Updated June 12, 2023
Reliance on Treasury Department and IRS Tax Guidance
The Treasury Department and Internal Revenue Service
withdraw a proposed treasury regulation based on the
(IRS) use several forms of guidance to help taxpayers
comments they receive. After considering the public’s
understand the Internal Revenue Code (IRC) and to inform
comments, the agencies may issue a final regulation and
taxpayers of Treasury and the IRS’s position on particular
publish it in the Federal Register as a treasury decision.
tax issues. For the most part, this tax guidance can be split
into three categories: (i) treasury regulations, (ii) sub-
Treasury and the IRS issue temporary treasury regulations
regulatory guidance published in the Internal Revenue
when they conclude that the public requires immediate
Bulletin (IRB), and (iii) unpublished sub-regulatory
guidance before the publication of final treasury
guidance (i.e., sub-regulatory guidance not published in the
regulations. Temporary treasury regulations also are
Federal Register or the IRB). Former IRS Chief Counsel
published in the Federal Register as treasury decisions.
have remarked that the type of guidance issued reflects a
When Treasury and the IRS issue a temporary treasury
balance between taxpayers’ need for certainty and Treasury
regulation, they simultaneously issue a corresponding
and the IRS’s need for latitude in administering tax laws.
proposed treasury regulation. IRC Section 7805(e)
mandates that temporary treasury regulations expire three
In a tax dispute with Treasury or the IRS, taxpayers can rely
years after issuance.
on treasury regulations and sub-regulatory guidance
published in the IRB (such as revenue rulings, revenue
A memorandum of agreement between Treasury and the
procedures, notices, and announcements) to support their
Office of Management and Budget (OMB) dated June 9,
tax position, as long as the guidance is not contrary to or
2023, superseded an earlier memorandum dated April 11,
inconsistent with the law. Taxpayers are generally unable to
2018, that had required certain tax regulations to undergo
rely on unpublished sub-regulatory guidance in tax
the standard centralized review process under Section 6 of
disputes. Given that Treasury and the IRS often issue
Executive Order 12866 conducted by the OMB’s Office of
unpublished sub-regulatory guidance in response to time-
Information and Regulatory Affairs (OIRA).
sensitive issues, taxpayers may choose to exercise caution
when the need for clarity and certainty is at its greatest, and
In litigation disputing the validity of a treasury regulation,
might wait for Congress to potentially enact clarifying
Treasury and the IRS may argue that a court should show
legislation or for courts to address the legal issue in
deference to their interpretation of a statute that they
litigation. That said, Treasury and the IRS sometimes may
administer. Historically, courts distinguished tax
include a statement in their unpublished sub-regulatory
regulations promulgated under specific statutory grants of
guidance conveying that they will not take a position
authority from tax regulations promulgated under IRC
inconsistent with or contrary to the guidance.
Section 7805(a), which provides the Treasury Secretary
with a general power to issue “all needful rules and
This In Focus analyzes the ability of taxpayers to rely on
regulations” to enforce the IRC. Courts showed greater
valid treasury regulations and the more common types of
deference to Treasury and the IRS when they promulgated
sub-regulatory tax guidance.
tax regulations pursuant to a statute that expressly called for
the agencies to create detailed rules to implement the statute
Common Types of Treasury and
or fill a particular gap. However, following the U.S.
IRS Tax Guidance
Supreme Court’s decision in Mayo Foundation for Medical
Education and Research v. United States, courts now apply
Treasury Regulations
the judicial deference framework established by the
Treasury regulations are the most significant type of tax
Supreme Court in Chevron U.S.A. Inc., v. Natural
guidance issued by Treasury and the IRS, and courts
Resources Defense Council to evaluate whether a treasury
generally afford them the greatest deference. Treasury
regulation is valid, regardless of whether the agencies acted
regulations can provide guidance on newly enacted
under a specific statutory grant of authority or IRC Section
legislation and tax issues that arise with respect to pre-
7805(a).
existing laws. Taxpayers may rely on final and temporary
treasury regulations, but may not rely on proposed treasury
Revenue Rulings
regulations unless they contain an express statement
Revenue rulings are the IRS’s official interpretation of tax
permitting reliance.
laws, related statutes, tax treaties, and regulations as applied
to a specific set of facts. They are published in the IRB.
