Court Opinion

ID: 7014386
Source: CourtListenerOpinion
Date Created: 2022-07-24 04:16:00.19652+00
Date Added: 2024-06-11T16:10:19.282912
License: Public Domain

THOMAS, Circuit Judge,
dissenting:
Although the majority’s analysis is thoughtful and insightful, I conclude that the plain words of the governing statute and the final agency regulation interpreting it are at odds with the temporary regulation upon which the Commissioner relied in denying the deductions in this case. Therefore, I must respectfully dissent.
Our review of an administrative agency’s construction of the statute it administers is governed by Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-45, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), as explained in Food and Drug Administration v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 120 S.Ct. 1291, 146 L.Ed.2d 121 (2000).
Under Chevron, we must consider first “whether Congress has directly spoken to the precise question at issue.” Chevron, 467 U.S. at 842, 104 S.Ct. 2778. “If Congress has done so, the inquiry is at an end; the court ‘must give effect to the unambiguously expressed intent of Congress.’ ” Brown & Williamson, 529 U.S. at 132, 120 S.Ct. 1291 (quoting Chevron, 467 U.S. at 843, 104 S.Ct. 2778).
In making that assessment, we look not only at the statutory section in question, but analyze the provision in the context of the governing statute as a whole, see id. at 132, 120 S.Ct. 1291, presuming congressional intent to create a “symmetrical and coherent regulatory scheme.” Id. at 133, 120 S.Ct. 1291 (quoting Gustafson v. Alloyd Co., 513 U.S. 561, 569, 115 S.Ct. 1061, 131 L.Ed.2d 1 (1995)).
In this case, both the plain words and the structure of the statute indicate that Congress intended that deductions for the losses at issue be deferred, but not denied. In short, the temporary regulation denying deductions for the losses contradicts the statute; thus, we cannot defer to the agency’s interpretation of it. “[A]n agency’s interpretation of a statute is not entitled to deference when it goes beyond the meaning that the statute can bear.” MCI Telecommunications Corp. v. American Tel. & *988Tel. Co., 512 U.S. 218, 229, 114 S.Ct. 2223, 129 L.Ed.2d 182 (1994).
Under the law as it existed prior to 1984, sellers were denied deductions for losses from the direct or indirect sale or exchange of property with certain specified affiliated entities which had a unity of economic interest with the seller. In the Tax Reform Act of 1984, Congress expanded the statute to include “controlled groups,” including corporations in which fifty percent (50%) or more of the shares of common stock were owned by a common parent company. Pub. L. No. 98-369, § 174(b)(2)(B); 98 Stat. 494, 706. As to these controlled groups, Congress provided for a deferral, rather than disallowance of loss in 26 U.S.C. § 267(f)(2):
Deferral (rather than denial) of loss
FROM SALE OR EXCHANGE BETWEEN MEMBERS. — In the case of any loss from the sale or exchange of property which is between members of the same controlled group and to which subsection (a)(1) applies (determined without regard to this paragraph, but with regard to paragraph (3))—
(A) subsections (a)(1) and (d) shall not apply to such loss, but
(B) such loss shall be deferred until the property is transferred outside such controlled group and there would be recognition of loss under consolidated return principles or until such time as may be prescribed in the regulations.
Under this statute, and the final regulations promulgated thereunder, a loss realized by a member of a controlled group on a sale to another member of a controlled group is deferred until the seller, the purchaser and the property are no longer all in the same controlled group. Under the final regulations, the deferred deduction is restored to the seller when the seller leaves the controlled group. Treas. Reg. § 1.1502-13; Treas. Reg. § 1.267(f)-l(c).
However, under temporary regulations promulgated immediately after enactment of the 1984 amendments, a seller’s deferred loss deduction is forever denied to the seller if the sold property has not been transferred outside the controlled group when the seller leaves the controlled group. Temp. Treas. Reg. § 1.267(f)-lT.
