Court Opinion

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Opinions of the United
2008 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

2-15-2008

Swallows Holding v. Comm IRS
Precedential or Non-Precedential: Precedential

Docket No. 06-3388

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                                    PRECEDENTIAL

     UNITED STATES COURT OF APPEALS
          FOR THE THIRD CIRCUIT

                   No. 06-3388

         SWALLOWS HOLDING, LTD.

                         v.

  COMMISSIONER OF INTERNAL REVENUE,

                                    Appellant

    On Appeal from the United States Tax Court
                 (No. 02-08045)

          Argued on September 25, 2007

Before: AMBRO, JORDAN and ROTH, Circuit Judges

         (Opinion filed February 15, 2008)
Gilbert S. Rothenberg, Esquire (ARGUED)
United States Department of Justice
Appellate Section
950 Pennsylvania Avenue, N. W.
Washington, D. C. 20530

Eileen J. O’Connor, Esquire
Assistant Attorney General
Richard T. Morrison, Esquire
Deputy Assistant Attorney General
Jonathan S. Cohen, Esquire
Steven W. Parks, Esquire
Attorneys, Tax Division
United States Department of Justice
P. O. Box 502
Washington, DC 20044

                           Counsel for Appellant

Phillip L. Jelsma, Esquire (ARGUED)
Luce, Forward, Hamilton & Scripps, LLP
11988 El Camino Real, Suite 200
San Diego, CA 92130

                           Counsel for Appellee

                       OPINION

                             2
ROTH, Circuit Judge:

       This case, grounded in the principles of administrative
law, requires that we review the validity of an Internal Revenue
Service (IRS) regulation. The Tax Court, in considering this
regulation, analyzed it under the factors provided in National
Muffler Dealers Ass’n v. United States, 440 U.S. 472, 477
(1979), and concluded that the regulation was invalid. In
coming to this conclusion, the Tax Court explained that the
standard established in National Muffler had not been replaced
by Chevron U.S.A., Inc. v. Natural Resources Defense Counsel,
Inc., 467 U.S. 837 (1984), and that the result under either
standard would be the same. We do not agree with the outcome
reached by the Tax Court. We have determined that the result
would not be the same under Chevron analysis as it would be
under National Muffler and that the regulation here should be
given Chevron deference.

I. Factual and Procedural Background

       The IRS has appealed a United States Tax Court decision
that held Treas. Reg. 1.882-4(a)(3)(i) to be invalid. Petitioner-
appellee Swallows Holdings, Ltd. (Taxpayer) is a Barbados
corporation with two principal shareholders, Raimundo Arnaiz-
Rosas and Aurora Elsa Arnaiz. On September 14, 1992,
Taxpayer filed its first federal income tax return. In its return,
Taxpayer reported that it held real property in San Diego,
California. Between 1993 and 1996, Taxpayer generated rental

                                3
income from the San Diego property.1 It was not until 1999,
however, that Taxpayer filed returns for tax years 1993, 1994,
1995 and 1996.

        A foreign corporation, engaging in trade or business in
the United States, is taxed on its taxable income that is
connected with the conduct of that trade or business. 26 U.S.C.
§ 882(a). Deductions from income are allowed only if they are
connected with the “income which is effectively connected with
the conduct of a trade or business within the United States.”
Section 882(c)(1)(a). However, foreign corporations that do not
engage in a trade or business in the United States are taxed at a
flat rate of thirty percent of any amount received from sources
within the United States. Section 881(a). The Internal Revenue
Code, generally speaking, does not allow these foreign
corporations to claim deductions. Section 882(c)(2).
Nevertheless, if a foreign corporation conducts real property
activity in the United States, the foreign corporation can treat the
income derived from the real property activity as income from
a “trade or business,” thus qualifying the foreign corporation to
claim tax deductions (e.g., interest and taxes) that are otherwise
unavailable. Section 882(d)(1).

    1
     The real property located in San Diego remained vacant
during the period of time that is relevant to this appeal.
Taxpayer leased the property to an entity that used it as a landing
zone for sky-diving adventures. See Swallows Holdings, Ltd. v.
C.I.R., 126 T.C. 96, 101 (2006).

