we are consistent if nothing else in our honor and it's true because what they are telling this court is that on the one hand we are subject to immediate tax liability because the loan guarantees at issue here were to a dividend but then in the next breath they turn around and say that we are not entitled to the lower tax rate for dividends because these loan guarantees were not substantially did a quick listen the real thing you're concerned about is the tax rate we're concerned about both here on a foremost challenge the first one is we presented it is a challenge to the regulations themselves it's our position so that it actually came out when sixty two the regulators sixty four that's correct and now fifty five years later you're asking us to say that one doesn't flow from the other because what because for several reasons for one thing it does not attack the statu guarantees for purposes of determining the amount that was repatriated or invested in the united states that is not a question that is answered by the statute in fact what congress did when it broke off section nine fifty six d needed its own separate su section for which it gave the i r s the independent rule making authority to implement the last ninety six d c controlled for corporation show under regulations risk but the secretary so saying go out there to the regulations be considered as holding an obligation of united states person if such control for a corporation is a pledge or guarantor of such obligations and then you look at the reg that implements any obligation of a person with respect to which a control for a corporation is a pledge or a guarantor will be considered to be held by the control for a corporation what your honor was cited i agree marginally mirrors it but the point that we are focused on is the valuation regulation that's the one that says for coke this is a valuing these guarantees we are going to measure the value of a loan guarantee as basically the unpaid principle of the loan that is a valu determination that was not set forth in the statute the only thing the statute says about valuation is it says you use the adjusted basis in these various types of properties that's all well and good when you're talking about say a loan or real estate or something like that the chevron framework at least our first challenge is properly analyze under chevron the government concedes that this is not a chevron step one case so i think they actually are conceding the point that you and i were discussing namely whether this case is resolved by the plain language of the statute they say it's on step two and we're in agreement on that and it's our position that what the i r s has been on when it implemented this statute in that loan guarantee the valuation regulation that was a policy decision made by the i r s not commanded by statute so how can you say if it was arbitrary capricious that would be a real big hill to climb wouldn't know not at all you are in other words there are several different ways that it will can be arbitrary and capricious what is regardless of what comments were submitted during the will making as the value of self and other words you have a situations in this case where you have multiple guarantors in this case you have almost forty separate guarantors and under the i r s is regulation the value of these guarantees would potentially be forty times the amount of the loan which would be about sixty billion dollars that can't be right they in many other context in the transfer pricing context in other contexts they have all sorts of techniques for valuing loan guarantees that's commonly done that's the bread i think we are challenging it on the basis of the record at the time that was adopted and what that record reflects is that the agency provided a single conclusory sentence as to what i was doing what it did that is plainly insufficient under the a p a under the supreme court's recent decision on c e o motor cars what would they have done at the time they should have if this is the approach they wanted to take they should have offered an explanation as to why it could possibly make sense to value most guarantees in the way that they did i don't think there is a way they could rationally explain it but nonetheless they haven't said a word about that if you've got nine fifty six d what are you supposed to do with that in order to put a what would you have done to her what they could have done is if they wanted to implement that they could have said here is how we are going to valuable guarantees for purposes of nine fifty sixty which says that these are passable cratering taxable of that and they could have said that we value these loan guarantees based on what we do in many other contacts is the economic value of the guarantee that can be done in several ways one way you could do it just simply is if you have multiple guarantors you would assign a pro got a share another way you could do is look at third party transactions when you have an independent third party providing a loan guarantee you say what would this basically cost in the free market and we're going to put that value where once upon a time i did this stuff if you if i from every c f c you can as a condition for extending that loan because c f c s have made their earnings available for use to the u s shareholder in order to do this because if there's a problem i want to get them that the entity the american entity may go chapter eleven and i want to make sure i have as much backup as possible that's the way it's done and so is it overkill for a bank to ask for that  precisely why these c f c s were included and my point is simply that regardless of why they were included in this case it wasn't because they were actually going to provide collateral they were simply there because the lender didn't want any of these entities basically moving money to a place where they couldn't reach at the point is that the i r s needs to make a rational valuation of that