|IRS Can Tax Carriers' USF
1/4. The U.S. Court of Appeals
(5thCir) issued its
opinion [25 pages in PDF] in AT&T v. USA, a federal tax case
regarding treatment of payments to carriers under the Federal Communications
Commission's (FCC) and states' universal service tax and subsidy programs.
The Court of Appeals affirmed the judgment of the District Court. Both held
that the universal service payments to AT&T are income, pursuant to
26 U.S.C. § 61, and subject to taxation. AT&T had argued that the payments
are non-shareholder contributions to capital, pursuant to
26 U.S.C. § 118(a), and therefore not subject to taxation.
Previously, the 11th Circuit reached the same conclusion.
The Court of Appeals summarized the factual background. "From the state and
federal USFs, AT&T received USF payments of $723.5 million in 1998 and $831.3
million in 1999. ... On its 1998 and 1999 federal income tax returns, however,
AT&T did not include its USF receipts in its gross income. As a result, AT&T did
not pay $505,245,517 in income taxes on the payments it received from the USFs
in 1998 and 1999. AT&T did, however, treat the mandatory contributions it was
required to make to the USFs as deductible business expenses in 1998 and 1999."
"The IRS determined that AT&T had incorrectly failed to report the USF
payments as income. AT&T paid the income tax deficiencies assessed by the IRS
and filed administrative claims for a refund, which were denied." AT&T then
filed a complaint in the U.S. District
Court (WDTex), which also rejected its claim. This appeal followed.
The Internal Revenue Service (IRS) argued that universal service subsidies
are intended to supplement carriers' operating income by compensating them for
some of their costs of servicing high cost customers and by reimbursing carriers
for discounts that they were required to give low income customers.
AT&T argued that universal service subsidies are intended to pay for the
expansion and upgrading of network infrastructure and therefore must be treated
as capital contributions.
The Court reasoned that whether payments to a corporation are income or
capital contribution is governed by intent of the transferor, and when that when
the transferor is the government, that intent is manifested by the statutes,
regulations, and orders of the government.
47 U.S.C. § 254, any other section of the Communications Act, or the
Internal Revenue Code states that universal service subsidies are income, rather
than capital contributions, to carriers.
The Court of Appeals turned to the FCC's 1997 universal service Report and
Order (R&O), which states that universal services subsidies are "are designed to
increase subscribership by keeping rates affordable", and that a high cost
program subsidy "best reflects the cost of providing service in a competitive
market for local exchange telephone service". See,
Report and Order,
released on May 8, 1997. It is FCC 97-157 in CC Docket No. 96-45
The Court concluded that this R&O manifests the FCC's intent that universal
service fund (USF) "payments should be equivalent to customers' fees for
services". And, while the R&O "did not specifically state whether the payments
were intended as income or capital contributions", it "narrowed the possibility
that the payments could be viewed as anything but income".
The Court concluded that "USF payments were
compensation to AT&T for the specific and quantifiable services it performed for
high-cost and lower-income users as well as for developing and maintaining
universal service, which renders a service for all consumers by making the
telecommunications system more useful and valuable to every customer. The state
and federal USFs draw their monies from assessments levied by the FCC and state
utility commissions against the telecommunications companies, which are then
passed along to customers." (Footnote omitted.)
Thus, the Court wrote, "the USFs are in effect
a vehicle or conduit by which the telecommunications carriers are compensated
for the specific, quantifiable services that they provide directly to high-cost
and lower-income customers and for the universal, system-wide service they
provide in making those customers accessible to other consumers in the system."
The U.S. Court of Appeals (11thCir)
previously held for the government on this issue. See, 2007 opinion of the U.S. District
Court (SDGa) in U.S. v. Coastal Utilities, Inc., 483 F. Supp. 2d 1232, and January 23,
2008, opinion [PDF] of
the Court of Appeals in U.S. v. Coastal Utilities, Inc., 514 F.3d 1184.
The IRS has long asserted that USF subsidies are taxable income. See, IRS
of February 9, 2009, and IRS documents cited therein.
This case is AT&T v. USA, U.S. Court of
Appeals for the 5th Circuit, App. Ct. No. 09-50651, an appeal from the U.S.
District Court for the Western District of Texas. Judge Dennis wrote the opinion
of the Court of Appeals, in which Judges Barksdale and Owen joined.
|80% of E-Rate
Recipients Find That Their Internet Connection Completely or Mostly Meets Their
1/6. The Federal Communications Commission (FCC) released a
paper [PDF] titled "2010 E-Rate Program and Broadband Usage Survey".
