Administrative Regulations and
Rulings
Chapter 4
What do We Need to Know About
“Authorities”
What they are
Their source
Where to find them
How to use them
What We Must Determine
• Their
reliability
Administrative Regs and Rulings
(Second Primary Source)
• Treasury and IRS Pronouncements
Regulations
Revenue Rulings
Revenue Procedures
Letter Rulings
Regulations
Are the IRS’s / Treasury’s official interpretation of
the IRC
§7805(a) “Except where such authority is expressly given by
this title to any person other than an officer or employee of
the Treasury department, the Secretary shall prescribe all
needful rules and regulations for the enforcement of this
title, including all rules and regulations as may be
necessary by reason of any alteration of law in relation to
internal revenue.”
Regulations
Thus, being statutorily mandated, regs are
binding
(are, in fact, written by staff of IRS office of Chief
Counsel, who is also a Treasury Assistant General
Counsel)
Two (unofficial) Classifications
• Legislative
• General
Regulations
Legislative
Written by Treasury at direction of Congress,
essentially carrying out a law making
function
(Congress does not want to address the detail and
complexities of the issue), and
• Have the effect of law.
• Have the greatest precedential value of
any Treasury pronouncement.
Legislative Regulations (cont’d)
Examples
• §135 – exclusion if interest on certain U.S.
Savings Bonds
• “(4) Regulations
•
The Secretary may prescribe such regulations
as may be necessary or appropriate to carry out
this section, including regulations requiring record
keeping and information reporting.”
Legislative Regulations (cont’d)
Examples
• §385 – distinguished debt from equity in “thinly
capitalized” corporations.
• “(a) Authority to prescribe regulations • The Secretary is authorized to prescribe such
regulations as may be necessary or appropriate to
determine whether an interest in a corporation is to
be treated for purposes of this title as stock or
indebtedness (or as in part stock and in part
indebtedness).”
Regulations
General
• All other
• Supreme Court views as having the force
and effect of law, unless they conflict with
the statute [Maryland Casualty Co., 251 US
342 (1920)]
• Although binding, they are subject to
challenge, but challenger bears the burden
of proof
Regulations
General (cont’d)
 Authorized by §7805(a)
• “(a) Authorization
• Except where such authority is expressly given by
this title to any person other than an officer or
employee of the Treasury Department, the
Secretary shall prescribe all needful rules and
regulations for the enforcement of this title,
including all rules and regulations as may be
necessary by reason of any alteration of law in
relation to internal revenue.”
Regulations
General (cont’d)
Are Treasury’s Official interpretation of the
Statute
Are issued first as Proposed regs (w/o yet
having the effect of law)
When finally issued, are issued as a
Treasury Decision (TD)
Note: Distinguish from Temporary Regs,
discussed later
Proposed Regulations
Regulations are first issued in proposed format
Are published in the Federal Register, and in the
IRB.
Public has 30-days to comment
Treasury may then hold hearings for public
testimony (depends on comments received)
Then, Treasury may change, issue as proposed
again, or issue as a Treasury Decision
Proposed Regulations (cont’d)
• Do not have effect of law, but are important in
that
they give a clue to IRS’ position, and
what could be the final published position and
guidance
Treasury Decision
Regulations, when issued in final form
after public circulation and comment,
hearings held if deemed necessary, and
revised based on public comment and
hearings, are issued as a Treasury
Decision.
Temporary Regulations
(Distinguish from Proposed Regulations)
Responsive to new law – for immediate guidance
to taxpayers
Effective immediately upon publication – not
subject public comment or hearings
Fully in effect and must be followed until
superceded (IRS issues in proposed format
simultaneously)
Expires 3 years after issuance (§7805) (However,
superceding regulations not always ready).
Regulations
• Effective Date • “Retroactivity of regulations. -•
(1) In general. -•
Except as otherwise provided in this
subsection, no temporary, proposed, or final
regulation relating to the internal revenue laws
shall apply to any taxable period ending before the
earliest of the following dates:
•
(A) The date on which such regulation is
filed with the Federal Register.
(cont’d)
Regulations
• Effective Date – (cont’d)
•
(B) In the case of any final regulation, the
date on which any proposed or temporary
regulation to which such final regulation relates
was filed with the Federal Register.
•
(C) The date on which any notice
substantially describing the expected contents of
any temporary, proposed, or final regulation is
issued to the public.”
Regulations (cont’d)
• Reg. §1.482-1(b)(4)
•
1 = Income tax
(20= Estate, 25 = Gift, 31 = Employment, 301 =
Procedural matters, etc.)
•
•
•
482-1 = Regulation number corresponds
to IRC §)
(b) = Paragraph
(4) = Subparagraph
Revenue Rulings
• Second most important administrative
source.
• Official position of the IRS (no hearings)
• Favorable to TP – IRS is bound to follow, at all levels
• If unfavorable, all divisions of IRS are bound, except
Appeals Division not bound.
• Deals with a specific fact situation.
• Public need for guidance with a specific fact situation.
• But the need for public hearings and formal regs are not
justified.
Revenue Rulings (cont’d)
• Distinguish from Regulations
• No public hearings or requests for comment
• Limited to specific fact situation
• Effective Date - It may state. Generally,
being interpretative, is retroactive.
• If contradictory to previous position, and
• unfavorable to taxpayers, will be prospective.