guarantee and it's our position that in this case but just as a general matter any time you have multiple lenders you could have wars of varying degrees of credit worthiness the value of that guarantee depends it's on a spectrum there are some cases where that guarantee might be very valuable because otherwise the boy wouldn't be able to get the loan but for the guarantee that's not this case but then there are other cases at the opposite end of the spectrum which are more analogous to our case where you have a whole host of co guarantors all of whom say we're going to guarantee it and you can't simply say well each of those individual is going to be deemed to have invested the full amount of coke frankly that's that's economic insanity but that is what is in the regulation and so to get back to your honest question about what should they have said they either should have tried to offer some sort of transactions to make a meaningful guarantee of what this would cost in the free market they did none of that i would submit that if this court said that that one sentence quote unquote explanation satisfied done greenberg if the regulation itself is valid and there are other types of property and nine fifty six c i think they would be diffidence in the sense that they amount to constructive distributions they are conferring value or a benefit on the shareholder so for that we isn't yes i think that they would be diffidence i think that our case certainly these loan guarantees are given ends but then there's no basis for the government to say that these are nine fifty six inclusions who did in these counties meet the definition of a dividend to three sixteen yes they do because the definition under three sixteen a basically says that there needs to be a distribution of property that comes out of the earnings of the corporation but these are news the well it again accepting the governance model these did come out of these loan guarantees keep them out of on it so i don't know where else they possibly could come from other than the c f c s earnings and number two the statute itself keep in mind tax the maximum amount of inclusion at the names of the corporation so that's actually the metric that is used to determine how much gets included under the statute so absolutely this squarely fits within the definition of a constructive dividend even the government's definition of a constructed dividend basically says anytime a corporation confers something of value on the shareholder that's government has effectively conceded that the concept of a constructed dividend is only a play a couple in this context in other words for the meaning of dividend within the qualified dividend income section one the government and the tax court to h everything ok with him everything is fine with him yes thank you no we just we just added we expanded our team if i could make one additional point in addition what we've talked about we have another problem with what the i r s did here which is that it deviated from the way that historically has handled these types of nine fifty six cases we have cited dischord revenue ruling eighty nine dash seventy three eat and in that revenue ruling the i r s expressly says that in making a determination as to whether something is an inclusion we're going to analyze the facts and circumstances of the transaction and i think there's any dispute that they did not do that here and apply a categorical rule they deviated from what he said is the standard they are going to apply without any acknowledgement that they were deviating from it or any explanation so even if this court were to uphold the regulations we still think we are entitled to intervene and precisely because the i r s deviated from what it has always described as its standard practice of mak guidance to the tax bar for over fifty years you know congress has amended nine fifty six eight times an hour and i'll briefly mention to which were the major provisions in seventy six ninety three people come page eighty three of the fully consistent with the language of the statute fully consistent with the to history and i think where counsel for cypriots of course is by trying to revive the statute to read in to the statute some valid because it's fully consistent with both the language and the purpose of the statute and it's only inconsistent with this task that they're trying to write into the statute that is simply not there  think one of the arguments that mr proves making is that there's so little out there in terms of the regulation other than saying it's in conformity with the statute is is that i'm gathering that the argument is that that's not enough to show that you brought your independent independent policy expertise to the table in drafting the regulation response response that is what the a p a requires is concise general statement of basis and purpose and the regulations here provided that there was a new statute that was not acted the regulations resigned to adapt the regulations to that statute and treasury and exercise it i guess parties in three basic ways adopted general and provided examples and the regulation of how that general should be implemented and what facts would be relevant to it carved out a regulatory exception for conduit financing and three it made clear how tell you how you should do the tax treatment so in that case a guarantee for multiple c f c s which would theoretically cause a u s shareholder to receive income from met many sources greater than the actual loan why did the i amount of the income inclusion was going to be calculated but merely suggested that the exception proposed exception for conduit financing be expanded and treasury responded to that by in fact expanding how would you break that up between the two and also concerned about abuse because in these areas and very detailed so you make a change in one place and it could have an impact on how c of c is in their us shareholders are claiming foreign tax credits so