F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

B R U C E H. V O S S ,

Petitioner-Appellant

,

v

.

C O M M I S S I O N E R O F I

N T E R N A L R E V E N U E , Respondent-Appellee

. N o. 12-73257

Tax Ct. No. 16443-09

C H A R L E S J

. S O P H Y ,

Petitioner-Appellant

,

v

.

C O M M I S S I O N E R O F I

N T E R N A L R E V E N U E , Respondent-Appellee

. N o. 12-73261

Tax Ct. No. 16421-09

OPI NI ON

Appeal from a Decision of the U nited States Tax Court

Arg ued and Submitted F ebruary 5, 2015—Pasadena, California

F iled Aug ust 7, 2015V O S S V

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2

B efore: Michael J . Melloy

, * J ay S. B y bee, and Sandra S. I kuta, Circuit J udg es.

Opinion by

J udg e B y b e e; Dissent by

J udg e I k uta

SUMMARY * *

Tax

The p anel rever s e d a Tax Court d ecision involving the debt limit provisions for unmarried c o

- o w n ers seeking to deduct mortg a g e interest for their qualified residence.

The p anel held that the debt limit provisions of 26 U .S.C. § 163(h)(3) apply on a per-tax pay er basis to unmarried coo w n e r s of a qualified residence. The panel remanded f o r determination of the proper amount of interest that tax p ay ers are entitled to deduct.

Dissenting

, J udg e I kuta would defer to the I nternal Revenu e S e r v i c e ’s r e a s o n a b l e i n t e r p r e t at i o n of an ambig uous stat u t e , w hich interpretation would limit unmarried tax p ay ers in this situatio n t o deducting the same amount as married tax pay e rs filing jointly

.

* T h e H o n o r a b l e M i ch ael J

. Mello y , Sen io r Circu it J u dg e f o r t h e U .S. Co u rt o f A p peals f o r th e Eig h th

Circu it, sittin g b y

d esig n atio n

.

** T h is su m m ary co n stitu

t es n o p ar t o f t h e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.V O S S V

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COUNSEL

Emily J

. K ing ston ( arg ued), Sideman & B ancroft L L P, San F rancisco, California; Au

b r e y H o ne, Hone Max well L L P, San F rancisco, California, for Petitioners-Appellants.

Kathry n Keneally

, Assistan t Attorney General; J onathan S. Cohen, J ohn Schumann (arg ued), Attorney s, U n i ted States Department of J u stice, Tax Division, Washing ton, D

. C., for Respondent-Appellee.

Shannon P. Minter, Christopher F

. Stoll, National Center for L esbian Rig hts, San F rancisco, California, for Amici Curiae Professors of L aw.

OP INION

B YB EE, Circuit J udg e:

This is a tax dispute broug h t by two unmarried co-owners

o f real property , B ruce Voss and Charles Sophy

. F or th e 2006 and 2007 tax y ears, Vos s and Sophy each claimed a home mortg ag e interest deduction u nder § 163(h)(3) o f the I nternal Revenue Code, w h i c h allows tax pay ers to deduct i n t erest on up to $1 million of home acquisition deb t a n d $1 0 0,000 of home equity debt. A fter an a udit, the I RS determine d t h a t Voss and Sophy were jointly subject to § 163(h)(3)’s $ 1 million and $100,00 0 d e bt limits and thus disallowed a substantial portion of their claimed deductions. Voss and S o phy c halleng e d the I RS’s assessment in Tax Court, arg u ing that the statute’s debt limits apply per tax pay er such that they were e nti t l e d to deduct interest on up to $1.1V O S S V

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million of home debt e a ch. The Tax Court ag reed with the I RS.

W e are now c alled upon to decide how § 1 63(h)(3)’s d ebt limit provisions apply when two or m o r e unmarried coowners of a r e s idence claim the home mortg ag e interest deduction. Althoug h the statute is silent as to unmarried coowners , w e infer from the statute’s treatment of married individuals fi ling separate r eturns that § 1 63(h)(3)’s d ebt limits apply to unmarried c o-owners on a per-tax pay er basis. W e according ly r e v e rse the decision of the Tax Court a nd remand for a recalculation of petitioners’ tax liability

.

I

Section 163 of the I nternal Re v enue Code g overns the deducti b i l ity of interest on a tax pay er’s indebtedness. This section of the Tax Code, like much of the Code, is complex

— it requires att e ntion to definitions within definitions and e x ceptions upon ex cept ions. To assist the

r e a d e r, we beg in with a brief overview of the sectio n ’s relevant provisions.

Section 163 beg ins with the g e neral rule th a t i n terest on indebtedness is d e d

uctibl e

. See 26 U.S.C. § 163(a). Subsection (h), howev e r , p ro v ides that, “[ i] n the case o f a tax pay er other than a corporation,” personal interest is not de d u c tible. See id. § 1 63(h)(1) (“I n the case of a tax pay er other than a corporation, no deduction shall be allowed under this chapter for personal interest pai d o r a ccrued d uring the
tax able y ear.”). Nevertheless, “personal interest” is defined rather technically as “any interest allowa b l e a s a deduction

. . . other than” certain specified c ateg ories of interest. See id. § 163(h)(2). One of those c a rv e d -out categ ories is “anyV O S S V

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qualified residence interest (within the meaning of p arag raph (3)).” Id. § 163(h)(2)(D).

Section 1 63(h)(3) thus provides that interest on a “qualified residence” is not “pers o n a l interest” and, according ly

, may be deducted by tax pay ers wh o are not corporations. The Code defines “qualified residence” as the
tax pay e r’s p rincipal r esidence and “1 other residence of the
tax pay e r which is selected b y the tax pay er for pu r p o s e s o f this subsection for the tax able y ear and which is used by the
tax pay e r as a residence.” Id. § 163(h)(4)(A)(i).

“Qualified r esidence interest” encompasses interest
pay ments on two ty

pes of debt: acquisition indebtedness a nd home equity indebtedness. Id. § 163(h)(3)(A). “Acquisition indebtedness” g enerally means d ebt incurred in, or that results from the refinancing of debt incurred in, “ acquiring

, constructing

, or substantially improving ” a q u alified residence. Id. § 163(h ) (3)(B )(i). “Home e quity indebtedness” g enerally means indebtedness, other than acquisition indebtedness, that is secured by a q ualified residence and that does not ex ceed the difference between the
amount of acquisition indebtedness and the home’s fair market value. Id. § 1 6 3 (h ) ( 3 )(C)(i). A home equity line o f credit is a ty

p ical ex ample of home equity indebtedness. So, for ex ample, if a tax pay er has a purchase money mortg ag e (or the refinancing

of such a mortg ag e) on both a primary home

an d a s u m mer home, she can d educt interest pay ments on both mortg a g es. She may a lso deduct the interest on any home equity

line of credit on both residences.

Sig nificantly

, the statute d oe s not allow tax p ay ers to deduct interest pay

ments on an u nlimited amount o f acquisi t i on a

nd home equity indebtedness. I nstead, theV O S S V

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statute limits “[ t] he ag g reg ate amount treated as acquisit i o n indebte d ness for any period” to $1,000,000 and “[ t] he
ag g r eg ate amount treated as home equity indebte d ness for
any period” to $100,000. Id. § 163(h)(3)(B )(ii), (C)(ii). “[ I ] n the case of a married ind i vidual filing a separate return,” however, the statute reduces the debt limits to $500,000 and $50,000. Id. W e shall refer to these provisions as the d ebt limit provisions.

I f a tax pay er’s t otal mortg ag e debt ex ceeds the d ebt limits, a Treasury reg ulation, 26 C.F .R. § 1.163-10T, provides the method for cal c u lating qualified residence interest. Subsection (e) of t h a t reg ulation sets out the u sual method: qualified residence interest i s calculated by multiply ing the total interest paid by the ratio of the applicable debt limit over the total debt. See id. § 1.163-10T(e). F o r ex amp l e , i f a sing le individual has a $2 million mortg a ge a n d a $200,000 home equity line of credit, the ratio is 5 0%: $1.1 million (the total applicable debt limit under the statute) over $2.2 million (the total debt). Thus, the tax pay er is entitled to deduct 50% of whatever interest is paid or accrued during her tax able
y ear. 1

I n sum, u n der § 163 and the applicable Treasury

r e gu l ation, a tax pay er may deduct the interest paid on a mortg ag e or home equity line of credit for a principal residence and a second home. F o r tax pay ers other t h an married individuals f

iling a separate return , t h e deduction is limited to i n t e r e s t paid on $1 million of mortg ag e d ebt a nd $100,000 of home equity debt. I f the tax pay er’ s h o me indebtedness e x c eeds $1.1 million, then she is entitled to

1 T h e reg u latio n is silen t a s to h o w th e d ed u ctio n sh o u ld b e calcu l ated in co

- o w n er situ atio n s.V O S S V

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deduct a portion o f her interest, determined by the ratio of the statutory debt limit divided b y h e r total actual d ebt. I f the
tax pay e r is married f

iling a separate return, the debt limit i s $550,000.

Althoug h the statute is specific with respect to a married
tax pay e r f

iling a separate r eturn, the Code doe s n ot specify whether, in the case o f r esidence co-owner s who are not

ma rried, the debt limits apply per residence or p er tax pay er. That is, is the $1.1 million debt limit the limit on the qualified residence, irrespective of the number of owners, or is it the limit o n t he d ebt that can be claimed by any individual
tax pay e r? T hat ga p i n t h e Code is the source of the present controversy

.

I I

A

B r uce Voss and Charles Sophy are domestic partners reg istered with the State o f California. They co-own two homes as joint tenants—one in Rancho Mirag e, California and the other, their primary residence, in Be v e rly H ills, California.

W h e n Voss and Sophy purchased the Rancho Mirag e home in 2000, they took out a $486,300 mortg ag e, secured b y the property

. Two y ears later, they r e f inanced that mortg ag e and obtained a new mortg ag e, a l s o secured by the property , in the amount of $500,000. Vo s s a n d Sophy are jointly a nd severally liable for the refinanced Rancho Mirag e mortg a g e

.

Voss and Sophy purchased the B everly Hills home in 2002. They financed the purchase of the B e verly Hills homeV O S S V

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with a $2,240,000 mortg ag e , secured by th e B everly H ills property

. About a y ear later, they r efinanced the mortg ag e b y obtaining a new loan in the a mount of $ 2,000,000. Voss a nd Sophy are jointly and s e verally liable for the r e financed B everly Hills mortg ag e , which, like the orig inal mortg ag e , is secured by the B everly H ills property

. At the same time a s they refinanced the B everly Hills mortg ag e, Voss a nd Sophy also obtained a home equity line of credit of $300,000 for the B everly Hills home. Voss and Sophy are jointl y a nd severally liable for the home equity line of credit as well.

The total averag e balance o f the two mortg ag es and the line of credit in 2006 and 2007 ( t h e two tax able y ears at issue) was about $ 2

. 7 million—$2,703,568.05 in 2006 a nd $2,669,135.57 in 2 007. Thu s , whether § 163(h)(3)’s d ebt limit provisions are interpreted as apply ing per tax pay er (such that Voss and Sophy can deduct interest on up to $2.2 million of debt) o r per residence (such that V o s s and Sophy can deduct inte r e s t o n up to $1.1 million of debt), it is in either
event clear that Voss and Sophy ’ s debt ex ceeds the statutory debt limits.

