T hi s di s pos i t i on i s notappr opr i a t e f orpubl i c a t i on and i s notpr e c e de nt * e xc e pta s pr ovi de d by 9th C i r . R . 36- 3.

T he H onor abl e W i l l i a m H a r t , U ni t e d S t a t e s D i s tr i c tJ udge f orthe ** N orthe rn D i s tr i c tof

I l l i noi s , s i tt i ng by de s i gna t i on. NOT F OR P UB L I CAT I ON UN I TE D STATE S C OU RT OF APPE ALS FOR T HE NI NTH CI RC UI T T E M S C O H E L I C O P T E R S , I N C ., P l ai nt i ff

-c ou nt er - defe nd ant -A pp el l ee , v. U N I T E D S T A T E S O F A M E R I C A ,, D ef

endant -c ou nt er - c la im a n t- A p p e lla n t. N o. 09- 35269 D . C . N o . 5 : 0 7 - c v - 0 0 0 0 1 - J WS ME M0 R A N D U M*

A pp ea l fr om the U ni t ed S t at es D i stri ctC ou rt

D i s tr i c tof

A l a s ka J ohn W . S e dw i c k, D i s tr i c tJ udge , P r e s i di ng

A r gue d J ul y 16, 2010 R e s ubm i tt e d S e pt e m be r27, 2010 S e a tt l e , W a s hi ngt on B ef ore: R Y M E R and N . R . S M IT H , C i rc ui tJudg es , and H A R T , D i stri ctJudg e. ** 

# FI LED OC T 07 2010 M OLLY C. DW Y ER, CLERK U . S. C O U R T OF APPE ALSA l l ci t at i on s t o the Int ernal R evenue C od e ( 26 U . S . C . ) and T re as ury 1 R e gul a t i ons ( 26 C . F . R . ) a r e t o thos e i n e f f e c tf r om 2001 thr ough 2004. -2- T he i ss ue i n thi s c as e i s w hether c ert ai n A l as kan h el i copt ersi gh t se ei ng t ou rs o f T e m s c o H e lic o p te r s , I n c . ( " T a x p a y e r " ) , w h ic h w e r e p r im a r ily o f f e r e d to pass engers fr om crui se shi ps, w er e s ubj ec tt o the "T ranspo rt at i on T ax" i m po se d u n d e r§ 4 2 6 1 o f

th e I n te rn a l R e v e n u e C o d e d u r in g ta x y e a r s 2 0 0 1 th r o u g h 2 0 0 4 . T he s i ght s e e i ng t our s a r e e xe m ptf r om the T r a ns por t a t i on T a x unl e s s the tran sp o rt at i o n w as "o p erat ed o n an est ab l i sh ed l i n e. " I. R . C . § 4 2 8 1 . O n cro ss- 1 m ot i ons f

ors um m a ry j udgm e nti n w hi c h both s i de s r e l i e d on the s a m e f a c t s , the di stri ctcourthel d the fl i gh t s w er e notop er at ed on an es t abl i shed l i ne and there fore n o t s u b je c t to th e T r a n s p o rta tio n T a x . T h e ru lin g o n s u m m a ry ju d g m e n t is r e vi e w e d de no vo . L egal A i d Se r v . of

O r . v . L egal

Se r v . C or

p. , 608 F . 3d 1084, 1093 ( 9th C i r . 2010) . W e hol d tha tthe undi s put e d f a c t s onl y s uppor ttha tthe f l i ght s w e r e ope r a t e d on a n e s t abl i s he d l i ne a nd tha tthe f l i ght s w e r e s ubj e c tt o the T r a n s p o rta tio n T a x . T h e ju d g m e n t o f th e d is tr ic t c o u r t w ill b e v a c a te d a n d th is c a s e r e m a n d e d f

o rf u rth e rp r o c e e d in g s to d e te rm in e th e a m o u n t o f ta x d u e . A re m and i s a l so nece ss ary t o d et erm i ne w hether the fa i l ure- t o-pay penal ty und er I. R . C . § 6 65 1(a) (2) i s app l i cabl e. A l on gst andi ng re gu l at i on defi nes " op er at ed on an es t abl i shed l i ne" a s m eani ng : "opera t ed w i th som e degree of re gu l ar i ty betw ee n d ef i ni t e poi nt s. It-3-