                                 4
        The dispute in this case arises from the filing deadlines
set forth in Treas. Reg. 1.882-4(a)(3)(i),2 which the Secretary of
the Treasury promulgated to supplement section 882(c)(2). The
regulation requires that a foreign corporation file a return within
eighteen months of the filing deadline set in section 6072 in
order to claim the real property activity tax deductions. Here,
Taxpayer filed the tax returns in question well after the
expiration of the eighteen-month filing period.                The
                                                         3
Commissioner assessed tax deficiencies accordingly.

       Taxpayer challenged the Commissioner’s findings in the
United States Tax Court, arguing that Treas. Reg. 1.882-
4(a)(3)(i) was an invalid exercise of the Secretary’s rule-making
authority. See Swallows Holdings, Ltd. v. C.I.R., 126 T.C. 96
(2006). The Tax Court granted judgment in favor of Taxpayer,
focusing its inquiry on the plain meaning of I.R.C. § 882(c)(2).
Specifically, the court held that section 882(c)(2) requires that

   2
       Treas. Reg. 1.882-4(a)(3)(i) provides:
           If a return was filed for that immediately
         preceding taxable year, or if the current taxable
         year is the first taxable year of the foreign
         corporation for which a return is required to be
         filed, the required return for the current taxable
         year must be filed within 18 months of the due
         date as set forth in section 6072 and the
         regulations under that section . . . .
  3
    The Secretary determined that Taxpayer owed deficiencies
for 1994, 1995, and 1996.

                                 5
foreign corporations file “in the manner prescribed by subtitle
F . . ..” Id. at 107. The Tax Court’s interpretation of the statute
centered on the meaning of the word “manner” in the absence of
any explicit textual reference to “time.” The court found it
persuasive that Congress did not draft the statute with the
familiar phrase “time and manner.” The court noted that
Congress placed “time” and “manner” together in several Code
sections, indicating that when Congress intended a time limit to
apply, it did so with the phrase “time and manner.” Because the
court found that the plain meaning of “manner” did not
inherently include an element of time, the court concluded that
Congress did not intend section 882(c)(2) to embody a filing
deadline. Id. at 134-46. The court found that the meaning of the
statutory text was plain and unambiguous. Id. at 135. The court
nonetheless continued its analysis and held that the Secretary’s
interpretation of the statute to include a timely filing
requirement in the language of Treas. Reg. 1.882-4(a)(3)(i) was
unreasonable. 126 T.C. 137.

        Relying on its earlier opinion in Central Pa. Sav.
Association & Subs. v. Commissioner, 104 T.C. 384, 392 (1995),
the Tax Court determined that the standard established in
National Muffler had not been replaced by Chevron and that the
result under either standard would be the same. Id. at 131. The
court concluded that a consideration of the National Muffler
factors demonstrated the unreasonableness of the Secretary’s
interpretation of section 882(c)(2) to include the timely filing
requirement. Id. at 137. The Tax Court listed the six factors set
out in National Muffler to consider in assessing the
reasonableness of the agency action. The Tax Court described
these factors as follows:

                                6
       (1) whether the regulation is a substantially
       contemporaneous construction of the statute by
       those presumed to have been aware of
       congressional intent; (2) the manner in which a
       regulation dating from a later period evolved; (3)
       the length of time that the regulation has been in
       effect; (4) the reliance placed upon the regulation;
       (5) the consistency of the Secretary’s
       interpretations; and (6) the degree of scrutiny
       Congress has devoted to the regulation during
       subsequent reenactments of this statute.

Id. at 137 (citing National Muffler, 440 U.S. at 477).