B

Vo s s a nd Sophy each filed separate federal income tax retur n s for tax able y e ars 2006 and 2007. I n their respective returns, Voss and Sophy each claimed home mortg ag e interest deductions for interest p aid on the two mortg ag es a nd the home equity line of c redit. The parties ag r e e o n the
amounts of interest Voss and Sophy each paid for those y ears: Voss paid $85,962.3 0 i n 2 006 and $ 76,635.08 in 2 007, a nd Sophy paid $94,698.33 in 2006 and $99,901.35 in 2 0 07. The total interest p aid was $180,660.63 in 2006 and $176,536.43 in 2007.V O S S V

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O n their respective 2 006 r eturns, Voss and Sophy ea c h claimed a home mortg a g e interest deduction of $95,396, for

a total of $190,792. Voss and Sophy now ag ree that this was at least $10,131.37 too much bec ause Voss and Sophy
t og ether o nly paid $180,660.63 in interest that y ear. T h e additional a mount represents int e rest that Voss paid on Dec ember 31, 2005, and was thus not deductible by either Voss o r Sophy for tax able y ear 2006. F o r tax able y ear 2007, Voss and Sophy claimed less mortg a g e interest t h an t h ey actually paid—Voss c laimed a deduction o f $88,268, a nd Sophy claimed a deduction of $65,614.

The I RS audited the 2006 and 2007 returns and, in 2009, assessed notices of deficiency to Voss and S o p h y

. T he I RS calculated each p etitioner’s mortg ag e interest deducti on b y apply ing a limitation ratio to the total amount of m o r tg ag e interes t that each petitioner paid in each tax able y ear. The limitation ratio was the same for both Voss and Sophy : $1.1 million ($1 million of home acquisition debt p lus $100,000 o f home e quity debt) over the entire avera g e balance, for e ach
tax able y ear, on the B everly Hills mortg a g e, the B everly H ills home equity line of credit, a n d the Rancho Mirag e mortg a g e

. Using that m e thod, the I RS concluded that Voss was allowed to deduct $34,975 in 2006 and $31,583 in 2007. The I RS thus d isallowed $60,421 of Voss’s claimed d e duction in 2006 and $56,685 of h is c laimed deduction in 2007. The I RS also found Sophy ’s returns deficient. T he I RS concluded that Sophy was allowed to deduct $38,530 in 2006 a nd $ 41,171 in 2007. The I RS thus d isallowed $56,866 of Sophy ’s claimed deduction in 2006 and $24,443 of his claimed deduc tion in 2007.V O S S V

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C

Voss a nd Sophy each filed a petition with the Tax Court,

an d t h e two cases were consolidated for joint consideration. The Tax Court g ranted the parties’ joint motion to submit the

cases for d ecision without trial and on the basis o f stipulated facts and e x hibits, and directed the p arties to submit proposed computations for entry

of decision.

B a sed on the stipulated fa cts, ex hibits, a nd proposed computations submitted b y the parties, the Tax Court reached

a decision and issued an o pinion in the I RS’s favor. T h e Tax Court framed the question presented as “whether the statutory limitations on the amoun t o f acquisition and h ome e quity indebtedness with respect to which i n terest is deductible under section 163(h)(3) ar e p r o perly applied on a perresidence or per-tax pay e r basis when residence co-owners a re not married to each other.” Sophy v. Comm’r
, 138 T.C. 204, 209 (2012).

The Tax Court bega n i t s analy sis by looking to the de fi nitions of acquisition indebtedness and home e quity indebtedness in § 163(h)(3)(B ) ( i) and (C)(i). 2 Id. at 210. The T a x Court noted that the term “any indebtedness” in bo t h definitions is no t q

ualified by lang uag e relating to an

2 “ A cq u isitio n

in d eb t ed n ess” is d ef

in ed as “ an

y in d eb ted n ess w

h ich (I) is i n c u rred i n acq u irin g , co n stru ctin g , o r su b s tan tially im

p ro v in g an y q u alif ied resid en ce o f th e tax pay er, an d (II) is s ecu red b y su ch resid en ce.” 2 6 U.S.C. § 1 6 3 (h )(3 )(B )(i). “ H o m e eq u ity in deb ted n ess ” i s d ef in ed as

“ an y i n d e b ted n ess (o th er t

h an acq u isitio n i n d eb ted n ess) secu red b y a q u alif ied resid en ce t o th e ex ten t th e ag g reg ate am o u n t o f su ch i n d eb ted n ess d oes n o t ex ceed (I) t h e f air m ark et v alu e o f su ch q u ali fi e d resid en ce, red u ced b y (II) th e am o u n t o f acq u isitio n in d eb ted n ess w i th
resp ect to su ch resid en ce.” Id

. § 1 6 3 (h )(3 )(C)(i).V O S S V

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individual tax pay er (as in “ any indebtedness o f the taxpayer ”). Id. The T a x Court also pointed out that the phrase “of the tax pay e r ” in the definition o f acquisition indebtedness “is used o n l y in relation to the qualified residence [ as in “qualified residence of the taxpayer ” ]
, not the indebtedness.” Id.

The Tax Court then ex amined the definition of qualified residence interest. 3 Id. The Tax Court noted that the phrase “with r espect to any qualified r e s i d ence” in that definition appeared to be superfluous, as acquisition indebtedness a nd home equity indebtedness were already defined in relation to

a qualified residence. Id. at 211. The Tax Court nevertheless found that the phrase was not sup e r f luous b ecause, in its view, “Cong ress used these repeated references to emphasiz e the point that qualified residence interest and the r elated indebtedness limitations are residence fo c u s ed r a ther than
tax pay e r focused.” Id. at 212.

T he Tax Court further reasoned that the married-person parentheticals were c o nsistent with its per-residence interpretation, as the parentheti c a l s made clear that married couples—whether filing separately or jointly —are, as a couple, limited to d educting i n t e r est on $1 million o f acquisition indebtedness a nd $100,000 of home e quity indebtedness. Id. The purpose of the parentheticals, the Tax Court ex plained, was simply

3 “ Qu alif ied resid en ce i n terest” i s d ef in ed as “ an y in terest w

h ich is paid

o r a c c r u ed d u rin g th e tax ab le y ear o n

. . . acq u isitio n in deb t ed n ess [ o r h o m e eq u ity

in deb ted n ess] w ith

resp ect to an y q u alif

ied resid en ce o f

th e tax pay er.” Id

. § 1 6 3 (h )(3 )(A ).V O S S V

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12

to set o ut a specific allocation of the limitation
amounts that must be used b y married couples filing s e parate tax returns, thus imply ing that

co-owners w ho are n ot married to one another
may c hoos e to allocate limitation amounts

am o ng themselves in some other manner, such as according to percentag e of ownership.

Id. at 213.

Noting that not h i n g in the leg islative history o f § 16 3 (h)(3) sug g ested a

n y contrary intention, the T ax Court concluded that “the limitations in section 163(h)(3)(B )(ii) a nd (C)(ii) on the amounts that may be treated as a cquisition a nd home equity indebte d ness with respect to a qualified residence are p roperly applied on a p er-residence basis.” Id.

W e have jurisdiction to review the d e c isions of the Tax Court “in the same mann e r a n d to the same ex tent a s decisions o f the district courts in civil a c tions tried w ithout a jury .” 26 U.S.C. § 7482(a)(1). Acc o r ding ly

, we r e view the Tax Court’s factual finding s f o r clear error, a

nd we r eview the T a x Court’s conclusions o f law—including its interpretation o f the I nternal Revenue Code—de novo. Suzy’s Zoo v. Comm’r , 273 F .3d 875, 878 (9th Cir. 2001).

I I I

W e are asked to d e c i d e an issue of first impression: W h en multiple unmarried tax pay ers co-own a qual i f y i ng residence, do the d ebt limi t provisions found in 26 U .S.C. § 163(h)(3)(B )(ii) a

nd (C)(ii) apply per tax p a y er or perV O S S V

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residence? W e conclude that § 163(h)’s debt limits apply per tax pay e r. 4

A

W e begin with the tex t of the key provisions at issue—§ 163(h)(3)’s debt limit provisions. They provide:

(B ) Acquisition indebtedness.—

. . . ( i i ) $ 1
, 0 0 0
, 0 0 0 L i m i t a t i o n

. — T h e ag g r eg ate a mount treated as acquisition ind e b t edness for any period shall not ex c eed $1,000,000 ($500,000 in the case of a married individual filing a separate return).

(C) Home equity

indebtedness.—

. . . (ii) L imit a tion.—The ag g reg ate amount treated as home e quity indebtedness for any period shall n o t ex ceed $100,000 ($50,000 in

4 T h e p a r t ies ag ree th at b o th o f p etitio n ers’ h o m es are qu alif ied resid en ces u n d er § 1 6 3 (h )(4 )(A )(i), th at b oth ref in an ced m o r

t g a g e s q u alif y

as acq u i sitio n in d eb ted n ess u n d er § 1 6 3 (h )(3 )(B )(i), an d th at p etitio n ers’ h o m e eq u ity l in e o f c r e d it q u alif i es as h o m e eq u ity i n d eb ted n ess u n der § 1 6 3 (h )(3 )(C)(i).V O S S V

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14

the c a s e of a separate r eturn b y a married individual).

Id. § 163(h)(3)(B )(ii), (C)(ii).

The parties dispute whether the $1 million and $100,000 debt limits in these provi s i o n s a pply p er tax pay er or per residence. I f t h e y a

pply per tax p ay er, then Voss and Sophy

are e ach e ntitled to a $1.1 million debt limit, such that tog ether the y c a n deduct interest pay ments on up to $2.2 million of a cquisition and h ome equity debt. I f the d ebt limit
prov i s i o n s apply per residence, as the T ax Court held, then the $1 million and $ 100,000 d ebt limits must be divided up in
some way between Voss and Sophy

. Discerning an answer from § 16 3 ( h) requires considerable effort on o ur part b e c a u se the statute is silent as to how the debt limits should apply in co-owner s ituations. 5 B oth provisions l i mit “[ t] h e ag g reg ate amount treated” a s acquisition or home equity debt, but neither say s to whom o r what the limits apply

. Had Cong ress wan t e d t o m ake clear that the debt limits apply per tax pa y e r , i t could h ave drafted the provisions to limit “the ag g reg ate amount each taxpayer may treat as” acquisition or h ome e q u ity debt. B ut it did not. Or, had Cong ress wanted to make cl e a r t hat the debt limits apply per residence, it could h a v e provided t hat the d ebt limits m u s t b e d ivided or allocated in the event that two o r

5 T h e relev an t T reasu ry reg u l atio n , 2 6 C.F.R. § 1 .1 6 3- 1 0 T
, is also silen t in th is reg ard

. T h e reg u latio n p ro v id es a m eth o d o f calcu latin g qu alif ied resid en ce in terest w

h en th e h om e deb t ex ceed s th e ap p licab le d eb t lim its in th e statu te, see id

. § 1 .1 6 3

- 1 0 T (e), b u t it s ay s n o th i n g ab o u t h o w q u alif ied resid en ce in terest sh ou ld b e calcu lated w h en th ere are m u ltip le

co

- o w n ers, w h eth er m arried o r u n m arried

.V O S S V

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more unmarried individuals co-own a qualified residence. Cf. 26 U.S.C. § 36(a)(1)(C) (“I f two or more individuals who a re not married purchase a principal residence, the amount of the [ first-time homebuy er] credit allowed

. . . shall b e allocated
among such individuals in such manner as the Secretary may prescribe, e x cept that the total amount of the credits allowed
to all such individuals shall not ex ceed $8,000”). B ut, ag ain, it did not.