The temporary regulation is at odds with the governing statutory language because the loss is denied under the temporary regulation, not deferred as the statute requires. Put another way, the statute authorizes the Commissioner to establish rules relating to the timing of loss recognition; it does not allow the Commissioner to deny the deduction. “Deferral (rather than denial)” does not mean “Denial (rather than deferral).” “Until such time” does not mean “never.”
“A regulation may not serve to amend a statute, Koshland v. Helvering, 298 U.S. 441, 447, 56 S.Ct. 767, 770, 80 L.Ed. 1268 (1936), nor add to the statute ‘something which is not there.’ ” California Cosmetology Coalition v. Riley, 110 F.3d 1454, 1460-61 (9th Cir.1997) (quoting United States v. Calamaro, 354 U.S. 351, 359, 77 S.Ct. 1138, 1 L.Ed.2d 1394 (1957)). The temporary regulation does precisely that. Chevron deference to agency interpretation is only appropriate when the statutory language is ambiguous and leaves “gaps” to be filled by regulation. When the statute is clear, we “must give effect to the unambiguously expressed intent of Congress.” Chevron, 467 U.S. at 843, 104 S.Ct. 2778.
Even if we direct our gaze beyond the bare words of the law and survey the statutory context, the result is the same. The government’s underlying theory, adopted by the tax court, is that the loss belongs to the controlled group, rather *989than any specific entity. However, as the taxpayer rightly argues here, amorphous controlled groups are not taxpayers, do not file tax returns and are not entitled to deductions. As a general principle, “[absent a specific statute to the contrary, a loss deduction may only be taken by the party bearing the expense.” Tennessee Securities, Inc. v. Commissioner, 674 F.2d 570, 574 (6th Cir.1982) (citing Calvin v. United States, 854 F.2d 202, 204 (10th Cir.1965)). That truism must, of course, be tempered in the complex context of a multinational controlled group setting. However, there is nothing in the words of the governing statute, nor in its structure, nor in its legislative history that would urge a contrary interpretation. Indeed, to construe the statute as the temporary regulation did would require us to embrace the concept of a loss unattached to any specific taxpaying entity — a “free-floating loss” in the words of the tax court — which might well materialize in a different form, such as an increase in another taxpayer’s basis. In my estimation, such an ethereal construction of a levitating loss untethered to a taxpayer has slipped its statutory moorings.
All of these creative constructs might have retained some credibility if the Commissioner had not completely changed analytic course. In the final regulation pertaining to § 267(f)(2), the Commissioner corrected the interpretative error contained in the temporary regulation, and provided for allowance of the very deduction at issue here. This interpretive change of heart, however, does not affect this transaction because the Commissioner made the regulation effective prospectively; it did not apply to those transactions governed by the temporary regulation.
For this reason, even if the statutory language were ambiguous, we would owe little deference to the agency’s earlier erroneous interpretation. Inconsistent agency interpretations are entitled to less judicial deference than consistently held positions. INS v. Cardoza-Fonseca, 480 U.S. 421, 446 n. 3, 107 S.Ct. 1207, 94 L.Ed.2d 434 (1987). If an agency changes its statutory interpretation, and provides a reasoned analysis, the new — not the old— interpretation is entitled to some deference. See Rust v. Sullivan, 500 U.S. 173, 187, 111 S.Ct. 1759, 114 L.Ed.2d 233 (1991) (citing Motor Vehicle Mfrs. Assn, of United States, Inc. v. State Farm Mut. Automobile Ins. Co., 463 U.S. 29, 42, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983)); Bicycle Trails Council of Marin v. Babbitt, 82 F.3d 1445, 1456 (9th Cir.1996).
Of course, the shift of agency position puts the taxpayer in the extremely inequitable position of being subject to an agency interpretation of a statute which the agency itself has repudiated. With a loss of almost $90,000,000 in the balance, one can hardly blame the taxpayer for not being amused at the irony.
In sum, although I find the majority’s analysis excellent, in the end I cannot subscribe to the Commissioner’s view in this case. Thus, I must regretfully differ and respectfully dissent.