        The Tax Court found that the Secretary’s action failed to
meet several of the National Muffler factors: the regulation was
not a substantially contemporaneous construction of the statute;
the regulation evolved after the Fourth Circuit Court of Appeals
and the Board of Tax Appeals had repeatedly and consistently
held that the statute did not include a timely filing requirement;4
the regulations were issued after multiple reenactments of the
statutory text; the Secretary’s statement accompanying the
issuance of the regulations flew in the face of the prior court
holdings and was a departure from the Secretary’s previous

  4
   See Georday Enter. v. Comm’r, 126 F.2d 384 (4 th Cir. 1942);
Blenheim Co. v. Comm’r, 125 F.2d 906 (4 th Cir. 1942); Ardbern
Co. v. Comm’r, 120 F.2d 424 (4 th Cir. 1941); Taylor Sec. Inc. v.
Comm’r, 40 B.T.A. 696 (1939); Anglo-American Direct Tea
Trading Co. v. Comm’r, 38 B.T.A. 711 (1938).

                                7
interpretation of the 1957 regulations; and the statute had been
reenacted several times without change to the governing
statutory language. Id. at 137-38. As a result, the court held
that the regulation was an unreasonable exercise of the
Secretary’s statutory power. Thus, the Tax Court ruled in favor
of Taxpayer, holding that I.R.C. § 882(c)(2) did not include a
filing deadline and that Taxpayer was entitled to the rental
activity deductions. The IRS appealed.

II. Discussion

       A. Jurisdiction

       We have jurisdiction to review the final judgment of the
Tax Court pursuant to I.R.C. § 7482(a)(1); see also New York
Football Giants, Inc. v. C.I.R., 349 F.3d 102, 105-06 (3d Cir.
2003). We exercise plenary review over the Tax Court’s legal
conclusions but will only set aside factual findings that are
clearly erroneous. Capital Blue Cross v. C.I.R., 431 F.3d 117,
123-24 (3d Cir. 2005).

       B. Applicability of Chevron

       The crucial issue before us is whether the Tax Court
erred in applying National Muffler rather than Chevron when
evaluating the validity of Treas. Reg. 1.882-4(a)(3)(i). We hold
that the Tax Court erred in applying National Muffler to the
extent that the National Muffler factors are inconsistent with
Chevron analysis.

                               8
        In Chevron, the Supreme Court reasoned that the
judiciary was to afford an agency discretion to interpret
ambiguous provisions of the agency’s organic or enabling
statute. In what has become familiar administrative law
parlance, the Chevron Court set forth a two step analysis:

             When a court reviews an agency’s
      construction of the statute which it administers, it
      is confronted with two questions. First, always, is
      the question whether Congress has directly
      spoken to the precise question at issue. If the
      intent of Congress is clear, that is the end of the
      matter; for the court, as well as the agency must
      give effect to the unambiguously expressed intent
      of Congress [Chevron Step one]. If, however, the
      court determines Congress has not directly
      addressed the precise question at issue, the court
      does not simply impose its own construction of
      the statute, as would be necessary in the absence
      of an administrative interpretation. Rather, if the
      statute is silent or ambiguous with respect to the
      specific issue, the question for the court is
      whether the agency’s answer is based on a
      permissible construction of the statute [Chevron
      Step two].

Chevron, 467 U.S. at 842-43. Courts, including the Supreme
Court, have operated under this general framework post-
Chevron. See, e.g., Nat’l Cable & Telecomm. Ass’n. v. Brand X
Internet Serv., 545 U.S. 967, 980-81 (2005); United States v.

                               9
Mead Corp., 533 U.S. 218, 226 (2001); Woodall v. Fed. Bureau
of Prisons, 432 F.3d 235, 248-49 (3d Cir. 2005); George Harms
Const. Co. v. Chao, 371 F.3d 156, 161 (3d Cir. 2004); Robert
Wood Johnson Univ. Hosp. v. Thompson, 297 F.3d 273, 281-82
(3d Cir. 2002). In accordance with this precedent, we will
proceed to determine if this case should be reviewed under
Chevron.