It pertains to a survey of recipients of FCC universal service e-rate subsidies
for schools and libraries.
This document, which is based upon the responses to a survey conducted by Harris Interactive,
Inc., finds that a total of 80% of e-rate recipients responded that their "current
Internet connection" either "Completely meets your needs" or "Mostly meets
your needs". (The transcript of the question is at page 23. A summary of the
responses is at page 7.)
The FCC e-rate program gives free money to schools and libraries. Recipients have incentives
to assert that they need more money. Nevertheless, 80% of this sample still expressed satisfaction
with their internet connection.
However, the FCC also mischaracterizes these survey results. The FCC asserts in this paper
(at page 2), and in a
release, that "nearly 80% of all survey respondents say their broadband connections
do not fully meet their current needs" and that "Slow connection speed is the primary
reason". In making this statement, the FCC combines the 58% of respondents who stated that
their internet connection "Mostly meets your needs", with those who stated that their
internet connection "Sometimes meets your needs" (16%), "Rarely meets your
needs", or "Does not meet your needs at all". In fact, only 4% responded that
their internet connection rarely or not at all meets their needs.
This is policy driven interpretation of data, rather than data driven policy analysis.
The FCC paper also finds that "Ninety-five percent of E-rate entities report
having some form of terrestrial broadband connection to at least one facility.
Only 3% of respondents have dial-up access and 2% have satellite connections.
Overall, 42% of respondents have fiber optic connections and 14% have T3/DS-3
connections. Though 60% of school districts and 50% of consortia have some fiber
optic connections, the survey does not reveal how many individual entities
within a district or consortium have fiber to the premise. Only 21% of
individual school respondents and 13% of library respondents have fiber optic
connections. Forty-six percent of urban respondents had fiber optic connections
compared to 38% of rural respondents."
The FCC paper also finds that "Overall, 80% of E-rate survey respondents provide
wireless Internet access in at least one building, and an additional 12% plan to make it
available within the next three years. Two-thirds (66%) of respondents offer access for staff,
students and/or patrons and another 14% provide access only to staff. Entities with a 90%
E-rate discount rate are most likely to have wireless Internet access available."
This document is based upon a voluntary survey for which the response rate was very low.
Harris sent out 5,000 surveys. Only 1,060 recipients responded.
|Obama Picks Seitz for OLC
1/5. President Obama nominated
Virginia Seitz to be
Assistant Attorney General (AAG) in charge of the
Office of Legal Counsel (OLC). See,
White House news office
Seitz (at right)
is a partner is the Washington DC office of the law firm of
Sidley Austin, where she focuses on appellate
She has worked on a few technology related matters. For example, one of Sidley's clients is
AT&T. Seitz was one of the Sidley attorneys who worked on the Brand X litigation,
which pertained to the FCC's classification of cable modem service as an information service.
Carter Phillips, the
Managing Partner of Sidley's Washington DC office, has argued numerous cases before the Supreme
Court. He represented eBay in eBay v. MercExchange. Seitz was part of that Sidley team.
The opinion is reported at
547 U.S. 388 (2006). See also, story titled "Supreme Court Rules on Availability of
Injunctive Relief in Patent Cases" in
TLJ Daily E-Mail
Alert No. 1,371, May 16, 2006.
Seitz is an appellate litigator and advocate. However, the OLC is not a litigation unit. OLC
lawyers more often come from, and then return to, academic or scholarly employment.
There has been no AAG for the OLC in the Obama administration. In fact, there
has been no AAG for the OLC since 2004. Nominees for this position are
inherently controversial, and are often blocked by the Senate.
President Obama tried unsuccessfully to get the Senate to confirm his original nominee,
Senate Republicans blocked a vote in the full Senate. Obama withdrew her
nomination on April 13, 2010. See, White House news office
The last confirmed OLC/AAG was
Jack Goldsmith, who
served in the first Bush administration, and is now a Harvard law school professor. He left the
OLC in June of 2004. He is the co-author, with Tim Wu, of the
book [Amazon] titled "Who Controls the Internet: Illusions of a Borderless
Bradbury was long an acting AAG in the second Bush administration.
However, Senate Democrats blocked a vote in the Senate on his confirmation.
The OLC's controversies have changed over time. During the Bush
administration the most divisive issues with which it dealt pertained to
terrorism, interrogation of terrorists, and wiretaps and electronic surveillance.
