Internet Servs., 545 U.S. 967, 982 (2005). Just
                                      5 years earlier, the Court said interpretive rules—those lacking the force of law—aren’t entitled
                                      to Chevron deference. Christensen v. Harris County, 529 U.S. 576, 587 (2000). It seems to follow
                                      that if an agency wants to trump judicial precedent, it has to issue legislative rules.




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                                        Thus, although the regulations may be ‘‘interpretive’’
                                      according to the common usage in the sense that they set
                                      forth respondent’s interpretation of the underlying statutes,
                                      and ‘‘interpretive’’ according to tax-law usage in the sense
                                      that one of them was issued under section 7805 alone, they
                                      are not ‘‘interpretive’’ under the APA’s exception to the notice-
                                      and-comment requirements because they are meant to bind
                                      the public, which the Secretary has the power to do. 15
                                           B. Section 7805(e) and the APA
                                         Though the Secretary did not subject the regulations to
                                      notice and comment, he did issue identical proposed regula-
                                      tions and a Notice of Proposed Rulemaking (NPRM) at the
                                      same time as the temporary regulations, as required by sec-
                                      tion 7805(e)(1). This section directs the Secretary, when
                                      issuing temporary regulations, to issue a simultaneous NPRM
                                      and sets a 3-year expiration date for all temporary regula-
                                      tions. The legislative history of that section, respondent says,
                                      shows that Congress was aware of the Secretary’s procedures
                                      of issuing temporary regulations that were effective imme-
                                      diately but without notice and comment. 16 He says that Con-
                                      gress implicitly okayed that process by limiting the tem-
                                      porary regulations to 3 years and ensuring that the Sec-
                                      retary issued an NPRM at the same time. Even though this
                                      violates the APA, he justifies it by arguing that section
                                      7805(e) conflicts with the APA, and in the battle of the stat-
                                      utes, a specific statute trumps a general one. See Bulova
                                      Watch Co. v. United States, 365 U.S. 753, 758 (1961).
                                         We do not agree. First we note that nothing in the text of
                                      the statute suggests that the notice-and-comment require-
                                      ment has been waived, nor does the legislative history state
                                      that it has. The legislative history does note that the Sec-
                                        15 Nearly 30 years ago, in Wing v. Commissioner, 81 T.C. 17, 28 (1983), we mentioned that

                                      Treasury regulations, though deemed to have the force of law, still qualify as ‘‘interpretative’’
                                      rules and are exempt from the APA’s requirements. In context, this was dictum, and the over-
                                      whelming weight of precedent from later years counsels us not to follow it.
                                        16 Prior law had allowed temporary regulations to linger for a very long time, to the point that

                                      courts were beginning to notice a pattern of the Secretary’s growing reliance on temporary regu-
                                      lations without ever finalizing or repealing them. See, e.g., Fleming v. Commissioner, T.C.
                                      Memo. 2010–60 (relying on 25-year-old temporary regulations for substantiation standards).
                                      Several commentators suggest that Congress was actually aiming to restrict the Treasury’s reg-
                                      ulation writers by curtailing this practice. See Hickman, ‘‘A Problem of Remedy,’’ supra at 1209;
                                      ABA, Section of Taxation, ‘‘Report of the Task Force on Judicial Deference’’, 57 Tax Law. 717,
                                      735 (2004); Asimow, supra at 363–364.




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                                      retary commonly issued temporary regulations with imme-
                                      diate effect, but this alone hardly suggests Congress meant
                                      to waive notice and comment for all temporary regulations. 17
                                      The legislative history does not even mention the APA, and
                                      both the Supreme Court and the APA itself provide that
                                      exceptions to the APA’s terms cannot be inferred—much less
                                      inferred from an absence in the legislative history:
                                        Recognizing the importance of maintaining a uniform approach to
                                      judicial review of administrative action * * * we have closely examined
                                      the * * * claim for an exception to that uniformity. * * * [Congress has
                                      specified] in the APA that ‘‘no subsequent legislation shall be held to
                                      supersede or modify the provisions of this Act except to the extent that
                                      such legislation shall do so expressly.’’ 5 USC § 559. * * * The APA was
                                      meant to bring uniformity to a field full of variation and diversity. * * *
                                      [Dickinson v. Zurko, 527 U.S. 150, 154–155 (1999).]

