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1 1 (July 21, 2020)

handle is hein.crs/govdayn0001 and id is 1 raw text is: July 21, 2020 Reliance on Treasury Department and IRS Tax Guidance The Treasury Department and Internal Revenue Service (IRS) use severalforms ofguidanceto help taxpayers understand the Internal Revenue Code (IRC) and to inforn taxpayers of Treasury andthe IRS's position on particular taxissues. Forthe most part, this taxguidancecan be split into three categories: (i) treasuryregulations, (ii) sub- regulatory guidance published in the InternalRevenue Bulletin (IRB), and (iii) unpublished sub-regulatory guidance (i.e., sub-regulatory guidancenotpublished in the Federal Register or the IRB). Former IRS Chief Counsel have remarked that thetype of guidance is suedreflects a balance betweentaxpayers' need for certainty and Treasury and the IRS's need for latitudein administering taxlaws. In a tax dispute with Treasury or the IRS, taxpayers can rely on treasury regulations and sub-regulatory guidance published in the IRB (such as revenuerulings, revenue procedures, notices, and announcements) to support their taxposition, as long as the guidance is not contrary to or inconsistent with the law. Taxpayers are generally unable to rely on unpublished sub-regulatory guidance in tax disputes. Given that Treasury and the IRS often is sue unpublished sub-regulatory guidancein responseto time- sensitive is sues, taxpayers may chooseto exercise caution when the need for clarity and certainty is at its greatest, and might wait for Congress to potentially enact clarifying legislation or for courts to address the legal is sue in litigation. Th at s aid, Treasury and the IRS s ometimes may include a statement in their unpublished sub-regulatory guidance conveying that they will not take a position inconsistent with or contrary to the guidance. This In Focus analyzes the ability of taxpayers to rely on valid treasury regulations andthe more common types of sub-regulatory taxguidance. comnmon T, wmms A esLrart Treasury regulations are the most significant type of tax guidance is sued by Treasury and the IRS, and courts generally afford themthe greatest deference. Treasury regulations can provide guidance on newly enacted legislation and taxis sues that arisewith respectto pre- existing laws. Taxpayers may rely onfinal and temporary treasury regulations, but may not rely on proposed treasury regulations unless they contain an express statement permitting reliance. Generally, proposed treasury regulations are published in the FederalRegister as a Notice of Proposed Rulemaking, which invites the public to review and comment on the proposed regulation. Treasuryand the IRS may modify or withdraw a proposed treasury regulation based on the comments theyreceive. After consideringthe public's comments, the agencies may issue a final regulation and publish it in the FederalRegister as a treasury decision. Treasury and the IRS issue temporary treasury regulations when they conclude that the public requires immediate guidancebefore the publication of final treasury regulations. Temporary treasury regulations also are published in the Federal Register as treasury decisions. When Treasury and the IRS issue a temporary treasury regulation, they sirIultaneously is sue a corresponding proposed treasury regulation. IRC Section 7805(e) mandates that temporary treasuryregulations expire three years after issuance. Pursuant to a memorandumof agreement between Treasury and the Office of Management and Budget (OMB) dated April 11, 2018, taxregulatory actions that are likely to result in any of three types oftaxregulations are subject to another layer of review. These are (i) regulations that create serious inconsistencies or interfere with actions taken or planned by another agency; (ii) regulations that raise novel legalor policy is sues; and (iii) regulations thathave an annual nonrevenue effecton theeconomy of $100 million or more. Subject to listed exceptions, the OMB's Office of Information and Regulatory Affairs (OIRA) reviews these taxregulatory actions in accordance with Executive Order 12866. During the OIRA review process, OIRA may meet with business representatives, nongovernmental organizations, and the public to dis cuss these actions. In litigation disputing the validity of a treasury regulation, Treasury and the IRS may argue that a court should show deference to their interpretation of a statute that they administer. Historically, courts distinguished tax regulations promulg ated under specific s tatutory grants of authority froimtax regulations promulgated under IRC Section 7805(a), which provides the Treasury Secretary with a generalpower to is sue all needfulrules and regulationsto enforce the IRC. Courts showed greater deference to Treasury and the IRS when they promulgated taxregulations pursuantto a statute that expres sly called for the agencies to create detailed rules to implement the statute or fill a particular gap. However, following the U.S. Supreme Court's decision in Mayo Foundation for Medical Education andResearch v. UnitedStates, courts now apply the judicial deference framework establishedby the Supreme Court in Chevron US.A. Inc., v. Natural ResourcesDefense Council to evaluatewhether a treasury regulation is valid, regardless of whether the agencies acted under a specific statutory grant of authority or IRC Section 7805(a). A A '2 xa S 1,k y\

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