       Our inquiry would be a simple one if, as the Tax Court
suggested, the result of this case would be the same regardless
of which standard we apply. This, however, is not the case. The
Tax Court relied heavily on factors that, although relevant to the
National Muffler standard, are not mandatory or dispositive
inquiries under Chevron. As we set out above, the Tax Court
reasoned that the challenged regulation was not a
contemporaneous construction of the statute; the Tax Court
found that the Fourth Circuit Court of Appeals and the Board of
Tax Appeals had interpreted the statute as not including a timing
element, and the Tax Court relied on the existence of several re-
enactments of the statute without any change to the governing
statutory language.5

   5
     We take time to note that the Tax Court and the Taxpayer
erroneously rely on the legislative re-enactment doctrine.
Legislative re-enactment is a doctrine under which “Congress is
presumed to be aware of an administrative or judicial
interpretation of a statute and to adopt that interpretation when
it re-enacts a statute without change.” Reese Bros., Inc. v.
United States, 447 F.3d 229, 238 (3d Cir 2006). Application of
this doctrine is appropriate only when “an agency’s statutory

                               10
       Even if we were to assume that all of these observations
are true, conclusive reliance on them is misplaced. When
Chevron deference is owed, Chevron’s demands are clear. If the
statutory text is ambiguous, an agency is given the discretion to
promulgate rules that interpret the ambiguous provisions.
Judicial deference to an agency’s rule-making authority ends
only when the agency’s construction of its statute is
unreasonable. Accordingly, we now consider whether Chevron
deference is appropriate here.6

construction has been fully brought to the attention of the public
and the Congress, and the latter has not sought to alter that
interpretation although it has amended the statute in other
respects, then presumably the legislative intent has been
correctly discerned.” Id. (citations omitted). Taxpayer has not
met this burden. Accordingly, we find that legislative re-
enactment doctrine is inapplicable here.
   6
     In reaching this conclusion, we agree with a recent Second
Circuit opinion, which reviewed the validity of a Treasury
Regulation issued by the IRS. See McNamee v. I.R.S., 488 F.3d
100 (2d Cir. 2007). The regulation at issue in McNamee
dictated a limited liability company’s ability to elect certain tax
treatment. Rather than apply National Muffler, the Second
Circuit placed the inquiry within the purview of Chevron, Mead
and Brand X. Although the court cited to National Muffler, it
did not apply its six-factor balancing test, and it did not assert
that National Muffler was governing by itself. Instead, the court
simply used National Muffler to explain that an agency’s
interpretation of an ambiguous provision must be reasonable, a

                                11
       C. Chevron Analysis

       We note that Chevron deference will not be extended to
all agency action. Mead, 533 U.S. at 229-31. Mead teaches that
Chevron deference is appropriate only in situations where
“Congress would expect the agency to be able to speak with the
force of law . . ..” Id. at 229 (emphasis added). When Congress
does not intend a particular agency action to wield the force of
law, Skidmore deference may be appropriate.7 Thus, Mead
requires that we assess the legal effect of Treas. Reg. 1.882-
4(a)(3)(i), which was promulgated under I.R.C. § 7805. Section
7805, which is a general grant of power to the Secretary,
provides:

       Except where such authority is given by this title
       to any person other than an officer or employee of
       the Treasury Department, the Secretary shall
       prescribe all needful rules and regulations for the

proposition that is not at odds with Chevron’s core teachings.
   7
      Skidmore deference is derived from the Supreme Court’s
holding in Skidmore v. Swift & Co., 323 U.S. 134 (1944). Under
Skidmore, a court will determine the amount of deference to
afford agency action based on an evaluation of several factors.
The factors include “the thoroughness evident in [an agency’s]
consideration, the validity of [an agency’s] reasoning, [an
agency’s] consistency with earlier and later pronouncements,
and all those factors which give [an agency] power to persuade,
if lacking the power to control.” Id.

                               12
       enforcement of this title, including all rules and
       regulations as may be necessary by reason of
       any alteration of law in relation to internal
       revenue.

