Thus, although the regulations may be "interpretive" according to the common usage in the sense that they set forth respondent's interpretation of the underlying statutes, and "interpretive" according to tax-law usage in the sense that one of them was issued under section 7805 alone, they are not "interpretive" under the APA's exception to the noticeand-comment requirements because they are meant to bind the public, which the Secretary has the power to do. 15 B. Section 7805(e) and the APA Though the Secretary did not subject the regulations to notice and comment, he did issue identical proposed regulations and a Notice of Proposed Rulemaking (NPRM) at the same time as the temporary regulations, as required by section 7805(e)(1). This section directs the Secretary, when issuing temporary regulations, to issue a simultaneous NPRM and sets a 3-year expiration date for all temporary regulations. The legislative history of that section, respondent says, shows that Congress was aware of the Secretary's procedures of issuing temporary regulations that were effective immediately but without notice and comment. 16 He says that Congress implicitly okayed that process by limiting the temporary regulations to 3 years and ensuring that the Secretary issued an NPRM at the same time. Even though this violates the APA, he justifies it by arguing that section 7805(e) conflicts with the APA, and in the battle of the statutes, a specific statute trumps a general one. See Bulova Watch Co. v. United States, 365 U.S. 753, 758 (1961). We do not agree. First we note that nothing in the text of the statute suggests that the notice-and-comment requirement has been waived, nor does the legislative history state that it has. The legislative history does note that the Sec 15 Nearly 30 years ago, in Wing v. Commissioner, 81 T.C. 17, 28 (1983), we mentioned that Treasury regulations, though deemed to have the force of law, still qualify as "interpretative" rules and are exempt from the APA's requirements. In context, this was dictum, and the overwhelming weight of precedent from later years counsels us not to follow it. 16 Prior law had allowed temporary regulations to linger for a very long time, to the point that courts were beginning to notice a pattern of the Secretary's growing reliance on temporary regulations without ever finalizing or repealing them. See, e.g., Fleming v. Commissioner, T.C. Memo. 2010-60 (relying on 25-year-old temporary regulations for substantiation standards). Several commentators suggest that Congress was actually aiming to restrict the Treasury's regulation writers by curtailing this practice. See Hickman, "A Problem of Remedy," supra at 1209; ABA, Section of Taxation, "Report of the Task Force on Judicial Deference", 57 Tax Law. 717, 735 (2004); Asimow, supra at 363-364. retary commonly issued temporary regulations with immediate effect, but this alone hardly suggests Congress meant to waive notice and comment for all temporary regulations. 17 The legislative history does not even mention the APA, and both the Supreme Court and the APA itself provide that exceptions to the APA's terms cannot be inferred-much less inferred from an absence in the legislative history: Recognizing the importance of maintaining a uniform approach to judicial review of administrative action *** we have closely examined the *** claim for an exception to that uniformity. *** [Congress has specified] in the APA that "no subsequent legislation shall be held to supersede or modify the provisions of this Act except to the extent that such legislation shall do so expressly." 5 USC § 559. * * * The APA was meant to bring uniformity to a field full of variation and diversity. * * * [Dickinson v. Zurko, 527 U.S. 150, 154-155 (1999).] Respondent may think that section 7805(e) makes him special when it comes to rulemaking, but the APA makes it clear that he is not. Giving the public the opportunity to participate through notice and comment is important in giving regulations legitimacy. See United States v. Mead Corp., 533 U.S. 218, 230 (2001); Christensen v. Harris County, 529 U.S. 576, 587 (2000); Chrysler Corp. v. Brown, 441 U.S. at 316; see also Hickman, “A Problem of Remedy: Responding to Treasury's (Lack of) Compliance with Administrative Procedure Act Rulemaking Requirements", 76 Geo. Wash. L. Rev. 1153, 1201 (2008) (Hickman, “A Problem of Remedy") (“The APA and its notice-and-comment rulemaking procedures reflect congressional goals of simultaneously facilitating government rulemaking and protecting individual rights through public participation."); id. at 1204 (“While perhaps less than ideal, the APA notice-and-comment process, coupled with judicial review of the agency's adherence to that process, serves as a second-best proxy for the legislative process when Treasury or any other agency seeks to bind the public with regulations having the force and effect of the statutes they purport to interpret."). 17 Though issuing a simultaneous NPRM and seeking post-effective comments is consistent with respondent's argument, Congress may have intended this to apply only to temporary regulations that already fit into an exception to the APA, especially considering that a need for temporary regulations would normally be expected in emergency or good-cause situations. Giving the public a chance to comment only after making the regulations effective does not comply with the APA. See, e.g., Chrysler Corp. v. Brown, 441 U.S. at 315; Paulsen v. Daniels, 413 F.3d 999, 1005 (9th Cir. 2005) ("It is antithetical to the structure and purpose of the APA for an agency to implement a rule first, and then seek comment later."). And courts invalidate even final regulations when an agency does this. 18 See, e.g., U.S. Steel Corp. v. U.S. EPA, 595 F.2d 207, 214-215 (5th Cir. 1979). But see Fed. Express Corp. v. Mineta, 373 F.3d 112 (D.C. Cir. 2004). Because these regulations were issued under sections 6230(k) and/or 7805, they are binding and legislative as a matter of administrative law. We would therefore invalidate them on procedural grounds for failure to comply with the APA. A court should not entirely ignore invalidated regulations—but we cannot give them binding force. 