Three Years or Six to Audit? Substance and Procedure in Intermountain

In the 2011 Intermountain case the IRS wished to interpret “omits from gross income” to mean “reports but understates gross income” and extend the period for audit of understated capital gains from three years to six. It took that position without notice-and-comment and in the context of the hot pursuit of a particular tax shelter. After losing in tax court special review, with all 13 Tax Court judges concurring, the IRS made the motions of going through notice-and-comment to get Chevron deference on appeal. Neither the IRS nor anybody else seems to have paid much attention to why Congress might choose one statute of limitations over another. Rather than looking at costs and benefits, the lawyers have been looking at the meaning of words and at how much deference is owed to unargued assertions. There exist obvious reasons why Congress would choose a shorter audit time for understatements than for omissions, however, reasons which are crucial to the interpretation of the statute and whose neglect bears heavily on the question of whether the IRS has devoted more resources to study, used more expertise, listened more to outside comment, and been equally as impartial as the courts. The case provides good reason for not providing even Chevron’s level of deference to Treasury interpretations of statutes, much less to expand Chevron deference to interpretation adopted to win particular lawsuits.