        We note first that the deference owed to regulations
issued under I.R.C. § 7805(a) has been described over the years
in different ways. In National Muffler, of course, the Supreme
Court listed factors such as whether the regulation was
contemporaneous with the statute, the age of the regulation, and
the consistency of its interpretation. 440 U.S. at 477. More
recently, however, in United States v. Cleveland Indians
Baseball Co., 532 U.S. 200, 219 (2001), the Court remarked that
“we defer to the Commissioner’s regulations as long as they
‘implement the congressional mandate in some reasonable
manner.’” Id. at 219 (quoting United States v. Correll, 389 U.S.
299, 306-07 (1967).8

       In Armstrong World Inds., Inc. v. Comm’r, 974 F.2d 422,
430 (3d Cir. 1992), this Court considered the validity of a
regulation issued under section 7805(a). We cited to Chevron,

   8
     The Court in Cleveland Indians, in fact, went on to quote
National Muffler, not for the factors listed by the Tax Court in
this case for determining deference, but for the overall concept
that “Congress has delegated to the [Commissioner], not to the
courts, the task of prescribing all needful rules and regulations
for the enforcement of the Internal Revenue Code.” 532 U.S. at
219 (quoting National Muffler, 440 U.S. at 477) (brackets in
original).

                               13
467 U.S. at 842-44, to support the need to determine if
“‘Congress has directly spoken to the precise question at issue,’
and if the intent of Congress is unambiguously expressed, we
must give that intent effect.” Id. at 430 (quoting Chevron, 467
U.S. at 843). Again quoting Chevron, we went on to state that
“[i]f the question has not been directly addressed, we then look
to whether ‘the agency’s answer is based on a permissible
construction of the statute.’” Under this standard, we concluded
that the regulation, promulgated under section 7805(a), was not
“unreasonable, arbitrary, capricious, or contrary to the plain
language of the Code,” id. at 442, and held the regulation to be
valid.

       As we did in Armstrong World Industries, we will look
to Chevron here to determine the validity of Treas. Reg. 1.882-
4(a)(3)(i).

       Taxpayer argues, however, that the Secretary
promulgated an interpretive regulation and that interpretive
regulations, as a class, do not merit Chevron deference. We
disagree. When determining whether Congress intends a
particular agency action to carry the force of law, our inquiry
does not hinge solely on the type of agency action involved.
Rather, “[d]elegation of such authority may be shown in a
variety of ways, as by an agency’s power to engage in
adjudication or notice-and-comment rule-making, or by some
other indication of a comparable congressional intent.” Mead,
533 U.S. at 227. There is no per se rule that relegates
interpretive rules to the realm of Skidmore. Here, the Secretary
opened the rule to public comment, a move that is indicative of
agency action that carries the force of law. Id. at 229-30; Cleary
v. Waldman, 167 F.3d 801, 808 (3d Cir.1999).9 Accordingly,

  9
    This Court has extended Chevron deference to interpretive
rules in the past. See, e.g., Mercy Catholic Med. Ctr. v.

                               14
the resulting regulation is entitled to Chevron deference if it
survives Chevron’s two prong inquiry.10

Thompson, 380 F.3d 142, 154-55 (3d Cir. 2004) (noting that
although informal interpretations are not entitled to Chevron
deference, formal interpretations, authorized to carry the “force
of law,” are properly placed within Chevron’s purview); George
Harms Const. Co. v. Chao, 371 F.3d 156, 161 (3d Cir. 2004)
(determining that after Mead, agency interpretations are entitled
to Chevron deference if the Mead “force of law” test is met);
Elizabeth Blackwell Health Ctr. for Women v. Knoll, 61 F.3d
170, 182 (1995) (reasoning, pre-Mead, that Chevron “deference
is appropriate here even though the Secretary’s interpretation is
not contained in a ‘legislative rule’”).
   10
      This conclusion is in accord with the treatment our sister
circuits have given to rules promulgated under I.R.C. § 7805, or
its predecessor. See, e.g., McNamee v. Department of Treasury,
488 F.3d 100, 106 (2d Cir. 2007) (“Because Congress has
delegated to the Commissioner to promulgate ‘all needful rules
and regulations’ [in I.R.C. § 7805(a)] . . . we must defer to his
regulatory interpretations of the Code so long as they are
reasonable”); Hospital Corp. of America v. C.I.R., 348 F.3d 136,
140-41 (6th Cir. 2003) (reasoning that general grant of authority
under I.R.C. §7805(a) still prompts judicial deference to rules
promulgated thereunder); Bankers Life & Cas. Co. v. United
States, 142 F.3d 973, 982-83 (7th Cir. 1998) (reasoning that
Chevron is appropriate analysis for interpretive IRS
regulations); United States v. Cook, 494 F.2d 573, 574 (5th Cir.
1974) (“A Treasury Regulation which is a reasonable
interpretation of a section of the Internal Revenue Code has the
effect of law.”).

