1 Chapter 4 Copyright ©2006 Thomson South-Western, Mason, Ohio William A. Raabe, Gerald E. Whittenburg, & Debra L. Sanders Administrative Regulations & Rulings

2 Overview of Regulations (1 of 2)  Regulations are the Treasury Department’s official interpretations of Code  Code authorizes the Treasury Secretary to prescribe Regs under §7805(a)  Issued in the form of Treasury Decisions

3  Treasury Department  Administers the U.S. tax laws  Secretary of the Treasury Member of Presidential cabinet  IRS Commissioner appointed by the President A division of Treasury Department Overview of Regulations (2 of 2)

4 Types of Regulations There are three types: Proposed Final Temporary

5 Proposed Regulations (Proposed Treasury Decisions)  Issued at least 30 days prior to publishing final Treasury Decision  Comments (public hearings) can affect final form  Do NOT have the effect of law  Must be followed after becoming a final regulation

6 Final Regulations  Final Treasury Decisions are integrated with previously approved Regulations (TDs)  Two Types:  General  Legislative

7  Issued under general authority of IRS to interpret the language of the Code  Do not carry same authority as the statutes by law (Code) General Regulations

8 Legislative Regulations  Congress directs IRS to provide details for certain tax statutes  Carries same authority as the statutes (e.g. Consolidated Regs.)

9 Temporary Regulations  Issued in response to congressional or judicial change  Provide immediate guidance  Simultaneously issued as proposed regs.  Have the same force as a final reg.  Must be followed until superseded  Expire after three years (§7805)

10 Effective Date for Regulations (1 of 2)  Generally effective on the date filed with the Federal Register [§7805(b)]  Retroactive under certain conditions: 1.Issued within 18 months of a statute’s enactment 2.Prevents taxpayer abuse 3.Corrects defect in prior Regulation Cont’d on next slide

11 Effective Date for Regulations (2 of 2) 4.Relates to Treasury policies 5.Congressional directive 6.Commissioner may allow taxpayers to elect to apply Regulation retroactively

12 Citing Regulations (1 of 2)  Numerical System  1st number: Type  2nd number: Section  3rd number: Reg. number  T: Denotes temporary reg.

13 Citing Regulations (2 of 2)  Commonly encountered types of Regulations  1:Income tax  20:Estate tax  25:Gift tax  31:Employment tax  301:Procedural matters  Odd ones: 15A – Installment Sales Revision Act of 1980

14 Assessing Regulations  If assert regulations are improper, t/p bears burden of proof  Difficult, particularly if legislative reg  Disregard of regs may result in a negligence penalty  §6662: 20% of underpayment

15 Locating Regulations  Internal Revenue Bulletin (IRB)  Weekly newsletter of the IRS  Cumulative Bulletin (C.B.)  Permanently bound version of IRB Organized by Code section Bound twice a year  Commercial publishers

16 Revenue Rulings: Overview  Official pronouncements of the IRS National Office  Application of Code and Regs to specific factual situations  (usually submitted by a taxpayer)  Less authority than Regulations

17 Form of a Written Revenue Rulings  Similar to a tax memo in a client file:  Issue: a statement of the issue in question  Facts: facts on which Revenue Ruling is based  Law and analysis: IRS’s application of current law to the issue  Holding: how IRS will treat the transaction

18 Example of a Temporary Rev. Rul. Citation

19 Example of a Permanent Rev. Rul. Citation

20 Revenue Procedures  Concern IRS internal practices and procedures in administering tax law  Used to release information to taxpayers  Same as Revenue Rulings in authority and citation  Published in IRB and Cumulative Bulletin  Example: Rev. Proc , C.B. 742

21 Letter Rulings  May come in the form of:  Private Letter Rulings  Technical Advice Memoranda  Determination Letters  Available to the public through several commercial tax sources

22 Private Letter Rulings (1 of 2)  Issued by IRS National Office  Response to a taxpayer’s request on a specific issue Issued only to taxpayer who requested the ruling Taxpayer describes proposed transaction and business purpose

23  If proposed transaction will receive unfavorable treatment, IRS will suggest how to restructure transaction  Authority Included as “substantial authority” May rely upon to avoid certain penalties  Could be stimulus for Revenue Rulings Private Letter Rulings (2 of 2)

24 Technical Advice Memoranda  Issued by IRS National Office  Concern completed transactions  Requested by IRS agent during an audit  Authority May not be cited as authority Rely on to avoid certain penalties

25 Determination Letters  Similar to Private Letter Rulings  Issued by local IRS District Directors  Not controversial  Deal with completed transactions  Authority May not be cited as authority Rely on to avoid certain penalties

26 Public Inspection of Written Determinations (1 of 2)  Public can receive copies of any unpublished IRS Letter Rulings  Private Letter Rulings  Technical Advice Memoranda  Determination Letters

27 Public Inspection of Written Determinations (2 of 2)  Taxpayer’s name, other identifying information, and sensitive information are removed  Taxpayers who oppose disclosure of their written determination can bring matter before IRS and Tax Court prior to release

28  Citing Letter Rulings  9 digits (7 digits prior to 2000)  1st four digits: Year 2 digits prior to 2000  2nd two digits: Week  Last three digits: Ruling number Written Determination Numbering System

29 Example of a Letter Ruling citation

30 Other IRS Pronouncements  Acquiescences and nonacquiescences  Chief Council Memoranda  Announcements and notices  Miscellaneous Publications

31 Acquiescences and Nonacquiescences  IRS decides to follow (acquiescence) or not follow in part or whole (non- acquiescence) a decision adverse to the IRS  Published in IRB and Cumulative Bulletin  Best to find in Citator or AOD file

32 Internal Revenue Bulletin The IRS’s official publication for its pronouncements, which includes:  Revenue Rulings and Revenue Procedures  Acquiescences and nonacquiescences  New tax laws, issued by Congress as Public Laws  Committee Reports underlying tax statutes  Procedural rules  New tax treaties  Treasury Decisions (which become Regulations)  Other notices

33 Chief Council Memoranda  General Council's Memorandum (GCM) generated upon request of the IRS to assist in preparing Revenue Rulings and Private Letter Rulings  Action on Decision (AOD) prepared when IRS loses a case in court (to acquiesce or nonacquiesce)  Others

34 Announcements and Notices  Concern items of general importance to taxpayers (e.g., notice to announce mailing of individual tax return forms)

35 Miscellaneous Publications  Numerous specialized documents available directly from the IRS  Documents prepared from the government’s point of view