United States v. Home Concrete And, Llc: an Example of Thecontinuing Challenges in Applyingchevron Deference to Treasurydepartment Regulations

• Publication year: 2022

46 Creighton L. Rev. 309. UNITED STATES V. HOME CONCRETE and, LLC: AN EXAMPLE OF THECONTINUING CHALLENGES IN APPLYINGCHEVRON DEFERENCE TO TREASURYDEPARTMENT REGULATIONS

UNITED STATES V. HOME CONCRETE and, LLC: AN EXAMPLE OF THECONTINUING CHALLENGES IN APPLYINGCHEVRON DEFERENCE TO TREASURYDEPARTMENT REGULATIONS

Jose' L. Rodriguez - '14

I. INTRODUCTION ................................... 310

II. FACTS AND HOLDINGS ........................... 311

III. BACKGROUND .................................... 317

A. Colony, Inc.v. Commissioner: The United States Supreme Court's First Interpretation of an Earlier Version of I.R.C. § 6501 .................................... 317

B. Chevron, U.S.A., Inc.v. Natural Resources Defense Council, Inc.: The Established Standard for Granting Deference Given to Agency Regulations ........................... 319

C. National Cable and; Telecommunications Ass'nv. Brand X Internet Services: Prior Judicial Construction of Statutes Otherwise Subject to Administering Agency Interpretation ................................. 322

D. Mayo Foundation for Medical Education and; Research v. United States: Chevron Trumps National Muffler as the Controlling Standard for Granting Deference to Treasury Department Statutory Interpretations ................................ 325

E. The Interpretive Judicial Cannon of Nonscitur a Sociis ............................. 327

IV. ANALYSIS ......................................... 328

A. New Statutory Ambiguities Arising After Colony, Inc.v. Commissioner Dictated a Grant of Deference to The Internal Revenue Service ............................... 329

1. The Court Crippled Its Analysis in United States v. Home Concrete and; Supply, LLC by Determining Colony, Inc. v. Commissioner Controlled the Outcome of the Case ........... 329

2. The Dissent Correctly Asserted that New Statutory Ambiguities Arising After Colony Meant the Court Should Have Granted Deference to the Internal Revenue Service ..... 331

B. Without Deference,United States v. Home Concrete and; Supply, LLC May Have Invalidated Treas. Reg. § 301.6501(e)-1 ........ 333

V. CONCLUSION ..................................... 336

I. INTRODUCTION

Although the United States Supreme Court established Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc.(fn1) as the appropriate deference standard for government agency regulations, United States v. Home Concrete and; Supply, LLC(fn2) demonstrates that applying the standard continues to present challenges.(fn3) In Home Concrete and; Supply, the Internal Revenue Service ("IRS") assessed Home Concrete and; Supply, LLC ("Home Concrete") for deficiencies in its April 2000 tax returns, after the relevant three-year statute of limitations had ex-pired.(fn4) The Court followed its past ruling in Colony, Inc. v. Commissioner(fn5) and determined that the IRS could only apply a statutory exception to extend the statute of limitations if the defendant completely omitted twenty-five percent of his income, but not if the defendant simply underestimated it.(fn6)

The Court also determined that the 1939 version of the Internal Revenue Code ("the Code"), as applied in Colony, had not undergone sufficiently significant changes to warrant deference of the Treasury Department's reinterpretation of the substantially same statutory language relied upon by the IRS.(fn7) As a result, a plurality of the Court found Colony controlling and applied the principle of stare decisis in order to find Home Concrete did not trigger the extended statute of limitations.(fn8) The dissenting Justices, on the other hand, asserted that the changes in the statute warranted granting Chevron deference to the Treasury Department interpretation of the statute.(fn9)

First, this Note will discuss the facts and holdings of Home Concrete and; Supply.(fn10) This Note will then discuss Supreme Court cases concerning the evolution of the application of Chevron deference to Treasury Department regulations, as well as the judicial doctrine of nonscitur a sociis.(fn11) Next, this Note will argue that, although the plurality appropriately began its analysis by looking for an opportunity to apply the doctrine of stare decisis, the plurality ultimately incorrectly held that Colony controlled the outcome of this case.(fn12) This Note will also argue that the dissenting Justices correctly determined that the Court should have granted Chevron deference to the Treasury Department regulation because of changes Congress made in 1954 and their resulting ambiguities.(fn13) Finally, this Note will conclude by asserting that even though the Court determined Chevron deference should apply to tax regulations, determining the proper application standard continues to challenge the Court.(fn14)