Althoug h Cong ress did neither of these thing s, we are not altog et h e r w i thout tex tual g uidance. The statute is m ostly silent about how to deal with co-ownership situations, but it is n ot e ntirely silent. B o th d ebt l i m i t provisions contain a parenthetical that speak s t o one common situation of coownersh i p: married individuals filing separate returns. See id

. § 163(h)(3)(B ) (ii), (C)(ii). The parentheticals provide half-siz ed debt limits “in the case of a married i n d ividual filing a separate return.” Id. 6 C o n gr es s ’s use of the phrase “in the case of” is important. I t sug g ests, fi r s t, that the parentheticals contain an ex ception to the g ene r a l d e b t limit
set out in the main clause, not an i l l u s t r a tion of how that
g eneral d ebt limit should be app l i ed

. At the same time, the phrase “ in the case of” also s u g ge s t s a certain p arallelism between the parenthetical and the main clause o f e ach provision: other than the debt limit amount, which differs, we

can ex pect that in all respects the case of a married individual filing a separate return should be treated like any other case. I t is thus appropriate to look to the parenthet i ca ls when interpreting the main clauses’ g e neral d e bt limit provisions. These parentheticals offer us at least three useful insig hts.

6 Fo r n o ap p aren t reaso n th at w e can tell, (C)(ii)’ s paren th etica l i s

w o rd ed d if

f eren tly

. It states, “ $ 5 0 ,0 0 0 in th e case o f a sep a ra te retu rn b y

a ma rried in d ivid u a l .” 2 6 U.S.C. § 1 6 3 (h )(3 )(C)(ii) (em p h asis ad d ed ).V O S S V

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16

F irst, t h e parentheticals c learly speak in per-tax pay er terms: the l i m it o n acquisition indebtedness is “$500,000 in the case of a married individual filing a separate return,” id. § 163(h)(3)(B )(ii) (emphasis added), a nd the limit on h o me equity indebtedness is “ $ 5 0
, 0 0 0 in the case of a separate return by a married individual ,” id. § 163(h)(3)(C)(ii) (emphasis added). And they speak in such terms even thoug h married individuals commonly (and p erhaps usually) co-own their homes and are jointly and severally liable on any

m o r tg ag e d ebt. Had Cong ress wanted to draft t h e parentheticals in per-residenc e t erms, d oing so would not have been particularly d ifficult. Cong r ess could have w ritten, “in the case of any q

ualified residence of a married individual filing a separate return.” Ye t, once ag ain, Cong ress d id not draft the statute in that way

. The per-tax pay er wording of the parentheticals, considered in lig ht of the parentheticals’ use of the p hrase “in the case of,” thus sug g e sts that the w ording of the main clause—in p articular, the phrase “ag g reg ate amount treated”—should likewise b e u nderst o o d i n a pertax pay e r manner.

Second, the parentheticals don’t j u s t s p e a k i n p er-tax pay er terms; they operate in a per-tax p ay er manner. T he parentheticals g ive ea c h separately filing spouse a separate debt limit o f $550,000 so that, tog ether, the two spouses a re effec t ively entitled to a $1.1 million debt limit (the normal limit for sing le tax pay ers). They do not subject both spouses jo i n t l y to the $550,000 debt limit specified in the statute. W e r e the parentheticals to work in that way , the result would be quite anomalo u s

. Rather than e n suring that a married couple f iling separate returns is treated the same a s a couple filing a joint return, the parentheticals, under a per-residence

re a d i n g , would result in d isparate treatment of married couples filing separate returns. The separately fil i n g coupleV O S S V

. CI R 17

would have a $550,000 debt limit, whereas the jointly filing couple, and even the s i n gle individual, would have a $1.1 million debt limit. 7

This is surely not what the statute intended, and we don’t understand the Tax Court or the I RS to say otherwise. Quite
to the contrary , both acknowledg e that the parenthe t i c a ls’ lower limits apply

per spouse—which is just another way of
say ing per tax pay er. See Sophy

, 1 38 T.C. at 212 (interpreting
t h e married-person parentheticals to mean that “marr i e d
tax pay e rs who file separate r e turns are limited to acquisition indebtedness of $500,000 each ” a n d “to home e quity indebtedness of $ 5 0,000 each ” ( e m p h asis added)); see also Bronstein v

. Comm’r
, 138 T.C. 382, 386 (2012) (“[ T] he
p a r e n t h e t i c a l i n d e b t e d n e s s l i m i t a t i o n s o f s e c t i o n 163(h)(3)(B )(ii) and (C)(ii) are $5 5 0
, 0 0 0 f or each spouse filing a separate return.” (emphasis added)). And if the d ebt l i m i t s for spouses filing separately a pply per spouse, w e see

no reason in the statute why the debt l imits for unmarried individuals should not apply per unmarried individual. 8 The

7 S ee Pa u v. Co mm’r
, 7 3 T .C.M. (CCH) 1 8 1 9
, 1 8 2 6 (1 9 9 7 ) (h o ld in g th at

a m arried co u p l e f

ilin g a j o in t retu rn can d ed u ct “ in terest p aid o n $ 1

m illio n o f acq u isitio n

in d eb ted n ess”).

8 T h e d issen t do es n o t d isag ree w ith th is lo g ic. S ee Disse n t a t 4 6

– 4 7 (n o tin g th at i f t

h e m arried

- p erso n p aren th etical w ere in terp reted in a pertax p ay er m an

n er, “ m arried tax p ay ers f ilin g sep arately w o u ld d ed u ct th e

sam e am o u n t o f in terest as m arried tax p ay ers f ilin g j o in tly ”). In stead

, th e d issen t attack s ou r p rem ise—i.e., th at th e m arried

- p erso n p ar e n t h etical

o p erates per t ax p ay er, n o t p er resid en ce. S ee id

. at 4 7 –4 9 (in terp retin g th e

m arried

- p erso n p aren t

h e t i cal as im

po sin g a “ p en alty o n m arried in d iv i d u als f

o r fi l i n g sep arately ” b y l im itin g sep arately f ilin g s p ou ses to

a co m b in ed d eb t lim it o f $ 5 5 0 ,0 00 ). A s w e h av e ex p lain ed

, h ow ev er, th e d issen t’ s v iew ru n s co n trary n o t o n ly to th e statu te’ s tex t (“ in

th e case ofV O S S V

. CI R

18

per-tax pay er operation of the debt limits f or married individuals f

i l ing separately thus sug g ests that the g eneral debt limits also operate per tax pay er.

Third, and finally

, the very inclusion of the parentheticals
sug g ests that the debt limits apply p er tax pay er. “I t is a wellestablished rule o f s tatutory construction that courts should
not in t e r p r e t statutes in a way that renders a provision superfluous.” Chubb Custom I n s

. Co. v. Space S

ys./Loral, I n c

. , 710 F .3d 946, 966 (9th Cir. 2013), cert. denied

, 1 3 4 S

. Ct. 9 0 6 (2014). I f the $1.1 million d ebt limit truly applied per residence, as the Tax Court held it does, the parentheticals would be superfluous, as there would be no ne e d t o p rovide that two spouses filing sepa r a tely g et $550,000 each. I f the $1.1 million d ebt limit applies p e r t a x pay er, by contrast, the parentheticals actually do som e t h i ng : they g ive e ach separately filing spouse half the d e b t limit so that the separately filing couple is, as a unit, subject to the same d ebt limit as a jointly

filing couple.

The T ax Court interpreted the married-per s o n parentheticals differently

. The purpose of the parentheticals, according to the Tax Court, is n ot to lower the debt limits for
spouses fili n g separate returns—the spouses are already jointly subject to the $1.1 million debt limit. Rather, the Tax Court ex plained,

this lang uag e sim p l y appears to set out a specific allocation of the limitation amounts that must b e used by married couples f i l ing separate tax returns, thus imply ing tha t coa m arried in d i vid

u a l f i l i ng a sep arate retu rn ”) b u t also to th e IRS’ s o w n

u n co n tested in terp retatio n o f th e statu te.V O S S V

. CI R 19

owners who are not married to one another
may c hoose to allocate the limitation amounts

a mong themselves in some other manner , such as according to p ercentag e o f ownership.

Sophy , 138 T.C. at 213 (emphasis added).

W e f ind this interpretation unpersuasive. I n p articular, we think it unlikely that Cong ress would g o out of its way to pr e v ent spouses (and only spouses) from allocating § 163(h)(3)’s debt limit amoun t s , especially when in most cases spouses p resumably own their home as equal partners. The much more likely intent o f the parentheticals, w e think, is to ensure that married couples filing a sep a r a t e r eturn a re treated the same, for p urposes of § 1 63(h)(3), a s married couples filing a joint r eturn—in other words, to ensure that all married c o u p les, not just joint f ilers, are treated as thoug h they were a sing le tax pay er.

Section 1 63(h)(3) is not the o nly p rovision in the Tax Code that does this. Cong ress has on a number of occasions provided half-siz e d deductions, credits, or limits for separately filing spouses. See, e.g. , 26 U.S.C. § 22(c)(2)(A) (providing a

n initial credit of $7,500 to a qualify ing married couple f iling jointly and “$3,750 i n t h e case of a married individual filing a separate return”), id. § 1202(b) ( providing that, f o r p urposes of the Code’s ex clusion f or g ain from certain small b u s i n ess stock, the $ 10 million limitation on elig ible g ain is reduced to $ 5 m i l l i on “[ i] n the case of a separate return by a married individual”), id. § 1211(b) (limiting allowable net capital losses to “$3,0 0 0 ($1,500 in the case of a married individual filing a separate return)”).V O S S V

. CI R

20

The purpose o f these p r o v i sions is obvious. I n e ach provision, each tax pay e r g e ts some t a x benefit—a credit, an

ex c lusion up to some limit, allowable losses u p to some limit,
or, h ere, a deduction o n i n t e rest on home debt u p to some limit. Cong ress, knowing that joint filers are treated a s a sing le tax pay er and th a t separate filers are treated as two separate tax pay ers, wants to ensure that the se parately filing
spouses don’t g et double the benefit that jointly filing couples
g et. And so, in e ach of these provis i o ns, Cong ress provides that separately fili n g s pouses each g et half the benefit. The intent of t h e s e p r ovisions is not to prevent separately filing
spouses f rom allocating the benefit; it is to ensure that the separately f

iling spouses don’t g et double th e credit, the

ex c lusion, the losses, o r the debt limit that the jointly filing couple g ets. 9

I f Cong ress w ants to g o f urther a n d e n s ure that two o r

more unmarried tax p a

y ers are treated as a sing le tax pay er for
purposes of a particular d e d uction o r credit, it can do that too. And it has. Take § 36 of the Tax Code

, f o r e x a m p l e

. That section sets an $8,000 limit on the first-time homebuy er credit but adds two c aveats. Se e i d

. § 3 6(b)(1). The first
caveat is v ery similar to ( an d

, indeed, has much of the same lang uag e as) the limitation provisions here

. The statute states, “ I n t h e case of a married individual f iling a separate

9 T h at said

, Co n g ress u su ally acco m p l ish es th is p u rp o se by g iv in g each
sp o u se h alf th e tax b en ef i t th at th e j o i n tly f

il i n g co u p l e g ets. T h at m ay

m ean th at if a m arried co up l e h a s a larg e m o rtg ag e an d f iles sep arate retu rn s, b u t o n ly on e sp ou se seek s th e b en ef it, th e co u p le m ay , all co u n ted

, o n ly g et h alf th e b en ef

it i t w ou ld h av e receiv ed h ad th e co u p le f iled j o in tly

. S ee, e.g

. , Bro nstein
, 1 3 8 T .C. at 3 8 4, 3 8 6 (h o ld in g th at th e clear lan g u ag e o f § 16 3 (h )(3 ) l im ited a sp o u se f ilin g a sep arate retu r n t o $ 5 5 0 ,0 0 0 o f deb t ev en th o u g h sh e p aid all o f th e m o rtg ag e in terest an d h er h u sb an d w as u n ab le to seek th e d ed u ctio n ).V O S S V

. CI R 21

return, subparag raph (A) [ the provision containing the $8,000 cap] shall be applied by substituting ‘$4,000’ f or ‘ $ 8 ,000.’” Id. § 36(b)(1)(B ). B ut, unlike the limitation provisions h ere, § 36 does not stop there. I t h as a n additional provision—the second caveat—which states:

I f two o r m ore individuals who are not

m a rried purchase a principal residence, the
amount of the credit allowed

. . . shall be allocated among such individuals in such

manner as the Secretary may prescribe, ex cept that the total a mount of the credits allowed to all such individuals shall not ex ceed $8,000.