doe s notne c e s s a r i l y m e a n tha ts tr i c tr e gul a r i ty of s c he dul e i s m a i nt a i ne d; tha tthe f u ll ru n is a lw a y s m a d e ; th a t ap a r tic u la rr o u te is f o llo w e d ; o rth a t in te rm e d ia te st op s are re stri ct ed. T he t erm i m pl i es thatthe pers on re nd er i ng the se rvi ce m a i nt a i ns a nd e xe r c i s e s c ontr ol ove rthe di r e c t i on, r out e , t i m e , num be rof pass engers carr i ed, et c. " T re as . R eg. § 4 9. 42 63 -5(c ). T he "opera t ed on an es t abl i shed l i ne" l angu age w as t aken from pri or st atut es im p o s in g th e s a m e T r a n s p o rta tio n T a x o n m o to rv e h ic le tr a n s p o r ta tio n . See H . R. R e p . N o . 8 5 - 4 8 1 , a t 4 8 - 4 9 ( 1 9 5 7 ) , r e p r in te d in 1 9 5 8 -3 C . B . 3 7 2 , 4 1 9 -2 0 . C o n g ress i s pr e s um e d t o ha ve know n of c a s e l a w , r e gul a t i ons , a nd rul i ngs c ons trui ng the p r io rs ta tu te a n d to h a v e in te n d e d § 4 2 8 1 to b e c o n s tru e d in th e s a m e m a n n e r . See U ni ted Stat es v. H

ayes , 1 2 9 S . C t. 1 0 7 9 , 1 0 8 6 ( 2 0 0 9 ) ; G ra y L i n e C o . v. G ra n q u ist , 23 7 F . 2d 39 0, 39 4-95 (9th C i r. 19 56 ). T he re gu l at i on defi nes " op er at ed on an e s t abl i s he d l i ne " a s ha vi ng thr e e e l e m e nt s : ( a ) ope r a t e d w i th s om e de gr e e of re gu l ar i ty, (b) operat ed betw ee n d ef i ni t e poi nt s, and (c) the op er at or m ai nt ai ned a n d e x e r c is e d s u f

f ic ie n t c o n tr o l. O nl y s om e degree of re gu l ar i ty i s r equi re d. T he re gu l at i on i t se l f s t at es

" s tr ic t r e g u la r ity o f

s c h e d u le " is n o t r e q u ir e d n o ris it n e c e s s a ry th a t " th e f u ll ru n is a l w a y s m a de . " T r e a s . R e g. § 49. 4263- 5( c ) . D ur i ng the pe rt i ne ntt i m e pe r i od, T a x p a y e r 's to u r s w e r e f lo w n w ith s u f

f ic ie n t r e g u la r ity to s a tis f y th e r e g u la r ity-4-

e le m e n t. G r ay L i ne , 2 3 7 F .2 d a t 3 9 4 ; R o yce v. Sq u i re , 73 F . S upp. 510, 511- 13 ( W .D . W a s h . 1 9 4 7 ) , af

f ' d on othe rgr ounds , 16 8 F . 2d 25 0 (9th C i r. 19 48 ). R e gul a t i ons e s t abl i s h tha tthe be tw e e n de f i ni t e poi nt s r e qui r e m e ntc a n be s a tis f ie d b y c o n tin u o u s tr a n s p o rta tio n b e g in n in g a n d e n d in g a t th e s a m e p o in t. T re as . R eg. § 4 9. 42 61 -1(c ). A l so, sa t i sf yi ng the defi ni t e poi nt s r equi re m entdo es notne c e s s i t a t e " tha tthe f ul l run i s a l w a y s m a de ; tha tapa r t i c ul a rr out e i s f ol l ow e d; or thati nt erm edi at e s t op s are re stri ct ed. " T re as . R eg. § 4 9. 42 63 -5(c ). S i nce a pass enger can o nl y purchas e the ent i re t ou r, the fl i gh tshou l d b e c on si dere d c ont i nuous tr a ns port a t i on be gi nni ng a nd e ndi ng a tthe s a m e poi nt . E ve n i f the s t op o n th e g la c ie rm a k e s e a c h to u rtw o tr ip s - - to a n d f r o m th e g la c ie r - - th e d e f in ite po i nt s r equi re m enti s s at i sf i ed. A l tho ug h the exactl andi ng spoton the gl ac i er va r i e s w i th the c ondi t i ons of e a c h da y , i ti s s uf

