Treasury announces changes to tax regulatory process

The Treasury Department and the IRS announced on Tuesday that they are making changes to their guidelines for issuing tax guidance, including adding a statement of good cause to temporary regulations and restricting notices of proposed regulations.

The “Policy Statement on the Tax Regulatory Process,” signed by Assistant Secretary for Tax Policy David Kautter and General Counsel Brent McIntosh, says that it is intended to “clarify and affirm [the government’s] commitment to sound regulatory practices.” It first reaffirms Treasury and the IRS’s commitment to follow the notice-and-comment process in the Administrative Procedure Act (APA), P.L. 79-404, even though interpretive rules (which many IRS regulations qualify as) are exempt from the APA’s process.

Statement of good cause: In a change from current practice, the statement says that the IRS will start including a statement of good cause when it issues temporary regulations. The APA allows government agencies to issue interim final rules that are effective immediately without notice and comment, if the agency finds that it has good cause to do so. In the past, Treasury and the IRS have interpreted the Code to allow them to issue temporary regulations that are effective immediately without a statement of good cause. From now on, temporary regulations will include a statement of good cause in the preamble.

Limits on subregulatory guidance: The policy statement also addresses subregulatory guidance published in the Internal Revenue Bulletin, such as revenue rulings, revenue procedures, notices, and announcements. The statement says that such subregulatory guidance “is not intended to affect taxpayer rights or obligations independent from underlying statutes or regulations . . . [and] does not have the force and effect of law.” Therefore, the statement says that Treasury and the IRS will not seek judicial deference under Auer v. Robbins, 519 U.S. 452 (1997), or Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), to interpretations set forth in subregulatory guidance. They will also not issue subregulatory guidance that would have the effect of modifying existing legislative rules or creating new legislative rules not addressed in existing regulations, “absent exceptional circumstances.”

Notices of proposed regulations: The policy statement also says that the IRS will limit its use of notices to announce its intent to issue proposed regulations. Such notices generally describe the scope and content of proposed regulations that the IRS intends to issue and sometimes allow taxpayers to rely on the notice when taking tax positions on a return. However, if those proposed regulations are not issued promptly, the statement says that this “can cause confusion or uncertainty for taxpayers.” To reduce this uncertainty, in future notices announcing the IRS’s intent to issue proposed regulations, the IRS will include a statement saying that if the intended proposed regulations are not issued within 18 months of the date the notice is published, taxpayers may continue to rely on the notice, but, until additional guidance is issued, Treasury and the IRS “will not assert a position adverse to the taxpayer based in whole or in part on the notice.”

These modifications follow last year’s procedural change under which the Office of Management and Budget (OMB) reviews significant tax regulations. Prior to last year, under a 1983 agreement between Treasury and OMB, most Treasury regulations were exempt from the regulatory planning and review process usually applicable to regulatory actions of executive agencies.

Alistair M. Nevius, J.D., (Alistair.Nevius@aicpa-cima.com) is The Tax Adviser’s editor-in-chief.

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