Id. § 36(b)(1)(C) (emphasis added).

As § 36 m akes c lear, Cong ress knows how to treat a g roup o f unmarried tax pay ers as a sing le tax p ay er for
purposes of a particular tax benefit o r burden. Cong ress could have d one so here, but telling ly it d i d n o t

. I nstead, Cong r ess did what it has done many ti mes before, using the same lang u ag e it has used before: I t eliminated what would otherwise be a sig n ificant discrepancy bet ween separately filing and jointly filing married couples by ex p ressly reducing the debt limits for spouses filing separately

.

I n sum, the married-person parentheticals’ languag e , purpose, and operation all strong ly sug g est that § 163(h)(3)’s d e bt limit provisions apply per tax pay er, not per residen c e. Absent some contrary indication in the statute, then, we shall read the debt limit provisions as apply ing on a per-tax pay er basis.V O S S V

. CI R

22

B

The Tax Court rejected a per-tax pay e r reading of the d ebt limit provisions because it discerned in § 163(h)(3) a g eneral “focus” on the qualified r e s idence, Sophy

, 138 T.C. at 210, and a “conspicuous[ ] absen[ ce] ” o f “any reference to an individual tax pay er,” id. at 2 11. B ecause the debt limit provisions do not speak directly to the situation of unmarried
co-owners, it was reasonable fo r t he Tax Court to look bey ond those provisions in an effort to understa n d h o w the provisions should be applied. Ultimately

, however, these other provisions of the statute do not sway u s.

The Tax Court focused on three provisions in the statute, all definitions: firs t , the definition of qualified residence interest as “a n y i n t erest which is paid or accrued during the
tax able y ear on[ ] a c quisition [ or home e quity ] i n d e btedness with respect to any qualified residence of the taxpayer ,” 26 U.S.C. § 1 6 3 ( h ) (3)(A) ( emphasis added); second, the, definition o f acquisition indebtedness as “any indebtedness which[ ] is incurred in acquiring

, constructing

, or substantially im p r oving any qualified residence of the taxpayer ,” id. § 163(h)(3)(B )(i) (emphasis added); and third, the definition of home e quity indebtedness as “any indebtedness (other than acquisition indebtedness) secured by a qualified residence

, ” id. § 163(h)(3)(C)(i) ( e m p h asis a d ded). Sophy

, 138 T.C. at 210–11. I n each d efinition, th e Tax Court hig hlig hted the reference to the qualified resid e n c e and noted that the
tax pay e r was only e v er mentioned with respect to the residence, not with respect to the indebtedness. Id.

W e , however, do not f

ind the statute’s f

o c u s o n the residence or lack of focus on the tax pay er p a rticularly compelling

. As for the repeated references to the residence,V O S S V

. CI R 23

i t is only natural that a statute providing a deduction o n “qualified residence interest” w ill focus o n indebtedness with respect to a qualified residence. I ndeed, for the most part, the statute’s references to the “ q ualified residence” are entirely
necessary ; take those ref erences o ut, and the statute would chang e meaningor make little sense.

The Tax Court did iden t i f y a few instances where a prepositional p h r a se involving the residence (such as “with respect to any qualified residence”) could have been safely omitted and was thus arg uably superfluous, id. at 211–12, but the same c ould be said of other prepositiona l p h r a ses involving the t ax pay er (such as “of the tax pay er”). 1 0 I n all likelihood, these phrases, thoug h technicall y u nnecessary , were included simply to ease the reader’s understanding of a complex tax statute f

ull of technical definitions. ( W e

c ertainly appreciate their inclusion.) A nd, in any case, i f there is a plausible inference to be d r a wn from those few stray p repositional p hrases, it is over c o me b y the clear implications of the married-person pare n t h eticals d iscussed above. Thus, in our v iew the statute’s focus on the residence

10 T h e statu te’ s d ef

in itio n o f q u alif

ied resid en ce in terest i s i n stru ctiv e. T h e statu te d ef

i n es t h at term t o in clu de in terest o n “ acq u isitio n in d eb ted n ess with resp ect to a n y q u a lified resid

en ce o f th e ta xp a

yer .” 2 6 U.S.C. § 1 6 3 (h )(3 )(A )(i) (em p h asis ad d ed ). A s th e T ax Co u rt p o in ted o u t, S o p h y , 1 3 8 T .C. at 2 1 1, th e p h rase “ w ith resp ect to an y q u alif i e d resid en ce” ap p ears to b e red u n dan t b ecau se acq u is i t i o n in deb ted n ess is d ef in ed as in d eb ted n ess “ in cu rred in acq u irin g

. . . a n y q u a lified resid

en ce

o f th e ta xp a

yer ,” 2 6 U.S.C. § 16 3 (h )(3 )(B )(i) (em p h asis ad d ed ). No t ab ly

, h o w ev er, th e p h rase “ o f th e t ax p ay er” i s also u n n ecessa r y b e c au s e q u alif ied resid e n c e i s d ef

in ed as “ th e prin cip al resid en ce

. . . o f th e ta xp a yer ” an d “ [o n e ] o t h er resid en ce of th e t a xp a yer .” Id

. § 1 6 3 (h )(4 )(A )(i) (em

p h asis ad ded ). In d eed

, “ o f th e tax p ay er” is tw i ce red u n dan t: it is u n n ecessarily in clu d ed in b o t h th e d ef in itio n o f q u alif ied resid en ce in terest an d th e d ef i n itio n o f acq u isitio n

in d eb ted n ess.V O S S V

. CI R

24

say s little about ho w t he debt limit provisions should be applied.

Nor do we f

i n d t h e occasional o mission of the word “tax pay er” particularly t e lling

. To beg in with, two of the three d efinitions identified by the Tax Court do refer to the
tax pay e r, and all three d epend on the definition of “qualified residence,” which itself refers to the tax p ay er (for more on th e definition of “qualified residence,” see the nex t section below). Setting to t h e s i d e those references to the tax pay er, it is t r u e that the three definitions identified by the Tax Court—just like the debt limit provisions in (h)(3)(B )(ii) a nd (C)(ii)—do not specify who paid the interest, w h o incurred the indebtedness, and whose indeb t edness was secured by a q u a l ified residence. B ut when we look at the rest of § 1 6 3 (a n d

, we suspect, the rest of the Tax Code), the omission o f the word “tax pay er” is any thing but conspicuous. N o t e, for

ex a mple, how the word “tax pay e r ” is miss ing from the first line of § 163, which states, “ There sh a l l b e a llowed as a deduction all interest paid or accrued w ithin the tax able y e ar

on indebtedness.” Id. § 163(a). The r e is no need for the
sentence to say , “There shall be allowed as a deduction to the taxpayer all interest paid by the tax p a y e r w ithin the taxpayer’s tax able y ear on the taxpayer’s indebtedness.” Any reasonable r eader would understand t h a t the statute is speaking of a tax pay er.

Or take the first line of § 163( h )

. I t states that “ no deduction shall be allowed under this chapter for personal interest paid or accrued d u ring the tax abl e y ear.” Id. § 163 (h)(1). A g ain, the reader easily intuits that the statute refers to a tax pay er’s deduction, a tax pay er’s personal interest
pay ments, and a tax pay er’s tax able y ear. I ndeed, there can be

no doubt that is what (h)(1) means because the statement justV O S S V

. CI R 25

quoted f ollows the p h rase, “ I n the ca s e of a taxpayer other than a corporation.” Id. (emphasis added).

Thus, althoug h we do not fault the Tax Court f o r looking
to other provisions in t h e statute for g uidance, w e would place little weig ht on the statute’s g e neral focus on the residence or its r e p e a t ed omission of reference to the
tax pay e r. I f any

thing

, these other p rovisions reinforce our per-tax pay er read i ng ; they reveal that the debt limit provisions’ omission of the w ord “tax pay er” is actually quite ordinary in the contex t of the broader statute.

C

Not only d oes n o thing i n t h e statute compel the Tax Court’s per-residence readi n g; several of the statute’s provisions point the o ther w ay

. W e have a l re a d y noted o ne

e x a m ple: by speaking and operating in a per-tax p ay er manner, the married-person parenthetica l s s ug g est that the
g eneral debt limits a lso apply per tax pay er. T w o o ther provisions also warrant attention.

F irst, we are g uided by the statute’s repe at e d references
to a sing le “tax abl e y ear.” Section 163(h) beg ins by stating that “no d eduction shall be allow e d u n d e r this c hapter for personal interest paid or accrued during the taxable year .” Id. § 163(h)(1) (emphasis added). L ikewise, § 163(h)(3) beg ins by defining qualified residence interest as any interest on acquisition or home equity debt “which is paid o r accrued during th e t a x a b l e y ear .” Id. § 1 63(h)(3)(A). I n d eed, the
very provisions at issue, the debt limit provis i o ns, cap the allowable a mount of home debt “for any period”—the word “period” clearly referrin g to the “tax able y ear” mentioned earlier in (h)(3). Id. § 163(h)(3)(B )(ii), (C)(ii).V O S S V

. CI R

26

Residences do not have tax able y ears; only tax pay ers do. And, importantly

, tax pay ers can have d ifferent tax able y ears. See 26 U.S.C. § 441(b) ( providi n g t h a t a tax p a y er’s tax able
y ear may vary depending on the tax pay er’s annual accounting
p e r i o d). Yet § 163(h) speaks in terms of a single ta x a b l e y ear, thus imply ing that the debt limits apply per tax pay er. I f Con gr e ss truly intended to imply that § 163(h)(3)’s d ebt limits a p p l y per residence b y b roadly focusing on the residence and consistently ig noring the tax pay e r, it seems unlikely to us that it would at the same time define qualified residence interest with respect to a sing le tax able y ear.

Moreover, it is unclear how co-owners with different
tax able y ears could even determine “[ t] he ag g reg ate amount treated a s a cquisition indebtedness for a ny period” under a per-residence approach. Do e s o ne co-owner’s tax period control? Or do the co-owners have to fig ure out some way o f

a c c o u n ting for both tax periods? (Keep in mind that mortg ag e balances usually chang e monthly .) These d ifficult questions g o away , however, when the debt limits are r ead to apply per tax pay er. Each co-owner simply det e r mines the interest paid and the a v e r ag e mortg ag e debt during h is o r her
own tax p e riod.

Th e Tax Court’s per-residence reading is a lso h ard to

s quare with the statute’s definition of “qualified residence.” Somewhat counter-intuitively

, the term “qualified r e sidence”

can include one or two residences: “the principal residence (within the meaning of section 121) of the tax pay er,” and “1 other r esidence o f t h e tax pay er w hich is selected by the
tax pay e r for purposes of this subsection for the tax able y e ar and w hich is used by the tax pay er as a r es i dence (within the meaning of section 280A(d ) (1)).” Id. § 163(h)(4)(A)(i). Contrary to the Tax Court’s per-residence reading of theV O S S V

. CI R 27

statute, the term “qualified residence” clearly focuses on the
tax pay e r. The term includes the principal residence “of the
tax pay e r” and one other residen c e “ o f the tax pay er” that is “used b y the tax pay er as a residence” and is “selected by the
tax pay e r.” Id. The term also specifies that the tax pay er may select the secondary r e sidence “for the tax able y ear,” id.