the following year when it finalized those proposed regs it noted that in not he did not in fact dr cap and was still considering the issue but in its type of this hasn't caused any problems it did not cause a problem in this case  from corporate property to the shareholder for the benefit of the shell her shareholder but what's key with dividends whether they're formally issued or constructively issued is that there is diversion of corporate assets there is a there's simply no distribution of earnings and these may be made available for use but they haven't been distributed they haven't been diverted and there's no change in tone or ship under nine sixty nine fifty six this is an investment in u s property by the was an act in the first place it was and to encourage corporations not to retain and reinvest their earnings but to distribute it out to their shareholders and section nine fifty six the earnings are still held and mean bested by the court  that it's not a dividend because it doesn't fit the definition of dividend and it hasn't been deemed by the congress or treasury to be a dividend for purposes of section wind h a levon when congress enacted section nine fifty six and i'm quoting from page to a reply brief federal register page five five three two five they say that chief among the purposes of section nine fifty six is to insure symmetry between the treatment of actual dividend in other words a form of dividend involves a transfer of ownership in which the corporation say pays one hundred dollars cash this what happened here that did not happen here we are arguing that this is a constructive dividend which the government has acknowledged would be covered by section one and the definition again agreed to by the parties of a constructive dividend is when a corporation confers something of value or gives an economic benefit to the shareholder and that's this case so if a constructive dividend doesn't require a transfer of ownership that's a good argument if we're talking about whether this was a formal dividend when it comes to a constructive dividend that doesn't matter and that gets to judge ambrose question about where the rodriguez court went give the same tax treatment to actual dividends and deal dividends that's what they say is the purpose of nine fifty six but that is exactly the opposite position that they are urging this quarter it will adopt is there a difference which was import the deemed something was a pretend something it didn't happen but we're going to pretend sometimes somebody would say a constructive whatever it was was that enough happened so that it would be fit the elements of what would otherwise be whatever it is in this case is a dividend and but that would normally be done by a court as opposed to  congress or saying that we're just going to pretend that this is x we know it's not really x usually it's something like consolidation of bankruptcy but we will get into that so it seemed like there could be a difference between the two but i sounds like you're just using them interchangeably i think for purposes of this case there's not an enormous difference because the one thing the government has said time and again most recently n p r m is that they want similar treatment regardless of whether it's formal construct is deemed that the substance of the transaction should be taxed at the same rate across the board regardless of whether it's deemed constructive actual symmetry and it's fairness both of which are a violation but that is separate distinct independent from the agency's general obligation but if i say that i'm doing the reg this essentially in conformity with the statute and the reg pretty much parrots the statute do i really have to say a whole lot more well several points one that's not this case in other words that's not this case because the statute did not say how to value loan guarantees that is a construct no structure because congress took out nine fifty sixty quote loan guarantees and pledges alone in that section and directed the i r s to issue regulations so it was calling upon the agency to call upon its expertise to fashion evaluation mechanism for these loan guarantees and so simply saying we're just conforming to the statute i think it's selig is defiant of congressional intent the agency is also under an ongoing e p an obligation to provide a reasoned explanation for its actions irrespective of what comments coming during the woman can process this is a stand alone obligation this court recognizes in manila the supreme court recognized that in and see commerce it said the agency has to explain how it's bringing its expertise to bear on the problem the agency did not do that in this case and so you know what of course also involved in older regulation were the limitations period had gone when the supreme are in fact your point about how congress has amended it that was the question that the supreme court addressed in the rap and house case not too long ago and what they said in rap and this is they said this arguing about congressional acquiescence that only applies when you have overwhelming evidence that congress is specifically focused on the provision at issue and approve the agency's treatment they're not even close to meeting that standard for acquiescence here that the five years is a long time it is also key when ironically the browns want to championship challenge previously he just look at revenue willing eighty nine seventy three that's the answer the answer is that when this is come up they do an individualized facts and circumstances analysis that prevents the sort of irrational absurd results that happen here acknowledged that their regulatory scheme in their words produces strange results which is a big red flag that something is awry here so for those reasons we asked this court to vacate the regulations or in the alternative approved dividend treatment of loan guarantees thank you very much to both counsel very well presented arguments and well