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Whirlpool Update: New Filings and Distribution for Supreme Court Conference

On November 2, 2022, the Supreme Court of the United States announced that the case of Whirlpool Financial Corp., et al., Petitioners v. Commissioner of Internal Revenue, No. 22-9, has been distributed for consideration at its upcoming conference on November 18, 2022. Meaning, we should have an answer in the next few weeks as to whether the Supreme Court will hear the case.

The Supreme Court’s distribution for the conference follows the government’s brief, submitted on October 19, 2022, in opposition to Whirlpool’s petition for a writ of certiorari.

In its brief, the government summarizes its position as follows:

Petitioners contend (Pet. 17) that 26 U.S.C. 954(d)(2) is “conditioned on the promulgation of regulations” by the Treasury Department and thus may not “be enforced without regard to such regulations.” But as the court of appeals correctly held, Section 954(d)(2)’s text itself establishes clear “conditions” and “consequences,” Pet. App. 12a, and when applied to this case, that text “mandate[s]” that the income at issue is FBCSI, id. at 18a. The phrase “‘under regulations prescribed by the Secretary’” delegates to the Treasury Department authority to “implement the statute’s commands,” but not to “vary from them,” ibid., so the court permissibly declined to articulate a separate rationale in this case based on the implementing regulations. Petitioners concede (Pet. 33) that the decision below does not conflict with that of any other court of appeals. Nor does it conflict with this Court’s precedent because petitioners’ cited cases involved meaningfully distinct statutory schemes. And resolving the question presented lacks practical importance because the Treasury Department’s former regulations would dictate the same result as the statutory text, and the revisions that were made to the regulations in 2008 removed any potential doubt about that result. This Court’s review is unwarranted.

 

The government’s position is an interesting one. It seems to accept that a court is free to ignore regulations relied on by the public if the court determines that the government’s position is supported by the statutory language and the statute is not entirely conditioned on the operation of a regulation. Additionally, the government believes here that US Congress did not entirely condition operation of Internal Revenue Code (Code) Section 954(d)(2) on regulations.

Perhaps sensing the difficulty in prevailing on this argument, the government (similar to what it did in the rehearing proceedings in the US Court of Appeals for the Sixth Circuit) seeks to limit Whirlpool to the specific statute at issue. However, this ignores the fact that the same or substantially the same language is used in other Code provisions, making it difficult to limit the government’s argument to Code Section 954(d)(2).

In another attempt to discourage review, the government essentially argues that the substantive issue is an issue of first-and-last impression because the regulations at issue were amended for tax years subsequent to Whirlpool’s. Again, this ignores the fact that Whirlpool involves important administrative law issues that will remain regardless of the amendment.

Finally, the government makes the valid point that no circuit split exists with respect to the lower court’s decision. While this may be true with respect to Code Section 954(d)(2) and regulations promulgated thereunder, the Sixth Circuit’s approach conflicts with approaches by other Courts of Appeals (and the Supreme Court) when it comes to the ability of the public and the courts to ignore or disregard validly promulgated regulations.

Whirlpool has submitted its reply in support of its petition for certiorari, addressing the government’s position. Whirlpool’s reply goes into more detail on our observations above, characterizing the government’s response as resting “on a patently revisionist history of this case,” misreading the statute and downplaying the importance of the case from an administrative law perspective.

Practice Point: As noted above, we will know soon whether the Supreme Court will decide to address the issues raised by Whirlpool. We will provide another update as soon as a determination is made.

Prior coverage of this case can be found below:

© 2023 McDermott Will & EmeryNational Law Review, Volume XII, Number 308
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Lowell D. Yoder, International Tax Planning, Attorney, McDermott Will, Law Firm
Partner

Lowell D. Yoder is a partner in the law firm of McDermott Will & Emery LLP and is based in the Chicago office.  He is head of the U.S. & International Tax Practice Group. Lowell’s practice focuses on international tax planning for multinational companies.   He handles cross-border acquisitions, dispositions, mergers, reorganizations, joint ventures and financings.  He advises concerning multi-jurisdictional business structures and the use of special purpose foreign entities.  He also works with an extensive network of foreign lawyers on developing structures that minimize...

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Andrew R. Roberson tax attorney McDermott Will. Andy handles tax cases in Federal court, United States Tax Court
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Andrew R. Roberson is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.  Andy specializes in tax controversy and litigation matters, and has been involved in over 30 matters at all levels of the Federal court system, including the United States Tax Court, several US Courts of Appeal and the Supreme Court. 

Andy also represents clients, including participants in the CAP program, before the Internal Revenue Service Examination Division and Appeals Office, and has been successful in settling...

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David G. Noren, International Tax Planning Attorney, McDermott Will Emery Law firm Washington DC
Partner

David G. Noren is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm's Washington, D.C. office.  He focuses his practice on international tax planning for multinational companies.  David’s work in this area covers a wide range of both “outbound” and “inbound” issues, with a particular focus on the “subpart F” anti-deferral rules, the application of bilateral income tax treaties, and the treatment of cross-border flows of services and intellectual property rights under transfer pricing and other rules.  He has been ranked as...

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Elizabeth C. Lu Corporate Tax Attorney McDermott Will and Emery Chicago
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Elizabeth C. Lu focuses her practice on U.S. and international tax matters.  She advises clients on international tax issues, including the subpart F anti-deferral rules, foreign tax credit planning, repatriation, and the international provisions of the Tax Cuts and Jobs Act (GILTI, FDII, BEAT, etc.).  Elizabeth has experience advising multinational corporations on global supply chain restructurings, acquisitions, dispositions and joint ventures, post-acquisition integrations, internal reorganizations, tax controversies, and intellectual property migrations.  Elizabeth...

312-984-6949
Jonathan Lockhart, McDermott Will Emery, International Tax Attorney
Associate

Jonathan Lockhart is as an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm's Chicago office. He focuses his practice on U.S.& International tax matters. Jonathan received his LL.M. in Taxation from the New York University School of Law and his J.D., magna cum laude, from the William Mitchell College of Law. While in law school, Jonathan served as an assistant editor for the William Mitchell Law Review and was a National Tax Moot Court participant. Jonathan also served...

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