f i c i e nt l y de f

i ni t e i n tha tthe d e s tin a tio n is ap a rtic u la rg la c ie r . C f. G r ay L i ne , 237 F . 2d a t392 ( pi c kup a nd dr opof f poi ntc oul d va ry f

r om the de s i gna t e d l oc a t i ons a s l ong a s i tw a s i n the generaldi re ct i on of the rout e) . C on traryt o T axpaye r' s c on t ent i on , bei ng contra ct ed t o p rovi de part i cul ar t ou rs do es no tprec l ud e T axpaye r f rom sa t i sf

yi ng the control el em ent . T axpaye r s t i l l de c i de s w ha tt our s t o of f e r , w he n t o s c he dul e f

l i ght s , the r out e t o t a ke , a nd-5-

w he r e t o l a nd. I ta l s o de c i de s the m a xi m um num be rof pa s s e nge r s a l l ow e d a nd w h eth er t o can cel a fl i g h tfo r i n su ffi ci en tsal es. T he s i ght s e e i ng f

l i ght s a ti s s ue w e r e ope r a t e d a s a n e s t abl i s he d l i ne a nd the r e f or e a r e s ubj e c tt o the T r a ns por t a t i on T a x. Th e Tr a n s p o rt a t i o n Ta x i s p a y ab l e b y th e p u r c h a s e ro f tr a n s p o r t a t i o n . I . R. C. § 4261( d) . T he pr ovi de rof tr a ns por t a t i on i s t o c ol l e c tthe t a x a nd pa y i tove rt o the go vernm ent . Int ernal R evenue C od e § 42 63 (c ) provi des, i f the T ranspo rt at i on T ax i s notc ol l e c t e d f

r om the pur c ha s e r , " unde rr e gul a t i ons pr e s c r i be d by the S ec re t ary, " the ca rr i ershal l pay the t ax t o the go vernm ent . A s the ca rr i er , T a xpa y e rw a s r e qui r e d t o pa y the T r a ns por t a t i on T a x e ve n though i tw a s not col l ec t ed. T axpaye r c on t ends i ti s notso re qu i re d b ec ause the S ec re t ary never i m pl e m e nt e d the r e l a t e d r e gul a t i ons . I n c e r t a i n s i tua t i ons , at a x s t a tut e w i l l notbe enforce abl e unt i l re l at ed re gu l at i on s r equi re d b y the st atut e are i ss ued. In d e te rm in in g w h e th e rim p le m e n tin g r e g u la tio n s a r e ap r e c o n d itio n to e n f o r c e m e n t, the T ax C ou rthas l oo ked for expl i ci tl angu age s up po rt i ng such a c on cl usi on , has c ons i de r e d l e gi s l a t i ve hi s t ory , a nd ha s c ons i de r e d w he the rthe s t a tut e c a n be ap p lie d w ith o u t f

u rth e re x p lic a tio n in ar e g u la tio n . See Fr a n c is c o v . C o m m 'r , 1 1 9 T .C . 3 1 7 , 3 2 2 - 2 3 ( 2 0 0 2 ) , af f ' d on othe rgr ounds , 3 7 0 F .3 d 1 2 2 8 , 1 2 3 0 n .1 ( D . C . C i r . 2004) . T he l a ngua ge of the s t a tut e a nd i t s l e gi s l a t i ve hi s t ory do not-6-

es t abl i sh thatre gu l at i on s are a pre cond i t i on t o app l yi ng § 4 26 3(c) . F urther, § 4 2 6 3 ( c ) s ta te s as tr a ig h tf o rw a r d r e q u ir e m e n t th a t, w h e n th e T r a n s p o r ta tio n T a x is n o tco l l ect ed , th e carrier for the firstseg m en tm u stp ay i t . T h ere i s al read y a pr oc e dur e i n pl a c e f

orc om put i ng the T r a ns por t a t i on T a x a nd pa y i ng i tt o the g o v ern m en taft er i ti s co l l ect ed fro m th e p u rch aser o f tran sp o rt at i o n . A d d i t i o n al l y, nothi ng i n § 4263( c ) r e qui r e s tha tthe gove rnm e ntf i r s ta tt e m ptt o c ol l e c tthe T ran sp o rt at i o n T ax fro m th e p u rch asers o f th e t o u rs. T a xpa y e rc ont e nds a1994 audi te s t ops the gove rnm e ntf r om c ont e ndi ng the T r a ns port a t i on T a x appl i e s t o t our s pr ovi de d i n 2001 thr ough 2004. E s t oppe l of th e g o v ern m en t , h o w ev er, req u i res in te ra lia a s ho w i ng of a del i bera t e l i e or a p a tte rn o f

