IRS Clarifies Requirements for Papers Filed in the Tax Court

Discussion

Overview

[2] This topic was recently discussed as part of the mandatory Ethics IVT broadcast nationwide on May 5, 2003. In that IVT, we went over what should now be familiar principles that were derived from the Chief Counsel's Roles memo issued on August 26, 2002. In short, those principles are as follows. Published guidance comes within the province of the Associate Chief Counsel offices. In contrast, litigation primarily falls under the jurisdiction of the Division Counsel. Tax policy should not be made through litigation. Therefore, our litigating positions should be derived from, and consistent with, the Internal Revenue Code and our published guidance. Any disagreement between a Division Counsel office and an Associate Chief Counsel office concerning the legal positions to be pursued in litigation or other resolution of a case, and whether a position proposed to be taken in a particular case conflicts with published guidance, should be resolved through the existing reconciliation procedures.

Specific rules

[3] The specific rules regarding the requirement to follow published guidance are as follows:

(1) Chief Counsel attorneys may not argue contrary to final guidance

[4] Final guidance consists of final regulations, temporary regulations, revenue rulings, revenue procedures, IRB notices, and announcements. PLRs, TAMs or CCA do not constitute final guidance. Those documents are case specific and are not prepared with the intention of having other taxpayers rely upon them. They are, however, guidance with respect to the taxpayer whose transaction or case was the subject of the ruling or advice. Good judgment dictates, however, that Chief Counsel attorneys should coordinate with the Associate Chief Counsel office with subject matter jurisdiction over the issue if a Chief Counsel attorney proposes to take a position that conflicts with any PLR, TAM or CCA addressing the issue. This potential conflict may suggest an internal disagreement between the Associate Chief Counsel office and Division Counsel office, or between two Associate Chief Counsel offices, that requires reconciliation.

(a) Final or temporary regulations in force

[5] If there are final or temporary regulations in force regarding an issue, Chief Counsel attorneys generally should follow the final or temporary regulations, even if the Service has subsequently issued proposed regulations addressing the issue, which might yield a different result if the proposed regulations were actually adopted and in effect. For example, if the application of the proposed regulations would have an adverse effect on the taxpayer by reaching a result that is not achievable under the final or temporary regulations, then the proposed regulations should not be applied in that situation. Proposed regulations do not operate to alter temporary or final regulations until they are finalized and adopted. Hence, where there are final or temporary regulations on an issue, as well as proposed regulations, Chief Counsel attorneys should follow the final or temporary regulations, not the proposed regulations.

(2) Effect of proposed regulations

[6] Proposed regulations have no legal effect unless and until they are adopted. This is so, even if there are no final or temporary regulations currently in force pertaining to the matter in question. Prior to adoption, proposed regulations can be withdrawn or modified at any time. Taxpayers generally should not rely on proposed regulations for planning purposes, except where there are no applicable final or temporary regulations in force and there is an express statement in the proposed regulations that taxpayers may rely on them currently. If there are applicable final or temporary regulations in force, taxpayers may only rely on proposed regulations for planning purposes in the limited circumstance where the proposed regulations contain an express statement permitting taxpayers to rely on them currently, notwithstanding the existence of the final or temporary regulations. In contrast, as set forth in rule (3), Chief Counsel attorneys should look to the proposed regulations to determine the office's position on the issue.

(a) Proposed regulations should not be the subject of PLRs or TAMs

[7] In light of the fact that proposed regulations have no legal effect, Chief Counsel attorneys should not issue PLRs or TAMs interpreting proposed regulations. Instead, PLRs or TAMs should interpret the statute, taking into account relevant case law and final guidance. Of course, that interpretation should be consistent with, and guided by, the proposed regulations, unless there are final or temporary regulations in force pertaining to the matter, in which case, the final or temporary regulations should be followed as stated in rule (1)(a). Moreover, proposed regulations should not be cited as authority for the positions taken in PLRs or TAMs. Rather, PLRs or TAMs should set forth the reasoning supporting the positions in the proposed regulations. It is permissible, however, to refer to the proposed regulations for illustrative purposes to show that the office is being consistent in its interpretation of the statute.¹

[11] For example, if a revenue ruling provides that a particular expense may be currently deducted, Chief Counsel attorneys should not challenge the deduction even though under the applicable case law, the expense might be capitalized.

Distinguishing published guidance

[13] Reasonable minds can sometimes differ over whether a proposed position in a current case can be effectively distinguished from an existing published position. Likewise, Chief Counsel attorneys may encounter rulings that appear outdated or inconsistent with well-established case law. In those situations, Chief Counsel attorneys should bring the ruling or other published guidance to the attention of the Associate Chief Counsel office with subject matter jurisdiction over the issue so that the Associate Chief Counsel office can consider whether to revoke or modify the published guidance or determine whether the published guidance can be distinguished in a particular case. Accordingly, all briefs, motions, trial memoranda and letters that seek to distinguish a litigation position from a published guidance position must be reviewed by the national office prior to filing with the Tax Court or transmission to the Department of Justice, regardless of the issue or amount involved.

Conclusion

[14] Our litigating positions should be derived from, and consistent with, the Internal Revenue Code and our published guidance. A reading of the Roles Memo and the Tax Court opinions where the court has found that respondent argued contrary to published guidance should make us sensitive to that principle. See Rauenhorst v. Commissioner, 119 T.C. 157 (2002); Walker v. Commissioner, 101 T.C. 537 (1993); Phillips v. Commissioner, 88 T.C. 529 (1987). See also Byrne v. Commissioner, T.C. Memo. 2002-319.

Effect on other documents

[15] Chief Counsel Notice CC-2002-043 is clarified, modified and superseded.

[16] Any questions regarding the matters contained herein should be directed to George Bowden or Henry Schneiderman of the Office of the Associate Chief Counsel (Procedure and Administration) at (202) 622-3400.

² But see rule (4) regarding circumstances where subsequently issued published guidance calls into question the continuing vitality of the proposed regulations.