II. FACTS AND HOLDINGS

In United States v. Home Concrete and; Supply, LLC,(fn15) the United States Supreme Court determined that the Internal Revenue Service ("IRS") incorrectly assessed the 2000 tax return deficiency of Home Concrete and; Supply, LLC ("Home Concrete") after the relevant limitation's period had expired.(fn16) The IRS applied a United States Treasury Department regulation that extended the statute of limitation for assessing a taxpayer based on allegations that Home Concrete had omitted income in excess of twenty-five percent of its yearly income on its tax returns.(fn17) The majority in Home Concrete and; Supply stated that the Court's previous decision in Colony, Inc. v. Commissioner(fn18) controlled the outcome of the case before them, and the plurality determined that the IRS applied an invalid Treasury Department regulation.(fn19)

Home Concrete understated its gross income in its April 2000 tax returns as a result of overstating its basis in property it sold.(fn20) The three-year statute of limitation had already expired when the IRS sought to assess Home Concrete as deficient for the understated in-come.(fn21) The IRS applied a statutory exception that allowed it to bring a claim against Home Concrete because the omitted amount exceeded twenty-five percent of Home Concrete's reported gross income that year.(fn22)

Home Concrete and; Supply presented an issue of statutory interpretation across two sections of the Internal Revenue Code ("Code") and across several timeframes.(fn23) Former Code section 275(fn24) incorporated statutory language that was materially indistinguishable from language in the statute the IRS wanted to apply against Home Con-crete.(fn25) That is, section 275 of the 1939 version of the Code employed statutory language that was almost identical to language adopted by the 1954 version of the Code in a different numbered section.(fn26) Congress transposed the material language from section 275 in the 1939 version of the Code to I.R.C. § 6501 beginning in the 1954 version of the Code.(fn27)

The Home Concrete Court came to its determination in light of the Court's 1958 holding from Colony, which determined the meaning of the then-existing statutory exception at issue.(fn28) Former I.R.C. § 275 stated that a taxpayer's tax returns could be assessed for up to five years if he omitted an includable amount of gross income that exceeded 25 "per centum" of the gross income that he actually stated in the return.(fn29) The Colony Court had determined the context of the statute made the word "omit" mean to completely exclude or leave out an amount; not to merely underestimate it.(fn30) As a result, the Colony Court determined I.R.C. § 275(c) was inapplicable and the IRS acted inappropriately in taking action against Colony in light of the fact that Colony underestimated, and did not completely exclude, income from its tax return.(fn31)

In its first argument to the Home Concrete and; Supply Court, the IRS argued that differences between the 1939 version of I.R.C. § 275 and the then-applicable version of I.R.C. § 6501 allowed for a new interpretation without overruling Colony.(fn32) Specifically, the IRS stated that I.R.C. § 6501(e)(1)(A)(i),(fn33) created an exception disallowing the IRS from assessing businesses that understated income.(fn34) The IRS argued that by creating an exception for businesses that understated income, Congress implied that omissions of income also applied to underestimates of income.(fn35) In addition, the IRS also pointed to I.R.C. § 6501(e)(2),(fn36) another exception for taxpayers who omitted portions of gifts and estates from their taxes.(fn37) The IRS again argued that Congress created an exception in subsection (e)(2) for "items" omitted from overall amounts because Congress believed underestimates were also omissions.(fn38)

The Court was not convinced by the IRS's argument that the exception for businesses in I.R.C. § 6501(e)(1)(A)(i) indicated Congress intended to change the meaning of the word "omit."(fn39) The Court believed that there were many reasons why Congress inserted that pro-vision.(fn40) The Court also stated the IRS's argument that centered on the use of the word "item" instead of "amount" in I.R.C. § 6501(e)(2) was even less convincing.(fn41) They determined that although the word "item" was newly inserted in the 1954 version of the statute, the change was of little consequence to the statute's meaning.(fn42) Concerned with violating the principle of stare decisis and finding that few material differences existed between the versions of the statute, the Court rejected the IRS's arguments and applied its holding from Colony.(fn43)

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