, sug g esting that a tax pay er who owns multiple secondary residences can chang e h is or her “1 other residence” from o ne tax y e ar to the nex t.

More than just focusing on the tax pay er, the term “qualified residence” also hig hlig hts the impracticality of the Tax Court’s approach. As the term “qualified residence” is defined, it is entirely p o ssible that two residence co-owners mig ht each have a diff e r e n t “ qualified residence.” F o r

ex a mple, two individuals mig ht each have a separate primary residence but g o in tog ether o n a vacation home in Maui. F o r such co-owners, filing tax returns under the Tax Court’s perresidence approach would be like running a three-leg g ed race. The co-owners are tied tog ether for one ho m e but not the other. This would mean that the two (or it could be three o r four) co-owners would have to coordinate their tax returns to

ensure that the ag g reg a te amount of acquisition debt for e ach
tax pay e r’s “qualified residence” does not ex ceed $1 million. I t would a lso mean that o ne co-owne r’s d eduction mig ht depend on the siz e of a

nother co-owner’s m o r t ga g e o n a home in which the first co-owner has no interest. Under a per-tax pay er approach, by cont r as t , determining the amount of acquisition debt is free of such difficulties. Each tax pay er

can calculate th e d e d u ction w ith reference to his or her respective two residences.

These provisions—the married-person parentheticals, the

r epeated references to the sing le “ tax able y ear,” and t h eV O S S V

. CI R

28

tax pay e r-specific definition of “qualified residence”—are at odds with the Tax Court’s per-re s i d e n ce r eading o f § 163(h)(3). Each provision focuses on the i n d i v idual
tax pay e r, a

nd the impractica l i ty o f apply ing the provisions under a per-residence approach sug g ests that Cong r ess never intended that approach. We thus conclude that a per-tax pay er reading of the st a t u te’s debt limit provisions is most consistent with § 163(h)(3) as a whole. 1 1

I V

The I RS arg ues that apply ing § 163(h)(3)’s debt limit provisions on a per-tax p ay er basis creates a marriag e penalty

. W e ag ree that it does, but we do n ot believe the marriag e penalty is as sig nificant a concern as the I RS urg es.

11 A s th e T reasu ry reg u latio n ’ s f o rm u la set o u t i n 2 6 C

. F .R. § 1 .1 63

- 1 0 T (e) o n ly ad d resses t

h e situ atio n o f a sin g le tax p ay er, th e f o rm u l a m ay

n eed to b e ad

j u sted to acco u n t f

o r th e situ atio n o f sep arately f i l in g co

o w n ers, w h eth er m arried o r u

n m arried

. S

ee Dissen t at 4 7 (su g g estin g t h at, if m arried in div id u als f

ilin g sep arately

are to receiv e th e sam e co m b in ed d eb t li m i t as a m arried co u p le f ilin g j o in tly

, th e IRS w o u ld p resu m ab ly h av e to “ allo w [each ] m arried tax p ay er f ilin g sep arately to d ed u ct h is or h er ow n in te rest p ay

m en ts o n th e deb t in th e p ro p o rtio n o f $ 5 5 0 ,0 0 0 d iv id ed b y o n e h alf o f th e to tal d eb t secu red b y th e q u alif i ed resid en ce”). W e l eav e it to th e IRS to d ev elo p in th e f i rst in stan ce a w o rk ab l e

m eth o d o lo g y

f o r sep arately

f i lin g co

- o w

n ers.

T h e dissen t also d i sp u t es o u r co n clu sio n th at th e reg u l atio n f ails to ad d ress th e situ atio n p resen t ed h ere, rely in g o n th e IRS’ s co n clu sio n “ th at th e reg u latio n d o e s ap ply t o co

- o w n ers.” Dissen t at 3 8 n .1 (citin g IRS CCA 20 0 9 1 1 0 07
, 2 0 0 9 W L 6 41 7 7 2 ). B u t w h eth er th e IRS h as in terp reted its ow n reg u latio n in th is m an n er is o f little im p o rt w h ere its reaso n i n g f

or d o in g so is a sh ort- sh rif

t in t erp retatio n o f a s t a t u te in an o p in io n lack in g th e f o rce o f law

. S ee Maj . Op . at 3 1 –3 2

.V O S S V

. CI R 29

Cong r ess may have had perfect l y leg itimate r easons for disting uishi n g between married and unmarried tax pay ers. Married individuals, unlike unm arried individuals, have the option u nder the T ax Co d e o f f i ling a joint return. This option offers sig nificant benefits—in particular, lower tax rates at v arious levels of income. B ut it’s not all honey moon; filing jointly also c omes with certain drawbacks. A couple filing a joint return mig h t, f or ex ample, r e c eive one $1,000
tax credit where the same couple fili n g separate tax returns mig ht rece i v e t w o $1,000 credits. I t would appear that, in Cong r ess’s view, the home mortg ag e interest deduction is o ne such drawback. I f two individuals w ho are eng ag e d to be married each own thei r o w n h o use and each have their o wn $1 million mortg ag e, both g et to deduct all of their interest. B ut if they g e t married and file a joint return, they are treated

as o ne tax pay er and can then only deduct half of their interest. See Pau
, 7 3 T.C.M. (CCH) at 1819, 1826. This is a marriag e p enalty

, but Cong ress presumably allows the marriag e penalty because the c o u

ple also receives offset t i n g benefits available only

to married couples filing a joint return.

Of course, a married couple filing separate retu r n s d oes not receive the benefits of filing a joint r e t u r n

. I s it unfair, then, that they are treated a s a s i ng le tax pay er while the unmarried couple is not? Perhaps not, for the married couple,

u n l i k e the unmarried couple, can u sually elect to file a joint
return. And perhaps Cong r ess did not want separately filing

ma r r i e d couples to have a sig nificant advantag e over jointly filing married couples.

W e have already ex plain e d t h at the apparent purpose o f the m a r ried-person parentheticals is to ensure that married couples are treated as a sing le tax pa y er for purposes o f the home mortg ag e interest deduction r eg ardless of whether theyV O S S V

. CI R

30

file separately or jointly

. And the same purpose is evident in other provis i o n s a s well. F or ex ample, the statute provides that married couples filing separate returns ge n e rally “ shall be treated as 1 tax p ay er” fo r p u r p o s e s of the d efinition o f qualified r esidence. 2 6 U.S.C. § 163(h)(4)(A)(ii)(I ). L ike the debt limit provisions, this provision does not ex plicitly say

w hether the same is true of married couples filing a j o i n t return, b ut we can reasonably infer that Cong r ess also intended to treat jointly fil i ng couples as a sing le tax pay er. S e e I RS F ield Service Advisory No. 200137033 (Sept. 1 4
, 2001) (opining

, non-precede n t i a l l y , t h at “ [ a ] l t h o ug h § 163(h)(4)(A) does not specifi ca l l y state that a married couple filing jointly is treated as one tax pay er for purposes o f determining their mortg a g e interest deductions, we a ssume that Co n gr e s s did not intend to treat married couples filing jointly differently

than married couples filing separately ”).

W e thus a g ree that the debt limit provisions of § 163(h)(3) result in a marriag e p enalty ; but we a r e not p a rticularly troubled. Cong r ess may very well have g o od r ea s o ns for allowing that result, and, in any event, Cong ress clearly sing led out married couples for spec i f i c treatment w hen it

ex p licitly provided lower debt limits for married couples y e t, for whatever reason, did not similarly prov ide lower d ebt limits for unmarried co-owners.

V

The dissent urg e s us to d efer to the I RS’s interpretation o f the statute in a 2 0 0 9 Chief Counsel Advice memorandum. Dissent at 4 3

. The memorandum, like the Tax Court below, ado p t s a per-residence interpretation of § 163(h)(3)’s d ebt limit provisions. I ts statutory analy sis consists o f o ne parag raph, which reads:V O S S V

. CI R 31

U n d e r § 1 6 3 ( h )( 3 ) ( B) ( i )

, a c q u i s i t i o n indebtedness i s defined, in r elevant part, a s indebtedness incurred in acquiring a qualified

r e s i d e n c e o f t h e t a x p a y e r

— n o t a s i n debtedness incurred in acquiring [ a]
tax pay e r’s portion o f a q u alified residence. The entire amount of in d ebtedness incurred i n a c q u i r i n g t h e q u a l i f i e d r e s i d e n c e constitutes “acquisition indebtedness” under § 1 6 3 ( h ) ( 3 ) ( A ) ( i )

. . . . [ U ] n d e r § 163(h)(3)(B )(ii), the amount treated a s acquisitio n i ndebtedness for purposes of the qualified residence interes t deduction is limited to $1,000,000 of total, “ag g reg ate” acquisition indebtedness. T h is is evident f rom the parenthetical in § 1 63(h)(3)(B )(ii) which lim i ts the ag g r eg ate treated as acquisition indebtedness t o $ 500,000 for a married
tax pay e r filing a separate return.

I RS Chief Counsel A dvice No. 200911007, at 4 (Mar. 13, 2009).

As the dissent acknowledg es, the I RS’s Chief Counsel Advice is only entitled t o t h e “measure of deference proportional to the ‘thoroug hness evident in its consideration, the validity of its reasoning

, its consistency wi t h e a r l ier a nd later pronouncements, and all those factors whi c h g ive it
power to persuade.’” Christopher v. S mithKline Beecham Corp.
, 1 32 S. Ct

. 2 1 5 6, 2168–69 ( 2012) (quoting United States v. Mead Corp.
, 533 U.S. 218, 228 (2001)); s e e a lso Christensen v

. Harris Cnty.
, 5 29 U.S. 576, 587 (2000) ( “ I n terpretations such as those

. . . in policy statements, ag ency manuals, and enforcem ent g uidelines, all of whichV O S S V

. CI R

32

lack the force of l a

w—do not warrant Chevron

- sty le deference.”).

A review of these factors sug g ests the 2009 C hief Counsel Advice should b e g iven limited weig ht. To start, the 2009 C h i e f Counsel Advice is hardly thoroug h o r

ex h austive—its anal y s is interpreting h ow the statute should apply to u nmarried co-owners consists of just one parag raph. I t treats the question as one g overned by the “plain lang uag e of the statute,” I RS Chief Counsel A dvice No. 200911007, at 4, y et as our ex chang e, the briefs of the parti e s , the Tax Cour t ’ s decision, and the statute itself demonstrate, it is
any thing but “plain.” The Chief Counsel Advice d o es not g rapple with the statute’s tax pay er-specific definition o f “qualif ied residence” o r repeated references to a tax pay er’s
tax able y e ar, nor does it ex pl a i n how the married-person parenthetical is any

thing b ut surplusag e under a per-residence reading of the statute.

As for consistency

, the situation h ere is a far cry from that in Hall v

. United States
, 132 S. Ct. 1882, 1890 (2012), a case the dissent c ites. See Dissent at 38 n.2. I n Hall

, the Supreme Court “ s[ aw] no r eason to depart from those e stablished

u n d e r s t a n d i n g s ” o f b a n k r u p t c y c o u r t s , b a n k r u p t c y commentators, and the I RS’s consi stent position for over a decade in a n I RS Chief Counsel A dvice memorandum, the I nterna l Revenue manual, and an I RS L itig ation Guideline Memorandum. See Hall

, 132 S. Ct

. at 1889–90. Here, b y contrast, th er e i s no c o mparable consensus. Aside from the I RS’s litig ation p osition in this c ase, it a ppears that the 2009 Chief Counsel Advice—which is just six y ears old—is the I RS’s only pronouncement a ddressing how § 163(h)(3)’s d ebtV O S S V

. CI R 33

limits apply to u nmarried c o -o w n ers. 1 2 The ag e ncy ’s
g uidance is closer to a “mere[ ]

. . . litig ating p osition” than to

an “ ag ency interpretation o f ‘long standing ’ duration.” Dissent at 43 ( quoting Alaska Dep’t o f Envtl. Conservation v

. EPA , 540 U.S. 461, 487–88 (2004)).

