Ivins Continues Role as Thought Leader: Smith on Mayo; Bates on Currency Ivins, Phillips & Barker lawyers Patrick J. Smith and John D. Bates continued in their roles as thought leaders on important tax topics with two publications this week: Pat Smith wrote on how the Supreme Court’s Mayo decision will require the IRS to meet the more exacting administrative law requirements to which all other agencies are subject and, in the international arena, John Bates analyzed how the currency rules should be applied in the partnership context. A brief description of each article is below. Most tax practitioners interpreted the Supreme Court’s Mayo decision to mean that it is now virtually impossible for taxpayers to prevail in challenges to tax regulations and that the IRS can therefore do almost anything it wants. However, nothing in Mayo suggests the Court intended that result. To the contrary, the Court’s clear message in Mayo is that tax law and the IRS are governed by the same rules that apply to every other area of federal administration. That provides a powerful tool for taxpayers, who traditionally have not attempted to invoke against the IRS administrative law rules that limit agency discretion. Smith discusses those limitations, which include the Administrative Procedure Act’s arbitrary and capricious standard and its requirements for reasoned agency decision-making and explanations, the general presumption against retroactivity in regulations, recent case law narrowing the classification of jurisdictions requirements for bringing suit, exceptions to the exhaustion of administrative remedies requirements, and the principle
that nonregulatory agency guidance is given weight only according to its power to persuade. This article tackles the conceptually difficult area of how partnerships with foreign operations should be treated under sections 987 and 988, the primary operative foreign currency provisions. It argues that the policies behind these currency provisions and partnership tax principles support an entity approach, making the case that the functions of sections 987 and 988 are best carried out at the partnership – as opposed to the partner – level.
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