Bradbury's inability to obtain Senate confirmation derived in part from his
providing legal advice to former Attorney General Alberto Gonzales and President
Bush regarding the National Security
Agency's (NSA) extrajudicial electronic surveillance of communications where
one party is inside the U.S. and one party is outside. Senate Democrats sought
to discredit the Bush administration on the subject of electronic surveillance.
However, since President Obama's surveillance policies have proven to be substantially
indistinguishable from former President Bush's, Congressional Democrats who were once vocal
opponents of certain surveillance practices have muted their criticism. Senate Democrats can
now be expected to support an AT&T lawyer for the same position.
Like many DOJ units, the OLC drafts legal opinions. However, it is assigned many of the
most important issues, including those in which two or more federal agencies are in conflict,
and those which implicate major policy goals of the President. The OLC has also often played
a leading role in getting the President's Supreme Court nominees confirmed.
The attorneys in the OLC are among the brightest and most ideological in federal
government. The OLC's attorneys, and the ideological orientation of the OLC, turn over with
each new President. Although, its members are not selected for partisan loyalty. Rather, they
are selected on the basis of their expertise, legal reasoning abilities, and the match between
their legal ideology and the legal opinions that the administration seeks.
The OLC issues opinions on some matters of great public interest. In addition, its opinions
sometimes take on attributes of precedential decisions. Yet, the OLC conducts its
activities and operations in a closed and secretive manner. Also, it typically withholds from
the public and Congress its opinions. It thus functions as the source of secret law and policy
-- practices inimical to open and democratic government.
While the OLC is a small office, and its AAG is just one of many AAGs at the Department of
Justice (DOJ), this position has often been a stepping stone for appointment to the Court of
Appeals and Supreme Court. Confirmation of Seitz would increase her chances of high judicial
Former Chief Justice William Rehnquist was the OLC/AAG when former President Nixon nominated
him to be an Associate Justice of the Supreme Court. Justice Antonin Scalia was OLC/AAG before
being nominated for the U.S. Court of Appeals
(DCCir). He was later nominated for the Supreme Court.
Other former OLC/AAGs include Judge
Jay Bybee of the
U.S. Court of Appeals (9thCir) and former Judge
of the U.S. Court of Appeals (4thCir) (who is now
Boeing's General Counsel). Also, William Barr was the OLC/AAG prior to serving as the Attorney
General in the administration of the elder President Bush. (He went on to work for GTE, Bell
Atlantic and Verizon for 14 years, and is now a Director of Time Warner.)
President Bush nominated one of Seitz's Sidley colleagues,
Peter Keisler, to be a Judge of the U.S.
Court of Appeals (DCCir) in 2007 and 2008. The Senate did not act on his nomination. He has
done much work for AT&T. He also served as AAG for the Civil Division, and briefly as
the acting Attorney General, during the Bush administration.
Some Senate Republicans are likely to view with disfavor Seitz's having co-written an amicus
curiae brief filed with the Supreme Court in Grutter v. Bollinger, urging
the Court to uphold the Constitutionality of affirmative action -- in this case
applying race as a criteria for admission to a state law school. The
reported at 539 U.S. 306 (2003).
On the other hand, some Senate Democrats may view with disfavor Seitz's participation in
writing for the U.S. Chamber of Commerce an amicus curiae brief in Exxon Shipping v.
Baker, urging the Supreme Court to limit the award of punitive damages. See,
brief. The opinion is
reported at 554 U.S. 471 (2008).
|This issue contains the following items:
• IRS Can Tax Carriers' USF Subsidies
• 80% of E-Rate Recipients Find That Their Internet Connection Completely or Mostly
Meets Their Needs
• Obama Picks Seitz for OLC
• More People and Appointments
New items are highlighted in
|Friday, January 7
The House will meet at 9:00 AM for legislative business.
The Senate will not meet. It will next meet on January 25, 2011.
Supreme Court conference day (discussion of argued
cases, and decision on cert petitions). Closed.
10:00 AM - 5:00 PM. The
Office of Science and Technology
Policy's (OSTP) President's
Council of Advisors on Science and Technology (PCAST) will hold a partially closed meeting.
See, notice in the Federal
Register, December 13, 2010, Vol. 75, No. 238, at Pages 77679-77680. Location: Marriott
Metro Center, 775 12th St., NW.