Eve n p utting all that aside, we are not persuaded by the reasonin g in the I RS’s 2009 g uidance. The 2009 Chief Counsel Advice reasons that “ acquisition indebtedness” is defined in the statute “as indebtedness incurred in acqu i r ing

a qualified residence of the tax p ay er—not as indebtedness incurred in a cquiring [a] tax p ay er’s portion of a qualified resid en ce,” and concludes that unmarried co-owners a re “limited to $1,000,000 o f total, ‘ag g reg ate’ acquisition indebtedness.” I RS Ch i e f Counsel Advice No. 200911007,
at 4. B ut this beg s the question. A s w e h a v e ex plained, althoug h the statute limits “[ t] he ag g r e g ate amount treat e d ”

as acquisition or home equity debt, it does n o t s a y to whom or what the limits apply

.

I ndeed, we are not convinced the dissent is f ully persuaded by the 2009 Chief Coun s e l Advice either. Althoug h the dissent e x tols the I RS’s “reasonable a nd persuasive” “position,” Dissent at 43, the dissent only briefly discusses the Chief Coun s el’s actual r easoning

. And as for the I RS’s arg uments on a p p eal, t h e d i s s ent shies away from the I RS’s principal arg ument—i.e., that “the f ocus o f the

12 Po in tin g to 2 6 C.F.R. § 1 .1 63

- 1 0 T (e), th e d issen t say s “ th e IRS h as ap p lied i ts ex p ert in terp retatio n o f § 1 6 3(h ) co n sisten tly f o r m an y y ears.” Dissen t at 4 4

. Yet th e dissen t d oes n o t d i s p u te th at § 1 .1 6 3

- 10 T (e) is

co m pletely silen t as to u n m arried co

- o w n ers (o r an y co

- o w

n ers, fo r th at

m atter). T h e 2 0 0 9 Ch ief Co u n sel A dv ice is th e on e an d o n ly IRS
p ro n o u n cem en t o n

th e issu e b ef

o re u s.V O S S V

. CI R

34

statute is on the residence, not o n t h e t ax p a y e r.” We have

e x p l a ined (in Part I I I .B ) why this arg ument fails, y et t h e dissent offers no response.

W h at is more, in one important respect, the dissent rejects
t h e I RS’s interpretation. According to the dissent, the married-person parenthetical is not superfluous bec a u s e it impose s a “statutory p enalty ” on married individuals w ho decide to file separately

. Id. at 48

. Under this view, two unmarried co-owners are entitled to a total debt limit of $1.1 million, a married c o uple filing joi n t ly is entitled to a total debt l i m i t of $ 1.1 million, a nd even a sing le individual is entitled to a tot a l d e b t limit of $1.1 million—but a married couple filing separately is e n t i tled to a total debt limit o f $550,000. See id. at 46–47.

To our k nowledg e, however, neither the I RS n o r the Tax Court has ever adopted the dissent’s interpretation. A s the I RS ex p lained in its brief on appeal, “ T h e parenthetical l a n guag e in the acquisition indebtedness limitation in § 163(h)(3)(B ) (ii) provides that mar ried tax pay ers who file separate returns are limited to a c q uisition indebtedness o f $500,000 each .” (Emphasis a dded.) Accord Sophy

, 138 T.C.
at 212 (“[ M] arried tax pay ers who f i l e s e parate returns a

re limited to ac q uisition indebtedness of $500,000 e ach

. . . . ” (emphasis added)); Bronstein
, 138 T.C. at 386 (“[ T] he
p a r enthetical indebtedness limitations

. . . are $550,000 f o r each spouse filing a separate return.” (emphasis added)); I RS Chief Counsel Advice No. 200911007, a t 4 (ex p lai n i n g that the p er-residence operation o f the $ 1 million limit on acquisition indebtedness “is evident from the [ m a rr iedperson] parenthetical,” thus imply ing that each separately filing spouse g ets a separate $500,000 ag g reg ate debt limit).V O S S V

. CI R 35

On this issue there is a c onsensus, and the dissent is on the
wrong side.

At bottom, althoug h an I RS Chief Counsel Advice
statement “is helpful in d e termining the position of the I RS,” it is an internal I RS memorandum prepared by an individual I RS attorney

. W

e lls Fargo & Co. v. United States
, 119 F ed. Cl. 27, 38 (2014). The document itself cautions that it “may
not be used or cited as precede n t

. ” I RS Chief Counsel Advice No. 2 00911007, at 1

. I ndeed, the I RS cou l d i s s u e a memorandum taki n g the opposite position tomorrow, “apparently without r evoking the earlier g uida n ce.” W ells Fargo , 119 F ed. Cl. at 38 n.12.

Every factor the dissent say s w e should consider sug g ests that the I RS’s interpretation should not be g iven sig nificant weig ht. Having considered the I RS’s reasoning as set out in the 2009 Chief Counsel Advice a nd the I RS’s b r i e f

s on appeal, we decline to adopt its interpretation.

VI

W e hold that 2 6 U.S.C. § 163(h)(3) ’ s debt limit provisions apply on a per-tax p ay er basis to unmarried coowners of a q

ualified residence. W e infer this conclusion from the tex t of the statute: By ex pressly providing that married individual s f

i ling separate returns are entitled to deduct i n t e r e st on u

p to $ 550,000 of home d ebt each, Cong r ess implied that unmarried co-owners filing separate returns a re e ntitled to deduct interest on up to $1.1 million o f home debt each. W e according ly reverse the T ax C o urt’s decision and remand for the limited purpose of allowing the parties to determine, in a manner consistent with this opinion, the proper amount o f qualified residence int er e s t thatV O S S V

. CI R

36

petitioners are entitled to deduct, as well as the proper amount of any remaining deficiency

.

REVERSED and REMANDED.

I KUTA, Circuit J udg e, dissenting :

Today the majority inte r p r e t s the Tax Code to allow unmarried tax pay ers who buy an e x pensive residence tog ether to deduct twice the amount o f interest paid on the debt secured by their residence than spouses would be allowed to deduct. W hile the lang u ag e of the relevant statute is ambig uous, the I RS has offered an interpretation that limits unmarri e d tax pay ers in this situation to deducting the same amount as married tax p ay ers filing jointly

. B e ca u se we should d e f

e r to this reasonable interpretation by the I RS, I dissent.

I

The I nternal Revenue Code provides that interest paid o r accrued on indebtedness sha l l ge nerally be allowed as a federal tax deduction. 26 U.S.C. § 163 ( a )

. Deductions for personal interest paid or accrued a re g e nerally disallowed. Id. § 163(h)(1). Cong ress m a d e an e x ception from this disallowance for “qualified r esidence interes t (within the meanin g o f [ § 163(h)(3)] ).” Id. § 163(h)(2). “ Qualified residence interest” is defined in § 163(h)(3) as follows:

(3) Qualified residence interest–F or purposes of this subsection–V O S S V

. CI R 37

(A) I n g eneral.–The term “q u a lified residence interest” means any inte rest which i s p aid or accrued during the
tax able y ear on–

(i) acquisition indebtedness with respect to a

ny qualified residence o f the tax pay er, or

(ii) hom e e quity indebtedness with respect to a

ny qualified residence o f the tax pay er.

The statute defines “qualified residence” as “the principal residence” o f a tax pay er and one other selected home used a s

a residence. Id. § 163(h)(4)(A)(i). T he term “acq u i s ition indebtedness,” is defined as debt “i n c urred in acquiring

, constructing

, or substantially improving a n y qualified residence o f the tax pay e r, and [ w hich] i s secured by such residence.” I

d. § 163(h)(3)(B )

. B ut not all such debt counts

as acquisition indebtedness. Rather, “[ t] he ag g reg a te amount treated as acquisition indebtedn e s s f or any period shall not

ex ceed $1,000,000 ($500,000 in the case of a married individual filing a separate return).” Id. § 163(h)(3)(B )(ii). Similarly

, the term “home equity indebtedness” is defined a s “indebtedness (other t h an acquisition indebtedness) secured b y a q ualified residence.

. . .” Id. § 163(h)(3)(C)(i). Bu t ag ain, not all the d ebt secure d b y the qualified residence
counts as home e quity indebtedness. L i k e the c ase o f acquisition indebtedness, “[ t] he ag g reg a te amount treated as home equity indebte d n e s s for any period shall not ex c eed $ 100,000 ($50,000 in the case of a separate return b y a married individual).” Id. § 163(h)(3)(C)(ii).V O S S V

. CI R

38

The I RS has a dopted a straig htforward application of this
statute when there is a sing le tax pay er or a married couple filing jointly

. I f a q

ualified residence serves as security for debt that is more than the s p e ci fied $1.1 million, only the interest pay

ments on the allowed $1.1 million of the debt a re deductible. I n the case of a n individual tax pay er, the I RS calculates the proportion of the tax pay er’s total i n terest pay ments that is d e d u c t ible by dividing the $1.1 million o f debt by the total amount of d e b t s e cured by the qualified residence. S

ee 26 C.F .R. § 1

. 1 6 3 -10T(e); 1 Chief Couns. Advice, I RS CCA 200911007, 2009 W L 641772. 2 So if the qualified residence is security for $2.2 m i l l i on in debt, the
tax pay e r c an calculate the p roportion of interest pay ments that is deductible by dividing $1.1 million (the total ag g reg ate debt allowed by the statute) by $2.2 million (the total amount of debt secured by the qualified residence). The result is that

1 2 6 C.F.R. § 1 .1 6 3

- 1 0 T d i scu sses “ qu alif ied resi d e n c e i n t erest” in 2 6 U.S.C. § 16 3 (h )(3 ). § 1 .1 6 3

- 1 0 T (e) p ro v i d es a f o rm u la to d eterm in e q u alif ied resid en ce in terest w h en s ecu r ed d eb t ex ceed s t h e ad j u s ted
p u rch ase price o f a h ou se. T h e p arties do n ot d isp u t e th at it is also t h e ap p licab le f

o rm u la f o r p u rp o ses o f determ in in g w h at p ro p o rtio n o f in terest p ay m en ts i s d ed u c tib le w

h en “ th e av erag e b alan ce o f th e d eb t” ex ceed s th e “ ap p licab le d eb t lim i t.” 2 6 C .F.R. § 1 .1 6 3- 1 0 T (e). T h e m aj o rity

co n ced es t

h at § 1.1 6 3

- 1 0 T (e) ap p lies in th is co n tex t, Maj

. Op

. at 6
, 1 4 n .5
, b u t arg u es th at it “ o n ly ad d resses th e situ atio n o f a sin g l e tax p ay er,” Maj

. Op

. at 2 8 n .1 1

. No th in g i n th e r e g u l a t i o n su p p o rts t h e m aj o rity ’ s assertio n , h ow ev er; rath er, th e IRS h as co n clu d ed th at th e reg u latio n d oes ap p ly to co

- o w n ers. S ee IRS CCA

2 0 09 1 1 0 0 7 , 2 0 0 9 W L 6 4 1 7 72

.