                               15
              1. Chevron Step One: Ambiguity of the
                 Statutory Text

       First, previous judicial interpretations of I.R.C.
§882(c)(2) do not preempt our analysis in determining if the
statute is ambiguous. Taxpayer argues that our analysis is
unnecessary pursuant to the Supreme Court’s holding in
National Cable & Telecommunications Ass. v. Brand X Internet
Services, Inc., 545 U.S. 967 (2005). Brand X, however, held
that “[o]nly a judicial precedent holding that the statute
unambiguously forecloses the agency’s interpretation, and
therefore contains no gap for the agency to fill, displaces a
conflicting agency construction.” Id. at 982-83. No such
opinion exists in this case.11 Accordingly, we are not bound by
previous judicial interpretations of I.R.C. § 882(c)(2).

        Under Chevron, if the statutory language is clear and
unambiguous, our inquiry ends and the plain meaning of the
statute governs the action. 467 U.S. at 842-43. If, however, the
statutory provision is ambiguous, such ambiguity is viewed as
an implicit congressional delegation of authority to an agency,

   11
      Taxpayer heavily relies on Anglo-American Tea Trading
Co. v. C.I.R., 38 B.T.A. 711 (1938). The court in Anglo-
American did not purport to adopt or apply the unambiguous
meaning of the word “manner.” Rather, the court detailed the
interpretive confusion that courts confronted. Only after
detailing this confusion did the court decide that no timing
element was applicable. Id. at 714; see also Ardbern Co. v.
C.I.R., 120 F.2d 424, 426-27 (relying on Ango-American
without applying “unambiguous meaning”). The Tax Court
acknowledged this fact, noting that previous judicial
constructions “did not state explicitly that they were applying
the unambiguous meaning of the word ‘manner’ . . ..” Swallows
Holding, 126 T.C. 145.

                              16
allowing the agency to fill the gap with a reasonable regulation.
MCI Telecomm. Corp. v. Bell Atlantic-Pa., 271 F.3d 491, 515-
16 (3d Cir. 2001). The inquiry into the ambiguity of a statutory
provision must begin with the text of the statute. The text of
I.R.C. § 882(c)(2) reads in pertinent part:

       A foreign corporation shall receive the benefit of
       the deductions and credits allowed to it in this
       subtitle only by filing or causing to be filed with
       the Secretary a true and accurate return, in the
       manner prescribed in subtitle F, including therein
       all information which the Secretary may deem
       necessary for the calculation of such deductions
       and credits.

       Our inquiry focuses on the requirement that foreign
companies file “with the Secretary a true and accurate return, in
the manner prescribed in subtitle F.” Taxpayer argues that the
word “manner” does not by its nature include a timing element,
thus indicating that Congress did not intend for a filing deadline
to exist. This is an overly narrow interpretation of “manner.”
Courts that have interpreted “manner” as used in I.R.C. §
882(c)(2) and its predecessors have struggled over whether
“manner” includes a timing element, which indicates that the
language is not clear and unambiguous. Compare Anglo-
American Tea Trading Co. v. C.I.R., 38 B.T.A. 711, 714 (1938)
(discussing divergent conclusions and adopting interpretation
that excludes a “timing” element), with Espinosa v. Comm’r,
107 T.C. 146, 156 (1996) (reasoning that provision embodied
some “cut-off” period, even if not expressly stated).

       Moreover, Congress uses “manner” without “time” in
other sections of the Code, and, in some of these situations,
“manner” has been interpreted to implicitly include a timing
element. See I.R.C. §§ 179(c), 835(c)(2). In these provisions,

                               17
Congress did not use the phrase “time and manner,” yet the
Secretary promulgated valid regulations that include temporal
components. See Treas. Reg. §§ 1.179-5(a(, 1.826-1(a)(3)(i).
Thus, Congress does not uniformly use the phrase “time and
manner” when it desires a particular Code provision to embody
a timing element. Rather, we find “manner,” depending on the
context, may be a comprehensive term.