12:15 - 1:45 PM. The
Federal Communications Bar Association's (FCBA) Diversity Committee will
host a brown bag lunch titled "Current Issues in the FCC’s Equal Employment
Opportunities Rules and Enforcement". The speakers will be Lewis Pulley
(Assistant Chief of the FCC's Media Bureau's Policy Division), David Honig
Media and Telecommunications Council), and Christina Burrow (Dow Lohnes).
Location: National Association of Broadcasters (NAB), 1771 N St., NW.
|Tuesday, January 11
The House will meet. Votes will be postponed until 6:30 PM.
8:00 -10:00 AM. Broadband Census News LLC will host a panel discussion
titled "What Intellectual Property Issues Are Top of Mind for the 112th
Congress?". Breakfast will be served. This event is free and open to the public.
See, notice and registration
page. This event is also sponsored by the National
Cable & Telecommunications Association (NCTA) and the
Public Knowledge (PK). Location:
Clyde's of Gallery Place, 707 7th St., NW.
9:00 AM - 1:00 PM. The Department of Commerce's (DOC)
National Telecommunications and Information
Administration's (NTIA) Spectrum
Management Advisory Committee will meet. See,
notice in the Federal
Register, December 7, 2010, Vol. 75, No. 234, at Page 75968. Location: Room 4830, DOC, 1401
Constitution Ave., NW.
12:15 - 1:30 PM. The
Federal Communications Bar Association's (FCBA) Mass Media Committee will
host a brown bag lunch titled "Foreign Ownership and Investment Issues in
Broadcasting". The speakers may include Bob Ratcliffe (FCC), David Honig
(Minority Media and Telecommunications Council),
(Fletcher Heald & Hildreth), and
John Logan (Dow Lohnes). Location: Wiley
Rein, 1776 K St., NW.
5:00 - 7:00 PM. The Center for Democracy and Technology's (CDT)
Congressional Internet Caucus Advisory Committee will host an event titled "14th Annual
Tech Exhibition and Reception". See,
notice. Location: Room 902, Hart
|Wednesday, January 12
The House will meet.
12:00 NOON - 1:30 PM. The DC Bar
Association will host an event titled "The Patent Reform: What is the Status of
Patent Reform?". The speakers will be Paul Michel (former Judge of the U.S. Court
of Appeals (FedCir)), John Jarosz (Analysis Group), and
Marina Zalevsky (Sughrue Mion). The price to
attend ranges from $15 to $25. For more information, contact 202-626-3463. See,
notice. Location: DC Bar Conference Center, B-1 Level, 1250 H St., NW.
12:15 - 1:30 PM. The Federal Communications Commission (FCC) will hold an
event titled "Meet the Wireless Telecommunications Bureau Front Office". The
Federal Communications Bar Association (FCBA) states that
this is an FCBA event. See,
registration form. The deadline for registrations and cancellations is 12:00 NOON on
January 10. The price to attend is $17. Lunch will be served. Location:
Wiley Rein, 1776 K St., NW.
5:30 - PM. The New
America Foundation (NAF) will host a lecture by Dan Gillmor titled "Mediactive:
A User’s Guide to Democratized Media". See,
notice. Location: NAF, Suite
400, 1899 L St., NW.
6:00 - 8:15 PM. The Federal Communications
Bar Association (FCBA) will host an event titled "Major International Privacy
Developments and the Impact on Multi National and Globally Networked Environments".
CLE credits. Prices vary. The deadline for registrations and cancellations is 5:00 PM
on January 10. See,
registration form. Location?
|Thursday, January 13
The House will not meet. Day one of a three day
House Republican Retreat.
9:00 AM - 12:00 NOON. The Department of State's (DOS) Advisory Committee
on International Communications and Information Policy (ACICIP) will meet. See,
notice in the
Federal Register, December 21, 2010, Vol. 75, No. 244, at Pages 80105-80106.
Location: Henderson Auditorium, Truman Building, 2201 C St., NW.
9:45 AM - 5:00 PM. The
Public Knowledge (PK) and Google
will host a conference titled "World Fair Use Day". This is a series of
speeches and panel discussions. The speakers will include Maria Pallante,
acting Register of Copyright. Breakfast and lunch will be served. See,
registration page. Location:
Washington Post Conference Center, 1150 15th St., NW.
