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Jeff Paravano Talks to Bloomberg about Texas Ruling that Casts Doubt on IRS Inversions Rules

News / October 2, 2017

Partner Jeff Paravano is quoted in an article published Oct. 2, 2017, in Bloomberg BNA’s “Daily Tax Report.” The article, “U.S. Corporations to Put Inversions Loss Under Microscope,” reports on a recent case in which a federal district judge threw out Internal Revenue Service (IRS) rules intended to crack down on corporate inversions.

The U.S. District Court for the Western District of Texas ruled that the inversions rules — which derailed a $160 billion merger between pharmaceutical giants Allergan Plc and Pfizer Inc. — are “legislative” rather than interpretive and noted that the IRS failed to provide taxpayers with sufficient notice and comment as required by the Administrative Procedures Act.

Paravano explained to the reporter as background that The District Court decision is more notable for its analysis of the Anti-Injunction Act and the Administrative Procedure Act than it is for inversions.

With respect to the Anti-Injunction Act, he explained that the court correctly makes clear that challenge of a regulation for the purpose of making a reasoned decision about whether a potential future transaction is taxable or non-taxable does not thwart the government's assessment or collection of any tax and therefore cannot be barred by the Anti-Injunction Act.

With respect to the Administrative Procedure Act, he explained that the court held against the IRS solely for choosing an immediate effective date in violation of the APA's notice and comment requirement that substantive regulations be published not less than 30 days before their effective date.

Paravano noted that there seems to be little reason for the government to appeal this decision given that the district court found that the IRS rule was within the IRS's statutory jurisdiction and was not arbitrary and capricious since, presumably, that means that the proposed regulation issued in conjunction with the identical invalidated temporary regulation would be fully effective once finalized.

He noted as background that as part of any appeal, he would expect the Chamber of Commerce would ask the Court of Appeals to hold both that the regulation exceeds the IRS's regulatory authority and that the regulation is arbitrary and capricious.

Read the article (registration required).

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