        As used in this instance, the word “manner” may be
defined as “a characteristic or customary way of acting.”
W EBSTER’S D ICTIONARY 724 (9th Ed. 1986). Under this
definition, the provision is not a clear and unambiguous
expression of congressional intent, as one’s “customary way of
acting” may include an element of timeliness. Further,
Congress’s use of “manner” in I.R.C. § 882(c)(2) prompts
contextual ambiguity. We could read “manner” to refer to
subtitle F, which itself includes timing elements. Alternatively,
we could read this provision as indicating that Congress did not
wish the timing requirements of subtitle F to apply. Reading the
statute this way would not foreclose the Secretary from
promulgating a regulation that sets a filing deadline. Instead, it
would only restrict the Secretary from promulgating a regulation
that would embody the timing elements of subtitle F.

       As a result, we hold that Congress’s use of the word
“manner” creates ambiguity. Therefore, Congress has not
“spoken to the precise question at issue.” Chevron, 467 U.S. at
843. Rather, because we find I.R.C. § 882(c)(2) to be
ambiguous, the Secretary was justified in promulgating a rule
that prescribed a filing deadline.

              2. Chevron Step 2 - Reasonableness of the
                 Secretary’s Action

       Our inquiry is not yet at its end, as we will only defer to

                               18
the Secretary’s action if it is a permissible construction of I.R.C.
§ 882(c)(2). See Woodall, 432 F.3d at 248 (citing Chevron, 467
U.S. at 842-43). We “need not conclude that the agency
construction was the only one it permissibly could have adopted
to uphold the construction, or even the reading the court would
have reached if the question had arisen in a judicial proceeding.”
 Chevron, 467 U.S. at 843 n.11. Often, a promulgated rule is the
culmination of intense debate between the agency, Congress,
other members of the Executive Branch and the public. Rules
represent important policy decisions, and should not be
disturbed if “‘this choice represents a reasonable
accommodation of conflicting policies that were committed to
the agency’s care by the statute . . ..’” Id. at 845 (quoting United
States v. Shimer, 367 U.S. 374, 382-83 (1961)). Further,
Chevron deference is “even more appropriate in cases” that
involve a “‘complex and highly technical regulatory program .
. ..’” Robert Wood, 297 F.3d at 282 (quoting Thomas Jefferson
Univ. v. Shalala, 512 U.S. 504, 512 (1994)). The Code is
indisputably complex and technical, and we will adjust our
inquiry accordingly.

        In this case, the Secretary has promulgated a rule that
creates an eighteen-month window within which foreign
companies must file a federal tax return in order to claim rental
activity tax deductions. Taxpayer argues that previous cases
upholding the disallowance of deductions under I.R.C. §
882(c)(2) involved filing deadlines that permitted at least a two
year window within which foreign corporations could have filed
timely tax returns. From this, Taxpayer draws the conclusion
that it is unreasonable for the Secretary to promulgate a rule
with a filing period of less than two years. We find Taxpayer’s
argument to be unpersuasive. The Secretary will, under the
current regulation, allow a foreign company to file eighteen
months after the filing was originally due. Moreover, because
I.R.C. § 6072(c) already provides for a five and one-half month

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filing period, foreign companies have, in practice, twenty-three
and one-half months to submit a “timely” return. It is not
unreasonable for the Secretary to impose such a deadline.

        Additionally, we believe that drawing this temporal line
is a task properly within the powers and expertise of the IRS.
Chevron recognizes the notion that the IRS is in a superior
position to make judgments concerning the administration of the
ambiguities in its enabling statute. In this case, the IRS found
that eighteen months served as a balance between its desire for
compliance with the federal tax laws and a foreign corporation’s
desire to obtain valuable tax deductions. Therefore, we hold
that the eighteen-month filing window created by Treas. Reg.
1.882-4(a)(3)(i) is a reasonable exercise of the Secretary’s
authority.

III. Conclusion

      For the forgoing reasons, we will vacate the judgment of
the Tax Court and remand this case for further proceedings in
accordance with this opinion.

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