2 A l th ou g h th e IRS do es n o t d e e m C h i e f Co u n sel A d v ice letters to b e p reced en tial, co u rts cite th ese statem en ts w h en th ey are h elp f

u l in l ig h t of

an ag en cy ’ s ex

p ertise an d estab lish ed p r actice. S ee, e.g

. , Ha ll v. Un ited S ta tes , 1 3 2 S. Ct. 1 8 8 2
, 1 8 90 (2 0 1 2) (h o ld in g th at th ere w as “ n o reaso n to d ep art f ro m t h o se estab lish ed u

n d erstan d in g s” co n tain ed in an IRS Ch i ef Co u n sel A d v ice statem en t , its m an u al, an d its litig atio n g u id elin es); see

a lso W ells Fa rg o & Co . v. Un ited S t a tes , 1 1 9 Fed Cl. 2 7 , 3 7

– 3 8 (2 0 1 4 ).V O S S V

. CI R 39

the tax pay e r c an deduct one half of the interest the tax p a y er paid on the total debt.

Si m i larly

, spouses filing jointly are subject to the $1,000,000 li mit on acquisition indebtedness and the $100,000 limit on home equity in d e b t e dness. See Pau v

. Comm’r
, 73 T.C.M. ( CCH) 1 819, 1997 W L 28678, at *1, 12 (1997). This approach is consistent with the Tax Code’s ty pical treat m en t o f a married couple filing jointly as o ne tax pay e r, who tog e ther have an ag g r eg ate debt an d t o g ether

are subject to the statutor y limit on how much interest they
may deduct. See, e

. g

. , 26 C.F

. R. § 1.179-2(b)(5)(i) (“A husband and wife who file a joint i n c o m e t a x return

. . . a re treated as one tax pay er i n d e termining the amount of the dollar limitation under

. . . this section.”); 26 C.F .R. § 1.469- 1T(j)(1) (“[ S] p ouses filing a joint r eturn for a tax able y e ar shall be treated for such y e ar as one tax pay er for purposes o f section 469.”).

The I RS has also e x plained how this methodolog y applies when there are unmarried co-owners of a qualified residence. See Chief C ouns. Advice, I RS CCA 200911007, 2009 W L 641772. U nder the I RS’s interpreta t i on, reg ardless of the number of u nmarried tax pay ers who hav e an ownership interest in a qua l i fi e d residence, only interest pay ments on $1.1 million of the debt e ncumbering that qualified residence

are deductible. Therefore, the I R S ap plies its formula a s follows: each co-owner who has an o wnership interest in the qualified re s i d e nce may deduct a percentag e of the interest
pay ments the co-owner paid or accrued, in proportion to the total ag g reg a te d ebt allowe d by the statute ($1.1 million) divided by the total amount of debt secured by the qualified residence. I n other word s , i f a tax pay er has an ownership interest in a qualified residence that is security for $2.2V O S S V

. CI R

40

million of debt, the tax pay er can deduct o n e h a l f of the interest pay

ments that the tax pay e r m a d e on that debt ($1.1 million debt allowed by statute divided by $2.2 million d ebt secured by the qualified residence). The other co-owners can do the same.

I I

B r uce Voss and Charles Sophy a r gu e that we should reject the I RS’s interpretati o n of 2 6 U.S.C. § 163(h) a nd allow them double the deductible interest that an individual
tax pay e r or married couple filing jointly would g et. Voss a nd S o p h y a re an unmarried c ouple w ho both claim the same qualified residence, which is c omprised of two houses. I n order to purchase t h e i r primary h ome in B everly H ills, California, they took out a $ 2,240,000 loan. They also borrowed a

nother $300,000 home equity lin e o f credit secured by the B everly Hills h ome. I n o rder to p urchase their second home in Rancho Mirag e, Californ i a , they took out a $486,300 loan. V oss and Sophy purchased t h e s e houses a s joint tenants, meaning that each h ad a n u n d ivided o ne-half interest in the house. T hey a lso agr e e d to be jointly a nd severally liable on all loans.

Voss and Sophy fi led separate tax r eturns for tax y ears 2006 an d 2 0 07. The averag e balance on the two mortg ag e s and home e quity line o f c redit was approx imately $2.7 million in tax y ears 2006 and 2007. Nevertheless, both Voss and Sophy c laimed deductions for the full amount of interest each had paid on the loans on their qualified residence. 3

3 T h e d ed u ctio n s Vo ss an d So p h y claim ed o n th eir tax retu rn s w e r e

m u ch g reat e r t h an th e am o u n t th ey n o w claim u n d er th eir cu rren t in terp retatio n

o f § 1 6 3 (h ).V O S S V

. CI R 41

T h e I RS issued notices of deficiency because Voss a n d Sophy h a d claimed deductions that ex ceeded the limits allowed by the I nternal Revenue Code. According to the I RS, Voss a nd Sophy could claim deductions for interest they h ad paid o n the first $1.1 million of the $2.7 million de b t , pursuant to 2 6 U.S.C. § 1 6 3 ( h )(3), and were not entitled to claim deductions f

o r interest paid on the entire $2.7 million of the debt. The tax court ag reed.

On appeal, Voss a

nd Sophy arg ue for a d iffe r e nt interpretation of § 163(h) and therefore a different a pplication of the I R S formula. Voss and Sophy claim that the $1.1 million “ag g reg a te amount” of de b t t h a t can be treated a s acquisition and home equ i t y indebtedness f or purposes o f § 163(h)(3)(B ) does not relate to the total amount of d ebt encumbering a qualified residence. I nstead, if the total
amount of debt encumbering a qual i f ied residence ex ceeds $1.1 million, the co-owners may effectively divide that total
amount of debt between themselves and each d educt interest
pay ments on up to $1.1 million of their po rt i o n o f the total debt. F o r ex ample, if a $2.2 million d ebt is secured by a qualified residence owned by two co- owners, Voss and Sophy claim that the co-owners can divide the debt e qually b etween themselves. Un d er this theory

, Co-Owner 1 could deduct interest pay

ments made on $1.1 million of debt ( i.e., 100 percent of Co-Owner 1 ’s interest p a y ments), and o f course, Co-Owner 2 could do the same thing

. As a resu l t , the coowners cou l d d e duct interest pay ments on $2.2 million o f debt secured b y their qualified residence, even thoug h a married couple filing jointly o r a sing le tax pay er could deduct interest on only

$1.1 million of debt.

Apply ing their interpreta tion, Voss arg ues that, because he and Sophy each have an “equal share of the mortg ag e,” heV O S S V

. CI R

42

and Sophy have divided the $2.7 million d ebt b etween themselves on a f

ifty

- fifty basis. Therefore, Voss can deduct interest p ay

ments made on $1.1 million of his $1.35 million portion of the debt se cu r ed b y his qualified residence. Dividing $ 1.1 million (the total a g g reg a te debt allowed b y the statute) by $1.35 million (Voss’s self-apportioned amount o f debt secured by the qualified residence), this means about 80 percent o f his interest pay ments is deductible. And, the
arg ument g oes, Sophy can do t h e same thing

. As a r esult, Voss and Sophy claim they can deduct 80 percent of the interest pa i d o n $2.7 million, the total indebtedness on their qualified residence, r ather than deducting 40 percent of the interest paid on that debt had they been a married couple.

I I I

Voss a nd Sophy ’s approach to § 163(h) should be rejected because it is contrary to the I RS’s reasonable and p ersuasive interpretation of the statute. V oss and S o p h y cannot claim that the plain lang ua ge o f § 163(h) compels their interpretation; rather, the statute gi v e s no indication that multiple co-owners may

each “treat” $1.1 million of debt a s “acquisition indebtedness” o r “ h o me equity indebtedness” for
purposes o f an interest deduction. I n these circumstances, we

can affor d r espect to an a g ency ’s interpretation of a statute, whether it is offered in an o pinion letter, policy statement, ag ency m a n u a l

, or even a well-reasoned leg al brief. See Christensen v. Harris Cnty.
, 5 29 U.S. 576, 587 (2000) (citing Skidmore v. Swift & Co
., 323 U.S. 134, 140 (1944)); see also Christopher v. SmithKline Beecham Corp. , 132 S. Ct. 2156, 2165–66, 2169 (2012). A n ag ency interpretation o f a statute is entitled to a “ measure o f deference proportional to the ‘“thoroug hness evident in its consideration, the validity of its

r e a s o n i n g, i t s c o n s i s t e n c y w i t h e a r l i e r a n d l a t e rV O S S V

. CI R 43

pronouncements, and all those factors which g ive it power to persuade.’”” Christopher

, 1 32 S. Ct. at 2168–69 (quoting United States v. M

e ad Corp.
, 533 U.S. 218, 228 (2001) (quoting Skidmore

, 323 U.S. at 1 40)). W e also consider the
spe cializ ed and technical ex pertise of the ag ency , see Skidmore

, 323 U.S. at 14 0 (n o ting that the “ ruling s, interpretations and opinions” of an ag ency “constitute a body of ex perience and informed judg ment to which courts a nd litig ants may properly resort f or g uidance”), as well a s whether the ag ency ’s g uidance is long standing or merely a litig ating position. See Alaska Dept. of Envtl. C onservation

v. EPA
, 540 U.S. 461, 487–88 (2004) (“W e ‘normally accord particular deference to an ag ency interpretatio n o f “long standing ” duration

. . . .’” (quoting Barnhart v. W alton

, 535 U.S. 212, 220 (2002))).

Here, the I RS’s position, ex pressed in its leg al brief on appeal and in its 2009 Chief Counsel A d v ice statement, is both r easonable and persuasive. F irst, it is consistent with the
tex t of the statute: the lang uag e of § 163(h)(3) is re a s o n ably read to establish that the debt limit o f $1.1 million per qualified residence applies reg ardless whether there is o ne

owner or two co-owners. Th e f act that “acquisition indebtedness ” is d efined as debt secured by a qualified residence sug g ests that C o n gr ess also contemplated that the “ag g reg ate amount treated as acq u isition indebtedness” was also defined with respect to a q ualified residence. 26 U .S.C. § 163(h)(3)(B ).

And the I RS’s interpretation is more p ersuasive than Voss and Sophy ’s interpretation, which would result in a windfall
to unmarried tax pay ers

. S e e Tablada v. Thomas

, 533 F .3d 800, 807 (9th Cir. 2008) (holding that the B u reau of Prisons’s

m e t hod for calculating g ood time credits was a reason a b l eV O S S V

. CI R

44

interpretation of the statute, in part b e cause the plaintiff’s contrary method would result in a “windfall” to prisoners that C o n g r e s s did not intend). There is no basis to infer t h at Cong r ess intended to allow unmar ried co-owners of a qua l i f i e d residence filing separately to deduct interest on up to $2.2 million of debt, while limiting married co-owners of

a qualified residence to deduct interest on only half that (only
up to $1.1 million of debt). A more log ical inference is that the deduction was aimed at promoting h ome owner s h ip for ordinary folks, not to help wealthy individuals purchase mansions that a

re encumbered w ith more than $ 1.1 million o f debt.