f a ls e p r o m is e s . So c o

p - G o n z a lezv . I

NS , 27 2 F . 3d 11 76 , 11 84 (9th C i r. 2 0 0 1 ) ( e n b a n c ) . T a x p a y e rh a s n o t s a tis f ie d th a t r e q u ir e m e n t f

o re s to p p e l. A l t e rna t i ve l y , T a xpa y e rc ont e nds tha tf a i rne s s r e qui r e s tha tthe T r a ns por t a t i on T a x, w hi c h ha s notbe e n c ol l e c t e d f r om pur c ha s e r s , be appl i e d onl y pr os pe c t i ve t o the 2005 audi tde t e rm i na t i on. R e gul a t i ons , how e ve r , do notr e qui r e pr os pe c t i ve ap p lic a tio n w h e n ap r io rau d it d e te rm in a tio n is in c o n s is te n t w ith ala te rau d it det erm i nat i on . R etroac t i ve appl i ca t i on of a new rul i ng i s onl y c al l ed for w hen c e rt a i n r e qui r e m e nt s a r e s a t i s f i e d r e ga r di ng ac ha nge f r om apr i orr e gul a t i on, r e v e n u e ru lin g , w r itte n ru lin g o f th e N a tio n a l O f

f ic e , o rale tte rd e te rm in a tio n . See-7-

I .R .C . § 7 8 0 5 ( b ) ; T r e a s . R e g . § 6 0 1 .2 0 1 . T h e r e tr o a c tiv ity ru le s d o n o t ap p ly to d e te rm in a tio n s m a d e b y a g e n ts a s p a r t o f a n au d it a n d , e v e n if

th e r e tr o a c tiv ity rul e s w e r e appl i c abl e , T a xpa y e rha s nots how n tha tthe a ge ntw ho m a de the 1994 det erm i nat i on w as aw ar e of a l l m at er i al fa ct s or thatfa ct s di d n otchange betw ee n 1994 a nd 2001. T a xpa y e rc ont e nds I R S ' s t a x a s s e s s m e ntw a s i na c c ur a t e a nd, the r e f or e , the gove rnm e nti s now pr e c l ude d f r om pr ovi ng the c orr e c ta m ountof T r a ns por t a t i on T ax. T he go vernm entconcedes there w er e s om e i nacc urac i es and thatfa ctual di sput es exi stas t o the am ou ntdu e. T he go vernm ent , ho w ever , i s notprec l ud ed f r o m p r o v i n g a n a m o u n ti s d u e o th e rth a n th e f i g u r e s e tf

o r th i n th e a s s e s s m e n t . At m ost , the as se ss m entw ou l d l ose i t s pre sum pt i on of corr ec tness and the bu rden w o u ld s h if

t b a c kto th e g o v e rn m e n t to p r o v e th e a m o u n t o f ta x d u e . See In re O l s han , 35 6 F . 3d 10 78 , 10 84 (9th C i r. 20 04 ). T a x p a y e rc o n te n d s th e g o v e rn m e n t c a n n o t im p o s e a n y p e n a lty b e c au s e , in l i ghtof the 1994 audi tde t e rm i na t i on, T a xpa y e r ' s f a i l ur e t o c ol l e c ta nd pa y the T ranspo rt at i on T ax w as no tw i l l ful . T he go vernm entcont ends i tcan i m po se a § 6 6 5 1 ( a ) ( 2 ) f

a ilu r e - to - p a y p e n a lty , w h ic h d o e s n o t r e q u ir e w illf u ln e s s . A § 6 65 1(a) (2) penal ty, tho ug h, i s notadded t o the t ax i f i ti s s ho w n the fa i l ure t o p ay-8-

"i s due t o rea sonabl e c ause and n otdu e t o w i l l ful negl ec t . " W hether f ac t s s up po rt the i m pos i t i on of

thi s pe na l ty i s l e f

tf orthe di s tr i c tc our tt o de t e rm i ne on r e m a nd. T he j ud gm entof the di stri ctcourti s vac at ed and the ca se re m anded for a d et erm i n at i o n o f th e am o u n to f T ran sp o rt at i o n T ax d u e an d an y rel at ed p en al ty. V AC AT E D A ND RE MAND E D.