Bloomberg Quotes Leila Carney on 3M’s Appeal to the Eighth Circuit

Eighth Circuit judges focused on 3M Co.‘s level of control over its Brazilian subsidiary during oral arguments Tuesday about 3M’s tax liability, with one judge appearing particularly skeptical of the IRS’s justification for its tax increase.

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“If the court focuses on whether 3M controls receipt of income from 3M Brazil, as a general matter, then they’re on the IRS’ playing field,” Leila D. Carney, a Caplin & Drysdale Member practicing international tax litigation, said after hearing the arguments. Caplin & Drysdale doesn’t represent any parties in the case.

Carney said it was telling that, during oral arguments, the IRS leaned on the IRS’s statutory basis for the income allocation under IRC Section 482, rather than Treasury’s blocked income rule, which 3M says is invalid. That focus was likely motivated by the US Supreme Court’s decision in Loper Bright, which only came down after the Tax Court already ruled en banc for the government.

“Without Chevron deference, the Eighth Circuit has to grapple with how much respect to accord the form of the transaction, a form that was not controlled by the taxpayer but also was not an arm’s length transaction,” Carney said.

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