In Uncategorized on 08/21/2014 at 22:20

No, not a parody of the Sherman Brothers’ Oscar-winner from Walt Disney’s 1964 vehicle for Julie Andrews. This is a designated hitter from The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable Foe of the Partitive Genitive, Judge Mark V. Holmes.

The case is Renka, Inc., Docket No. 15998-11R, filed 8/21/14. It was argued on Tuesday, August 19, and I’d intended to go to the Center Courtroom at 400 Second Street, NW, to hear the argument, but an illness of a family member prevented me. Fortunately, Judge Holmes has dispelled my disappointment and curiosity.

IRS wants summary judgment and doesn’t get it. IRS started by claiming the Renka ESOP terminated in 1998 in their revocation letter, but moves for summary judgment based upon transactions and occurrences in 1999, claiming it doesn’t matter what year the ESOP failed, if it failed once it failed for all years.

The Great Dissenter nails that one: “There are at least two problems here. The first is the Commissioner’s seeming abandonment of his explanation of revocation, which disqualified the ESOP only because of facts as they supposedly existed in 1998. This raises a Chenery question. See SEC v. Chenery Corp., 332 U.S. 194 (1947) (Chenery II); SEC v. Chenery Corp., 318 U.S. 80 (1943) (Chenery I). The Chenery doctrine is an administrative-law principle that says ‘a reviewing court, in dealing with a determination or judgment which an administrative agency alone is authorized to make, must judge the propriety of such action solely by the grounds invoked by the agency.’ Chenery II, 332 U.S. at 196 (describing its holding in Chenery I). The Supreme Court not too long ago announced that ‘we are not inclined to carve out an approach to administrative review good for tax law only’ and noted ‘the importance of maintaining a uniform approach to judicial review of administrative action.’ Mayo Found. for Med. Educ. & Research v. United States, 562 U.S. __, 131 S. Ct. 704, 713 (2011) (citation and internal quotation marks omitted).” Order, at p. 2.

Now although Tax Court hasn’t ruled on whether Chenery I or II applies to an ESOP revocation, “…such proceedings also stem from an IRS determination made after the assembly of an administrative record and that determination is also reviewed for abuse of discretion. This inclines us to think that Chenery might be a reason by itself to deny the Commissioner’s motion.” Order, at p. 3.

But alas and alack! Renka’s legal team didn’t raise Chenery I or II in opposing IRS’ motion. And DC Circuit said last year that it’s a “use it or lose it” defense. I’ll have more to say about this in my takeaway.

For the moment, Judge Holmes deconstructs IRS’ argument by using Section 1563(c)(2)(B) to unravel IRS’ chain that binds Renka to a brother-sister control group. I leave that to the specialists.

No summary judgment for IRS.

And now, the takeaway. Litigators, when opposing motions for summary judgment or demands to admit facts or stipulate, read the administrative determination–carefully. And claim Chenery for “whatsoever is not read therein”.


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