Generally, proposed treasury regulations are published in
Taxpayers may rely on revenue rulings when the taxpayer’s
the Federal Register as a Notice of Proposed Rulemaking,
facts are substantially the same as the taxpayer’s facts
which invites the public to review and comment on the
addressed in the revenue ruling. Revenue rulings foster
proposed regulation. Treasury and the IRS may modify or
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Reliance on Treasury Department and IRS Tax Guidance
uniformity and enable taxpayers to make informed
when the announcement or notice is in effect. In
decisions about their tax obligations.
determining the validity of the IRS’s action in an
announcement or notice, it is unclear if courts will afford
Revenue rulings do not carry the same level of authority as
Treasury and the IRS any deference.
treasury regulations. Taxpayers can rely on a revenue ruling
published in the IRB, but later sub-regulatory guidance can
Administrative Procedure Act
render a revenue ruling moot. Treasury has stated it will not
Challenges to the Validity of
take positions inconsistent with a revenue ruling published
Treasury and IRS Tax Guidance
in the IRB when the revenue ruling is in effect. Courts have
Section 553 of the Administrative Procedure Act (APA)
not come to a consensus on what, if any, deference they
should afford to the IRS’s int
generally requires federal agencies to follow notice-and-
erpretation in a revenue ruling,
comment rulemaking procedures before issuing, amending,
but they usually apply the framework set forth in the U.S.
or repealing legislative rules (i.e., rules that carry the force
Supreme Court’s opinion in Skidmore v. Swift & Company,
of law). The APA does not require federal agencies to apply
under which a court gives the IRS’s interpretation weight
these same procedures to interpretive rules. The IRS
that is consistent with the strength of the agency’s
contends, in Internal Revenue Manual 32.1.1.2.6, that most
persuasiveness.
treasury regulations are interpretive rules, because the tax
statute that the treasury regulation implements “contains the
Revenue Procedures
necessary legal authority for the action taken and any effect
The IRS announces administrative practices and procedures
of the regulation flows directly from that statute.”
through revenue procedures published in the IRB. While a
revenue ruling informs the public of Treasury and the IRS’s
Contemporary case law suggests that some of the tax
position on the application of a law, treaty provision, or
guidance that the IRS designates as interpretive rules are, in
regulation to a specific set of facts, a revenue procedure
fact, legislative rules subject to APA notice-and-comment
may provide return filing or other instruction concerning
rulemaking procedures. In Chamber of Commerce of United
that position. Revenue procedures cover diverse topics,
States v. Internal Revenue Service, a district court
such as the adoption of accounting methods, the
determined that a temporary treasury regulation was not an
computation of certain expenses, the methods of electronic
interpretive rule because it was substantive. The temporary
filing, and the types of transactions that Treasury and the
treasury regulation adjusted the computation for
IRS are scrutinizing. Taxpayers may rely on revenue
determining whether a corporation should be treated as a
procedures when their facts are substantially the same as
surrogate foreign corporation. The court held that the
those described in the revenue procedure.
adjustments were “not mere interpretations of the statute,
but substantive modifications to the application of the
Like revenue rulings, revenue procedures do not have the
statute.” The court relied on the U.S. Supreme Court’s
same level of authority as treasury regulations. Taxpayers
decision in Chrysler Corporation v. Brown, which
can rely on a revenue procedure published in the IRB, but
describes legislative rules as substantive rules “affecting
later sub-regulatory guidance can render a revenue ruling
individual rights and obligations.”
moot. Treasury has stated it will not take positions
inconsistent with a revenue procedure published in the IRB
Another district court case, Bullock v. IRS, suggests a court
when the revenue procedure is in effect. Some courts have
could invalidate any type of tax guidance if the court finds
applied Skidmore deference when reviewing the IRS’s
the guidance constitutes a legislative rule and Treasury and
interpretation in a revenue procedure, but again there is no
the IRS have failed to adhere to APA notice-and-comment
consensus on the proper standard of deference, if any.
rulemaking procedures. The district court found that a
revenue procedure was a legislative rule because it
Announcements and Notices
effectively amended a prior legislative rule—a treasury
The IRS makes public pronouncements through
regulation promulgated after a public notice-and-comment
announcements and notices when time is of the essence.
period. In response to the decision in Bullock, the IRS
Announcements have immediate or short-term value. They
published Notice 2019-47 in the IRB, which provides
can summarize laws and regulations without making
penalty relief for taxpayers who relied on the revenue
substantive interpretations, explain regulations that are
procedure invalidated by the district court.
imminent, and notify taxpayers of approaching deadlines.
The application of APA notice-and-comment rulemaking
Notices may contain substantive interpretations of the IRC
procedures to Treasury and IRS tax guidance is a quickly
or other laws. Treasury and the IRS have used notices to
developing area of law. Treasury and IRS tax guidance may
inform taxpayers of the types of transactions that they are
also face procedural challenges to their validity under the
scrutinizing. Treasury and the IRS may publish
Paperwork Reduction Act, the Regulatory Flexibility Act,
announcements and notices in the IRB. Generally,
and the Congressional Review Act.
taxpayers can rely on announcements and notices published
in the IRB, but later sub-regulatory guidance can render a
notice or announcement moot.
Milan N. Ball, Legislative Attorney
Treasury has stated it will not take positions inconsistent
IF11604
with an announcement or a notice published in the IRB
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Reliance on Treasury Department and IRS Tax Guidance
Disclaimer
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https://crsreports.congress.gov | IF11604 · VERSION 2 · UPDATED