Third, the I RS ha s a p p lied its ex pert interpretation o f § 1 6 3(h) consistently for m a n y y e a r s. See id. at 807–08 (noting that the B ureau of Prisons had calculated g o o d t i me credits by a consistent methodolo g y fo r at least six teen
y ears). T he I RS first set forth a methodolog y for d etermining what propor t i o n of a tax pay er’s interest pay ments is deductible in 1987, when it promulg ated reg ulation § 1.163- 10T(e). I t ex plained how this method a pplied to co-owners of a qualified residence in its Chief Counsel Advice statement in 2009. I RS CCA 200911007, 2009 W L 641772. There is

no dispute that the I RS’s a p proach for calculating the deductibility o f interest pay ments under § 163(h)(3)(B ) is not merely “an ag ency ’s convenient litig ating position.” Bowen

v. Georgetown Univ. Hosp.
, 4 88 U .S. 204, 213 (1988). Under th e s e c ircumstances, it is appropriate to defer to the I RS’s specializ ed ex per t i s e a

nd understanding of what best effectuates the purpose of the statute. 4

4 T h e m aj o rity claim s th at it is in co n sisten t to d ef er to th e IRS’ s p o sitio n reg ard in g th e d ed

u ctio n f or u n m arried co

- o w

n ers w h ile f ailin g to d ef

er to th e IRS reg ard in g th e d ed u ctio n f o r m arried in d iv id u als f

ilin g sep arately

.V O S S V

. CI R 45

I n response to the I RS’s reasonable interpretation o f § 163(h)(3)(B ), Voss and Sophy look for help in a separate section of the Tax Cod e g o verning apportioning g ain based

on the sale of a residence, 26 U .S.C. § 121, and its
accompany

ing reg ulation, 26 C.F .R. § 1.121-2. Section 121

a l l o ws a tax p ay er who sells a residence to ex clude u p to $250,000 of g a in from g ross income. 26 U.S.C. § 1 21(b)(1). The reg u lations clarify that “[ i] f tax pay ers joint l y o w n a principal residence but file separate r e t urns, each tax pay er may e x clude from g ross income u p to $250,000 of g a in that is attributable to each tax p ay er’s interest in the property

. . . . ” 26 C.F

. R. § 1.121-2(a)(2). Voss and Sophy a rg u e that because § 163(h) cross-references 26 U .S.C. § 121 for the definition of a “qualified residence,” the m e t hodolog y set forth in § 1.121-2(a)( 2) should also apply to § 163(h). According ly

, they a

rg ue, because they jointly own a qualified residen c e , a n d file separate returns, they should likewise be able to deduct the amount of interest each paid on $1.1 million of debt out of each co-owner’s “ e q u a l s hare of the

m o r t g ag e.” B ut section 121 provides Voss and Sophy no support because it has n othing to do with § 163(h)(3). Other than the use o f § 121 for the definition of “qualified residence,” there is no ind i cation that either Cong ress or the I RS contemplated that the methodolog y in § 1

. 1 2 1-2(a) should be used to determine the method o f determining which interest is deductible under 26 U .S.C. § 163(h)(3). Voss a nd Sophy ’s a

rg ument merely shows the I RS knew how to

Maj

. O p

. at 3 4

– 35

. B u t, as d iscu ssed b elo w , th e IRS h as n o t ex p ressed a p o sitio n as to w

h at d ed u ctio n m arried in d iv id u als f ilin g sep a r a t e l y m ay claim

. S ee in fra n o t e 5

. A s su ch

, th e r e i s n o in t erp retatio n to w h ich w e

co u ld d ef er reg ard in g w

h at t h e statu te m ean s f

or m arried in div id u als f

ilin g sep arately

. By c o n trast, th e IRS h as o f f ered a clear in terp retatio n o f th e statu te as i t ap p l i e s to u n m arried co

- ow n ers. We sh o u ld def

er t o th at in terp retatio n

.V O S S V

. CI R

46

authoriz e such a methodolog y when it chose to do so, which it did not when interpreting § 163(h).

I n the a bsence of an I RS reg u lation interpreting § 163(h)

as allowing co-owners to claim deductions attributable to

more than $1.1 million of d ebt f o r a c o -owned qualified residence, we should d e f

er to the I RS’s interpretation of the
statute as limit i n g co-owners to deducting interest on $1.1 million of debt out of the total a cqu i sition and home e quity debt secured by the qualified residence. See Christensen

, 529 U.S. at 587.

I V

The majority ag rees that the statute is silent as to how to apply the debt limit of $ 1.1 million when there are co-owners of a qualified residence. Maj. Op. at 7, 14. T he majority therefore ex erts “considerable effort,” id. at 14, to find tex tual support for using the a

p p roach d emanded by Voss and Sophy

. The majority bases its ruling on the th i n n e s t of r eeds: the parenthetical in § 163(h)(3) that spe c i f ies that a married individual filing separately c an d educt interest p ay ments on half the amount of debt compared to a sing le individual or a married c ouple f

ili n g jointly

. According to the majority

, in

or d e r to a void absurdity

, we should read the marriag e p a r e n t hetical as allowing married individuals filing separat e l y each to deduct interest on $550,000 of debt. M aj. O p. at 16–17. I f married individuals f iling separately were n ot each able to d educ t interest o n $550,000 of debt throug h some unspecified calculation meth o d o log y , the majority asserts, spouses filing separately would receive half the deduction o f
spouses f iling jointly

. T his is absurd, the majority claims, because a different debt limit for a jointly filing couple and a separately filing couple is “ s u r ely not what the statuteV O S S V

. CI R 47

intended.” Maj. Op. at 17. The majority then leaps from this inferred cong ressional intent to a different c o n clusion: Cong r ess must als o have intended to allow all unmarried individuals who co-own a qualified residence secured by d ebt to deduct interest on the full debt limit, $1.1 million.

This arg ument too fails. F irst, effectuating the majority ’s approach to the marriag e parenthetical wou l d presumably entail allowing a married tax p ay er filing separately to deduct his or her own interest pay ments on the debt in the proportion of $550,000 divided by o ne h a l f of the total debt secured b y the qualified residence. See Maj. Op. at 28 n.11 (ag reeing that the I RS’s formula set out in § 1.163-10T(e) “may need to be adjusted to a ccount f

or the situation of separately filing coowners, whether married o r unmarried”). I f each married
tax pay e r took this approach

, married tax pay ers filing separately would deduct the same a m o unt of interest a s married ta x p a y e rs filing jointly

. B ut this approach fails for
t he same reason Voss a nd Sophy ’s apportionment theory fails: it flies free of the statutory lang uag e that li m i t s t he
amount “treated” as a cquisition or home equity indebtedness
to a c a pped amount out of the total acquisition or home equity indebtedness secured b y the residence (rather than o ne co-owner’s half of that total debt). 5 W e should instead defer

5 T h e m aj o rity asserts t h a t t h ere is a clear co n sen su s am o n g tax co u rts

an d t h e IRS t h at a m arried co u

p le f ilin g sep arately m ay , in th e ag g reg ate, d ed u ct in terest o n u

p to $ 1 .1 m illio n

o f q u alif y in g d eb t. S

ee Maj . Op . at 1 7

– 1 8 n .8
, 3 4– 3 5

. T h is is in co rrect. W h ile th e so u rces cited b y th e

m aj o rity co rrectly in d icate th at th e d eb t lim it in th e statu te is $ 5 5 0 ,0 0 0 f or

“ each ” m arried in d iv id u al f ilin g a sep arate retu rn , n o n e of th ese so u rces

ex p lain s h o w th e IRS w ou ld ap p l y its f o rm u la to calcu late th e in terest d ed u ctio n f

o r a m arried in d iv id u al f

ilin g sep arately

. B ecau se th e m ean in g

o f th e m arriag e paren th etical is u n clear, i t d o e s n o t u n d ercu t th e IRS’ sV O S S V

. CI R

48

to the I RS’s r easonable interpretation that the statute defines “acquisition i n debtedness” as “indebtedness incurred in acquiring a q

ualified residence of the tax pay er

- not a s indebtedness incurred in acquiring tax pay er’s portion o f a qualified re s i d ence.” I RS CCA 200911007, 2009 W L 641772.

More importantly

, the majority ’ s argumentum ad absur d u m fails because imposing a penalty on married individuals for filing separately would not be not absurd. W e know that Cong ress could reasonably decide to discourag e a married c ouple from filing separate returns to minimiz e tax es, because it has imposed such p enalties in other portions of the Tax Code. F o r ex ample, the Tax Code prohibits married individuals filing separately f rom claiming certain tax credits

or deducting i n t erest on other ty pes o f loans. See, e.g. , 26 U.S.C. § 32(d) (married individual filing separa t e l y i s not elig ible for an earned income credit); id. § 221(e) (married individual filing separately is not eli gi ble for deducting interest on student loans). I ndeed, a tax c o u r t h as already held that the plain lang uag e of § 163(h) may r esult in a penalty on a married couple filin g s e parately c ompared to a married couple filing jointly

. See Bronstein v. Comm’r , 138 T.C. 3 82, 383–84 (2012) (rejecting a tax pay er’s arg ume nt that Cong ress int e n d e d for married c ouples filing separately
to receive the same treatment under § 163(h)(3) as married couples filing jointly ).

Rather, the absurdity arg ument works ag ainst the majority

. The majority ’s ap p r oach would result in spouses filing jointly (or separately ) g etting half the total d eduction o f

u n am big u o u s p o sitio n

th at u n m arried co

- ow

n ers m ay n o t receiv e d o u

b le th e d ed u ctio n

o f m arried co

- o w

n ers.V O S S V

. CI R 49

unmarried individ u a l s

. 6 The majority writes this off as a

m a r riag e penalty

, supported b y hy pothetical policy reaso n s why Cong ress may

have intended such a result. Maj. Op. at 28–30. B ut the majorit y ’s v i e w that Cong ress intended to penaliz e married co-owners by g iving them half the deduct ion allowed to unmarried co-owners seems more absurd than the vie w t h a t Cong ress may have intended to penaliz e married couple s f i l ing separately

. A fter all, it is more r easonable to think that Cong ress wanted to encourag e married couples to file jointly

to avoid a statutory penalty than it is to think that Cong r ess wanted to encourag e tax pay ers not to m a r r y ( or to g et divorced) in order to avoid forfeiting half the deduction they could otherwise take. Given that reasonable jurists could point to either interpre t a t ion as absurd, the better solution is to defer to the I RS’s reasonable interpretation of the statute.

F inally

, the majority discusses the pract ical difficulties that may a

rise if we did not a llow unmarried co-owners e ach
to deduct interest on up to $ 1 .1 million of debt, such a s the problem of determining h ow much interes t e a c h of multiple hy pothe t ical co-owners may deduct. Maj. Op. at 26–27. F ollowing the I RS’s reasonable interpretation of how the
statute works, each co-owner is e ntitled to deduct the interest
pay ments that the co-owner actually paid, m u l t i plied by a fraction consisting of $1.1 million divided by the total

6 In oth er w o rd s, u n d er th e m aj o rity ’ s th eo ry , sp o u ses f ilin g j o in tly w

h o

o w n a q u alif

ied resid en ce en cu m

b ered w ith a $ 2 .2 m illio n lo a n co u ld d ed u ct o n e h alf o f th eir to tal in terest p ay m en ts (b ased o n d iv id in g th e $ 1 .1

m illio n d eb t lim it b y th e $2 .2 m illio n d eb t). B u t if tw o u n m arried
tax pay ers o w

n ed a q u alif

i ed resid en ce w ith th e sam e $ 2 .2 m illio n lo an , th e tax pay ers co u ld d ed u ct 1 0 0 p ercen t o f t h eir in terest pay

m en ts b ecau s e each tax p ay er co u ld treat $ 1 .1 m illio n as acq u isitio n o r h o m e eq u ity deb t (i.e., b ased on t

h e $ 1 .1 m illio n d eb t lim it d i v id ed by each tax p ay er’ s

“ po rtio n ” o f

th e d eb t, $ 1 .1 m i llio n ). Maj . Op . at 1 6

– 1 7

.V O S S V

. CI R

50

ag g r eg ate d ebt secured by the co-owner’s qualified residence. So long a s an individual co-owner knows the amount o f interest the co-owner personally paid, and how much debt is secured by the qualified residence co-owned by that tax pay er, the co-owner can calculate the amount o f deductible interest. I f there are policy co n sequences o f the plain lang uag e that Cong r ess d id not intend, Cong ress can a m end the statute itself.

T he majority concedes that the statute is “any thing b u t ‘plain’

. ” M aj

. O p. at 32. T h e I RS h as p rovided a workable approach to Cong ress’s a mbig uou s statute that avoids many of the problems created by the majority ’s opinion. Neither the majority nor V oss and Sophy offer arg uments that would compel departing from this approach. I w ould affirm the tax court.