19 See Chrysler Corp. v. Brown, 441 U.S. at 313 ("regulations subject to the APA cannot be afforded the 'force and effect of law' if not promulgated pursuant to the statutory procedural minimum found in that Act"); Hickman, "A Problem of Remedy", supra at 1197 n.199 (suggesting invalidated regulations may be similar in force to proposed regulations, which set forth the agency's views but do not bind courts). Respondent's problem here is that we have already considered his position in other cases, and we have rejected it. Bakersfield Energy Partners, LP v. Commissioner, 128 T.C. 207 (2007); Intermountain Ins. Serv. of Vail, LLC v. Commissioner, T.C. Memo. 2009–195. He needs to have new regulations that do have binding force. 18 Respondent does point to some cases where temporary regulations were relied upon despite not undergoing notice and comment, see UnionBanCal Corp. v. Commissioner, 305 F.3d 976 (9th Cir. 2002), affg. 113 T.C. 309 (1999); Kikalos v. Commissioner, 190 F.3d 791 (7th Cir. 1999), revg. T.C. Memo. 1998-92, but in these cases APA compliance wasn't challenged. We also note, as we did in UnionBanCal Corp. v. Commissioner, 113 T.C. at 317 n.8, that the Secretary asserted a good-cause exception to the APA's notice-and-comment requirement when he issued the regulations in these cases. T.D. 8168, 52 Fed. Reg. 48407 (Dec. 22, 1987) (Kikalos); T.D. 7991, 49 Fed. Reg. 46992 (Nov. 30, 1984) (UnionBanCal). 19 If respondent had successfully promulgated interpretive rules, we would reach this same These don't, and we therefore see no compelling reason to vacate our decision in Intermountain. For that reason, we concur with the majority's result. MARK D. AND JENNIFER L. SUMMITT, PETITIONERS v. RESPONDENT Docket No. 13893-07. Filed May 20, 2010. P-H is a 10-percent shareholder in S, an S corporation. On Sept. 23, 2002, S paid premiums to acquire two major foreign currency options from B and received premiums when it sold two written minor foreign currency options to B. The purchased major foreign currency options were a reciprocal put and call, exactly offsetting each other. The written minor foreign currency options also were a reciprocal put and call, exactly offsetting each other. On Sept. 25, 2002, S assigned the major foreign currency call option and the minor foreign currency call option to a charity pursuant to an assignment agreement in which the charity was substituted for S with respect to all obligations under the minor foreign currency call option. R filed a motion for partial summary judgment seeking a determination (1) that S did not recognize loss under sec. 1256, I.R.C., upon its assignment of the major foreign currency call option to charity, and (2) that S must recognize gain upon its assignment of the minor currency call option to charity. Ps contend (1) that the major foreign currency call option assigned to the charity is a sec. 1256, I.R.C., foreign currency contract so that loss, if any, on the assignment of that option was recognized by S in 2002 under the marked-to-market rules of sec. 1256(a) and (c), I.R.C., and (2) that gain, if any, on the assignment of the minor foreign currency call option to the charity was not recognized by S because the minor foreign currency option was not a sec. 1256, I.R.C., contract and the assignment by S to the charity did not terminate the option. Held: Under sec. 1256, I.R.C., the major foreign currency call option is not a foreign currency contract as defined in sec. 1256(b)(2) and (g)(2), I.R.C., and the marked-to-market provisions of sec. 1256, I.R.C., do not apply to enable S to recognize the loss on the assignment of the major foreign currency option to the charity. Held, further, there are genuine issues of material fact remaining with respect to the income tax treatment of the assignment of the minor foreign currency call option to the charity that require trial. John E. Rogers and Colin C. Laitner, for petitioners. OPINION HAINES, Judge: This case is before the Court on respondent's motion for partial summary judgment pursuant to Rule 121.1 Respondent raises two issues for decision in his motion: (1) Whether under the marked-to-market rules of section 1256 J. Summitt, Inc. (Summitt), an S corporation, recognized loss upon its assignment to charity of a major foreign currency call option, and (2) whether Summitt was required to include in its income, upon its assignment to charity of a minor foreign currency call option, the premium it received as writer of that option. The following facts are based upon the parties' pleadings, affidavits, and exhibits in support of and in opposition to the motion for partial summary judgment. They are stated solely for the purpose of deciding the motion and not as findings of fact in this case. See Fed. R. Civ. P. 52(a). Background The loss petitioners claim came from Summitt's offsetting foreign currency option transactions, the income tax effects of which flowed through to petitioners' joint 2002 Federal income tax return. Summitt is a California corporation with its principal place of business in San Clemente. Summitt was incorporated on March 25, 1996, and elected on April 1, 1997, to be treated as an S corporation under section 1361(a)(1). Petitioner Mark D. Summitt (petitioner) is a 10percent shareholder in Summitt. Petitioners resided in Monrovia, California, at the time the petition was filed. During 2002 Summitt engaged Multi National Strategies, LLC (Multi National), located in New York City, to provide advice with respect to foreign currency option transactions and to serve as depositary for funds needed for the transactions. On September 10, 2002, Summitt entered into agreements with Beckenham Trading Co., Inc. (Beckenham), with its principal place of business in Fort Lee, New Jersey, to 1 Unless otherwise indicated, all section references are to the Internal Revenue Code (Code), as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure. Amounts are rounded to the nearest dollar. |