                                      Respondent may think that section 7805(e) makes him spe-
                                      cial when it comes to rulemaking, but the APA makes it clear
                                      that he is not.
                                        Giving the public the opportunity to participate through
                                      notice and comment is important in giving regulations legit-
                                      imacy. See United States v. Mead Corp., 533 U.S. 218, 230
                                      (2001); Christensen v. Harris County, 529 U.S. 576, 587
                                      (2000); Chrysler Corp. v. Brown, 441 U.S. at 316; see also
                                      Hickman, ‘‘A Problem of Remedy: Responding to Treasury’s
                                      (Lack of) Compliance with Administrative Procedure Act
                                      Rulemaking Requirements’’, 76 Geo. Wash. L. Rev. 1153,
                                      1201 (2008) (Hickman, ‘‘A Problem of Remedy’’) (‘‘The APA
                                      and its notice-and-comment rulemaking procedures reflect
                                      congressional goals of simultaneously facilitating government
                                      rulemaking and protecting individual rights through public
                                      participation.’’); id. at 1204 (‘‘While perhaps less than ideal,
                                      the APA notice-and-comment process, coupled with judicial
                                      review of the agency’s adherence to that process, serves as a
                                      second-best proxy for the legislative process when Treasury
                                      or any other agency seeks to bind the public with regulations
                                      having the force and effect of the statutes they purport to
                                      interpret.’’).
                                        17 Though issuing a simultaneous NPRM and seeking post-effective comments is consistent

                                      with respondent’s argument, Congress may have intended this to apply only to temporary regu-
                                      lations that already fit into an exception to the APA, especially considering that a need for tem-
                                      porary regulations would normally be expected in emergency or good-cause situations.




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                                        Giving the public a chance to comment only after making
                                      the regulations effective does not comply with the APA. See,
                                      e.g., Chrysler Corp. v. Brown, 441 U.S. at 315; Paulsen v.
                                      Daniels, 413 F.3d 999, 1005 (9th Cir. 2005) (‘‘It is antithetical
                                      to the structure and purpose of the APA for an agency to
                                      implement a rule first, and then seek comment later.’’). And
                                      courts invalidate even final regulations when an agency does
                                      this. 18 See, e.g., U.S. Steel Corp. v. U.S. EPA, 595 F.2d 207,
                                      214–215 (5th Cir. 1979). But see Fed. Express Corp. v.
                                      Mineta, 373 F.3d 112 (D.C. Cir. 2004).
                                        Because these regulations were issued under sections
                                      6230(k) and/or 7805, they are binding and legislative as a
                                      matter of administrative law. We would therefore invalidate
                                      them on procedural grounds for failure to comply with the
                                      APA.

                                         A court should not entirely ignore invalidated regula-
                                      tions—but we cannot give them binding force. 19 See Chrysler
                                      Corp. v. Brown, 441 U.S. at 313 (‘‘regulations subject to the
                                      APA cannot be afforded the ‘force and effect of law’ if not
                                      promulgated pursuant to the statutory procedural minimum
                                      found in that Act’’); Hickman, ‘‘A Problem of Remedy’’, supra
                                      at 1197 n.199 (suggesting invalidated regulations may be
                                      similar in force to proposed regulations, which set forth the
                                      agency’s views but do not bind courts). Respondent’s problem
                                      here is that we have already considered his position in other
                                      cases, and we have rejected it. Bakersfield Energy Partners,
                                      LP v. Commissioner, 128 T.C. 207 (2007); Intermountain Ins.
                                      Serv. of Vail, LLC v. Commissioner, T.C. Memo. 2009–195.
                                      He needs to have new regulations that do have binding force.




                                        18 Respondent does point to some cases where temporary regulations were relied upon despite

                                      not undergoing notice and comment, see UnionBanCal Corp. v. Commissioner, 305 F.3d 976 (9th
                                      Cir. 2002), affg. 113 T.C. 309 (1999); Kikalos v. Commissioner, 190 F.3d 791 (7th Cir. 1999),
                                      revg. T.C. Memo. 1998–92, but in these cases APA compliance wasn’t challenged. We also note,
                                      as we did in UnionBanCal Corp. v. Commissioner, 113 T.C. at 317 n.8, that the Secretary as-
                                      serted a good-cause exception to the APA’s notice-and-comment requirement when he issued the
                                      regulations in these cases. T.D. 8168, 52 Fed. Reg. 48407 (Dec. 22, 1987) (Kikalos); T.D. 7991,
                                      49 Fed. Reg. 46992 (Nov. 30, 1984) (UnionBanCal).
                                        19 If respondent had successfully promulgated interpretive rules, we would reach this same

                                      point.




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                                      248                134 UNITED STATES TAX COURT REPORTS                                      (211)


                                      These don’t, and we therefore see no compelling reason to
                                      vacate our decision in Intermountain. For that reason, we
                                      concur with the majority’s result.

                                                                               f




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