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Sixth Circuit Vacates District Court's Decision Invalidating Notice 2007-83

(Parker Tax Publishing December 2023)

The Sixth Circuit vacated a district court's decision invalidating Notice 2007-83, which labeled employee benefit plans with cash value life insurance policies as listed transactions, and remanded the case with instructions to dismiss it as moot. The Sixth Circuit found that after it determined in a prior appeal that the IRS had illegally promulgated the Notice, the IRS voluntarily refunded the penalties with interest and abated future penalties, and that payment mooted the taxpayers' refund claim and left nothing more for the district court to do on the tax claims. Mann Construction v. U.S., 2023 PTC 306 (6th Cir. 2023).


In 2004, Congress enacted Code sec. 6707A to penalize taxpayers who fail to report a listed transaction that the IRS determines was similar or identical to one it has already identified as a tax-avoidance scheme. Three years later, the IRS issued Notice 2007-83, which labeled employee benefit plans with cash-value life insurance policies as listed transactions.

In 2013, Mann Construction created trusts for its co-owners, Brook Wood and Lee Coughlin, that paid the premiums on their cash-value life insurance policies. Mann deducted the expenses, and Wood and Coughlin counted the death benefits as income. But none of them reported the trusts as a listed transaction. In 2019, the IRS determined that the trusts failed to comply with Notice 2007-83 and imposed penalties on Mann, Wood, and Coughlin for failing to report the trusts over the past five tax years. All three paid the penalties for 2013, then sought refunds.

After the IRS refused to pay the refunds, Mann, Wood, and Coughlin filed a lawsuit in a district court alleging that Notice 2007-83 violated the Administrative Procedure Act (APA). In addition to a refund of the 2013 payment and a rescission of the unpaid penalties for 2014 through 2017, they requested an order and judgment setting aside Notice 2007-83, a declaration that it was unlawful, and an order that the Notice did not apply to their trusts' plan.

In Mann Construction, Inc. v. U.S., 2021 PTC 134 (E.D. 2021), the district court dismissed all but the claim that the Notice violated the APA's notice-and-comment requirements, then granted the government summary judgment on that claim. The taxpayers appealed, and in Mann Construction, Inc. v. Comm'r, 2022 PTC 63 (6th Cir. 2022), the Sixth Circuit reversed after concluding that Notice 2007-83 was a legislative rule that lacked a Congressional exemption from the APA's notice-and-comment requirements. The Sixth Circuit concluded that the Notice had to be set aside.

On remand, Mann asked the district court to enforce the Sixth Circuit's mandate by "vacating and setting aside Notice 2007-83," ordering the IRS to refund the 2013 penalties with interest, and rescinding penalties for the subsequent years. Before the district court ruled on this motion, the IRS refunded the past penalties with interest, abated the unpaid penalties, and in Announcement 2022-28, it agreed not to apply the Notice to these taxpayers or anyone else within the Sixth Circuit. The government argued that these actions mooted the case as Mann had voluntarily dismissed all but its claims for monetary relief. In Mann Construction, Inc. v. U.S., 2023 PTC 110 (E.D. Mich. 2023), the district court instead concluded that, because the Sixth Circuit had held Notice 2007-83 violated the APA, it retained jurisdiction to set aside and vacate the Notice nationwide. The government appealed.

Mann Construction contended that the case was not moot because it sought more than just a tax refund. It also requested that the court set aside the Notice under the APA to prevent it from having to comply with that rule in the future. Mann argued that the IRS could continue to enforce Notice 2007-83 against other taxpayers, a development that its APA claim would prevent. Mann also argued that the regulatory burdens and penalties in a national system of taxation should not depend on the geographic borders of each circuit, requiring the IRS to have the same rule for all parts of the country.


The Sixth Circuit vacated the judgment of the district court and remanded the case with instructions to dismiss it as moot. The Sixth Circuit noted that, after it determined that the IRS had illegally promulgated Notice 2007-83, the IRS voluntarily refunded the penalties with interest and abated future penalties. According to the court, that payment mooted the taxpayers' refund claim and left nothing more for the district court to do on the tax claims.

In the view of the Sixth Circuit, the government fully mooted Mann's claim to relief under the APA when it conceded that it would no longer enforce Notice 2007-83 against the taxpayers in this case or even within the Sixth Circuit. The court said that Mann could not overcome the voluntary mooting of the case by pointing to injuries (i.e., the enforcement of Notice 2007-83 against other taxpayers) that did not establish its standing in the first instance. According to the court, no matter what the IRS chooses to do with Notice 2007-83 outside the Sixth Circuit, there is no possibility that it will harm Mann. The court also noted that under the policy of non-acquiescence, an agency may respond to an unfavorable judicial ruling by announcing that it will continue enforcing a rule outside of that court's jurisdiction.

For a discussion of Notice 2007-83 and the rules relating to tax return disclosures of reportable transactions, see Parker Tax ¶250,140.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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