• Are reliable and may be cited as authority.
Revenue Rulings (cont’d)
• Format
•
•
•
•
Issue
Facts
Law and Analysis
Holding
Revenue Rulings (cont’d)
• Cite:
• (Temp) Rev. Rul. 02-34, 2002-62 I.R.B. 58
• 02 = year
•
34= consecutive number of the ruling (published
•
•
•
•
that year)
2002 = year (again)
62 = consecutive number of IRB’s volume
I.R.B. = Internal Revenue Bulletin
58 = page number
Revenue Rulings (cont’d)
• (Perm) Rev. Rul. 02-34, 2002-1 C.B. 373
•
02 = year
•
34 = consecutive number of ruling
•
•
•
published that year
2002-1 = year/volume of C.B.
C.B. = Cumulative Bulletin
373 = page number
Revenue Procedure
• Guidance regarding procedures. How to….
such as:
• Request a Private Letter Ruling
• Request approval to change accounting method
• Etc.
• Cite – same as Revenue Ruling, except is a
Procedure.
Letter Rulings
• Prepared in Several Formats
• Private Letter Rulings
• Determination Letters
• Technical Advice Memorandums
Letter Rulings (cont’d)
• Are not published by the IRS
• Are available through FOIA
• In sanitized format to protect the identity of the
requester
• Most tax services have them and publish most
of them
• Again, all are sanitized
• Reliability very limited except to requester §6110
• But provides good insight into IRS position
Private Letter Ruling (PLR)
• Is a great opportunity for TPs contemplating a
significant transaction – especially if it may
controversial tax-wise
• Is requested by a specific TP contemplating a
proposed transaction, with a specific fact situation,
and wanting the assurance of the tax results before
entering into the transaction.
• TPs and practitioners may request as a “comfort
ruling,” where they know the answer, but want
confirmation.
PLR (cont’d)
• If the IRS foresees a response unfavorable
to the requester, they may
• Offer an opportunity for a conference to
discuss, either by telephone or a personal
conference in Washington, D.C.
• Make suggestions to revise the transaction that
would bring more favorable results.
(PLR’s are issued by the IRS’ National Office)
PLR (cont’d)
• Very reliable to the requester only.
• But, for research purposes, provides good
insight into IRSs position
• May not be relied upon by the requester if
the facts presented were
inaccurate/incomplete, or
• If the actual facts or transaction differs from
those presented.
PLR (Cont’d)
Precedential value is limited by §6110(f)
• They may not be cited as authority
• By either the TP or IRS
• Revenue Agent need not honor them except
in respect to the TP to whom issued
• Are good guidance as to how IRS feels
about an issue
PLR (cont’d)
• Significantly, is among the “substantial
authorities” listed in Reg. §1.66624(d)(3)(iii) – the TP may rely on it to avoid
some penalties
PLR (cont’d)
If IRS receives repeated requests regarding
particular or similar transactions, they may
issue a Revenue Ruling
Determination Letter
Generally:
• Issued locally (formerly District Director)
• Deals with issues/transactions not
exceptionally complex or controversial
• After the fact, completed transactions
• Usually pension plan qualification, exempt
organization.
Determination Letters (cont’d)
• Are not published. May be available
through FOIA.
Technical Advice Memorandum
(TAM)
• Issued by the NO upon request of an
Internal Revenue Agent or the TP during an
administrative proceeding.
• After the fact, completed (closed)
transaction.
• Facts must be established.
• TP may request a conference if a proposed
response is unfavorable.
PLRs and TAMs
• If the NO receives requests for guidance in
the nature of PLRs or TAMs with respect to
any particular type of transaction indicating
the need for guidance to the public, they
may issue a Revenue Ruling.
Acquiescence
• The Commissioner of Internal Revenue may
issue an “Acquiescence” or “NonAcquiescence” to a decision of the Tax
Court, meaning that the IRS agrees or
disagrees with the TC’s decision.
• Are published (as a list in IRB / CB’s, and
are included in the case cite by some
publishers
Acquiescence (cont’d)
• Relevance:
• IRS will (acq.) or will not (non-acq) follow the TCs
decision
• Acq. does not necessarily mean the IRS agrees, but
only that it will not pursue litigation further
• And, is a clue that the issue will not be further challenged
• May acq. or non-acq. only to some particular issue
decided by the Court
• May be issued immediately, or years later
• May be reversed later
Acquiescence (cont’d)
• Are NOT driven, as the text states, by
litigation costs.
Action on Decision
• Is an analysis of a decision in a case decided
unfavorable to the IRS, somewhat similar to
a Court Case Brief, generally written by the
Area Counsel trial attorney. It’s purpose is
to recommend action regarding unfavorable
result, e.g., appeal, acquiesce, await a better
case for litigation, or simply no further
action. Relevance ??
Internal Revenue Bulletins
Cumulative Bulletins
• Internal Revenue Bulletin – a periodic
publication in which IRS publishes its
pronouncements, and other documents:
New Public Laws Committee Reports
Revenue Rulings Revenue Procedures
Treasury Decisions New Treaties
• Etc.
Internal Revenue Bulletins
Cumulative Bulletins (cont’d)
• Internal Revenue Bulletins are accumulated
into a Cumulative Bulletin, generally twice
a year, but may be more or less depending
upon the volume of pronouncements issued
Questions?