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1 1 (June 12, 2023)

handle is hein.crs/govelxv0001 and id is 1 raw text is: Congressional Research Sei Informing the legislitive debate sinee 1914 ice Updated June 12, 2023 Reliance on Treasury Department and IRS Tax Guidance The Treasury Department and Internal Revenue Service (IRS) use several forms of guidance to help taxpayers understand the Internal Revenue Code (IRC) and to inform taxpayers of Treasury and the IRS's position on particular tax issues. For the most part, this tax guidance can be split into three categories: (i) treasury regulations, (ii) sub- regulatory guidance published in the Internal Revenue Bulletin (IRB), and (iii) unpublished sub-regulatory guidance (i.e., sub-regulatory guidance not published in the Federal Register or the IRB). Former IRS Chief Counsel have remarked that the type of guidance issued reflects a balance between taxpayers' need for certainty and Treasury and the IRS's need for latitude in administering tax laws. 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 revenue rulings, revenue procedures, notices, and announcements) to support their tax position, 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 Taxpayers are generally unable to rely on unpublished sub-regulatory guidance in tax disputes. Given that Treasury and the IRS often issue unpublished sub-regulatory guidance in response to time- sensitive issues, taxpayers may choose to exercise caution when the need for clarity and certainty is at its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 issue in litigation. That said, Treasury and the IRS sometimes may include a statement in their unpublished sub-regulatory guidance conveying that they will not take a position inconsistent with or contrary to the guidance.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 and the more common types of sub-regulatory tax guidance. Comm on Types of Treasury and IRS Tax Gui dance Treasury Regulations Treasury regulations are the most significant type of tax guidance issued by Treasury and the IRS, and courts generally afford them the greatest deference. Treasury regulations can provide guidance on newly enacted legislation and tax issues that arise with respect to pre- existing laws. Taxpayers may rely on final 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 Federal Register as a Notice of Proposed Rulemaking, which invites the public to review and comment on the proposed regulation. Treasury and the IRS may modify or withdraw a proposed treasury regulation based on the comments they receive. After considering the public's comments, the agencies may issue a final regulation and publish it in the Federal Register as a treasury decision. Treasury and the IRS issue temporary treasury regulations when they conclude that the public requires immediate guidance before 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 simultaneously issue a corresponding proposed treasury regulation. IRC Section 7805(e) mandates that temporary treasury regulations expire three years after issuance. A memorandum of agreement between Treasury and the Office of Management and Budget (OMB) dated June 9, 2023, superseded an earlier memorandum dated April 11, 2018, that had required certain tax regulations to undergo the standard centralized review process under Section 6 of Executive Order 12866 conducted by the OMB's Office of Information and Regulatory Affairs (OIRA). 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 promulgated under specific statutory grants of authority from tax regulations promulgated under IRC Section 7805(a), which provides the Treasury Secretary with a general power to issue all needful rules and regulations to enforce the IRC. Courts showed greater deference to Treasury and the IRS when they promulgated tax regulations pursuant to a statute that expressly 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 and Research v. United States, courts now apply the judicial deference framework established by the Supreme Court in Chevron U.S.A. Inc., v. Natural Resources Defense Council to evaluate whether a treasury regulation is valid, regardless of whether the agencies acted under a specific statutory grant of authority or IRC Section 7805(a). Reven ue Rulings Revenue rulings are the IRS's official interpretation of tax laws, related statutes, tax treaties, and regulations as applied to a specific set of facts. They are published in the IRB. Taxpayers may rely on revenue rulings when the taxpayer's facts are substantially the same as the taxpayer's facts addressed in the revenue ruling. Revenue rulings foster

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