12:15 - 1:30 PM. The Federal Communications Commission (FCC) will hold an
event titled "Bankruptcy Basics: A discussion of the
FCC issues that arise in the context of bankruptcies and workouts of entities
that hold FCC licenses". The speakers will be David Brown (Associate Chief
of the FCC's Media Bureau's Video Division), David Roberts (FCC/MB/VD), Taft
Snowdon (FCC/MB/Audio Divison), and John Feore (Dow Lohnes). The
Federal Communications Bar Association (FCBA)
states that this is an FCBA event. Location: Hogan Lovells,
555 13th St., NW.
1:00 PM. The US Telecom will host a webcast seminar
titled "IPv6 Migration Strategies". See,
5:30 - 7:30 PM. The New
America Foundation (NAF) will host a lecture by
Evgeny Morozov (NAF) titled "Was Orwell
Right? The Dark Side of the Internet". Morozov is the author of the
[Amazon] titled "The Net Delusion: The Dark Side of Internet Freedom". See,
Location: NAF, Suite 400, 1899 L St., NW.
|Friday, January 14
The House will not meet. Day two of a three day
House Republican Retreat.
Supreme Court conference day (discussion of argued
cases, and decision on cert petitions). Closed.
9:30 AM - 4:30 PM. The Federal Communications Commission's (FCC)
Emergency Access Advisory Committee will meet. See,
notice in the Federal
Register, December 15, 2010, Vol. 75, No. 240, at Pages 78244-78245. Location: FCC,
Commission Meeting Room, 445 12th St., SW.
12:00 NOON. Deadline to submit reply comments to the
Office of the U.S. Trade Representative (OUSTR) regarding
its review of the operation, effectiveness, and implementation of and compliance with various
telecommunications agreements, including the World Trade Organization (WTO) General
Agreement on Trade in Services. See,
notice in the Federal Register, November 18, 2010, Vol. 75, No. 222, at Pages 70770-70771.
5:00 PM. Deadline to submit comments to the
U.S. Patent and Trademark Office (USPTO) in response to
its latest notice of proposed rulemaking (NPRM) in its long running consideration of its
rules of practice before the Board
of Patent Appeals and Interferences (BPAI) in ex parte patent appeals. See,
notice in the Federal Register,
November 15, 2010, Vol. 75, No. 219, at Pages 69827-69849. See also, story titled "USPTO
Issues Another NPRM on BPAI Ex Parte Appeals" in
TLJ Daily E-Mail Alert No.
2,163, November 23, 2010.
Deadline to submit comments to the Federal Communications Commission
(FCC) in response to its November 12, 2010,
(PN) regarding its Programmatic Environmental Assessment (PEA) of its Antenna Structure
Registration (ASR) program. This PN is DA 10-2178 in WT Docket No. 08-61 and WT Docket No.
03-187. See, notice in the
Federal Register, November 17, 2010, Vol. 75, No. 221, at Pages 70166-70168.
|More People and Appointments
1/5. President Obama again nominated James Dempsey and Elisebeth Cook to be
members of the Privacy and Civil Liberties Oversight Board (PCLOB). See, White House news office
release. He nominated them last month. Those nominations lapsed at the end of the 111th
Congress. See also, story titled "Obama to Nominate Dempsey and Cook to Privacy and Civil
Liberties Oversight Board" in TLJ Daily E-Mail Alert No. 2,181, December 17, 2010.
1/5. President Obama again nominated Peter Diamond to be a member of
the Board of Governors of the Federal Reserve System for the unexpired term of
fourteen years from February 1, 2000. See, White House news office
release. President Obama first nominated Diamond in April of 2010. The
Senate Banking Committee (SBC) approved his nomination in November. See,
Congressional Record, November 17, 2010, at Page S7968.
1/5. President Obama again nominated Kelvin Droegemeier to be a member of the
National Science Board (NSB) of the National Science
Foundation (NSF), for a term expiring May 10, 2016. See, White House news office
release. President Obama first nominated Droegemeier last month.
1/5. President Obama again nominated Cora Marrett to be a Deputy
Director of the National Science Foundation
(NSF). See, White House news office
1/5. President Obama again nominated Michael Vickers to be Under
Secretary of Defense for Intelligence. See, White House news office
release. President Obama first nominated him in September of 2010.
1/5. President Obama again nominated Stephanie O'Sullivan to be
Principal Deputy Director of National Intelligence. See, White House news office
release. President Obama first nominated her last month.
1/5. President Obama again nominated Kathryn Sullivan to be Assistant Secretary of
Commerce for the Economic Development Administration. See, White House news office
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