To Rely On or Not to Rely On? Sub-Regulatory Tax Guidance in Turbulent Times

The Policy Statement responded to growing concern that Treasury and the IRS were using sub-regulatory guidance to avoid the notice-and-comment process established by the Administrative Procedure Act.3 The Policy Statement reiterated that sub-regulatory guidance does not have the force and effect of law. [...]guidance may influence the level of comfort a tax practitioner provides in a written tax opinion. [...]the IRS announced in the Policy Statement that IRS personnel will not take a position inconsistent with sub-regulatory guidance published in the IRB when such guidance is in effect. [...]sub-regulatory guidance can shape and meaningfully impact tax planning and compliance, by providing comfort as to how the IRS will interpret the law, and provides a useful tool for advocacy in tax controversies.7 Because sub-regulatory guidance does not have the force and effect of law, the existence of negative precedents in sub-regulatory guidance does not foreclose the possibility for a taxpayer to take a position inconsistent with that guidance. [...]revenue agents routinely cite PLRs and other non-precedential sub-regulatory guidance in Notices of Proposed Adjustments and Revenue Agent Reports when they support the IRS' position. [...]where appropriate, Appeals can be convinced by well-reasoned taxpayer arguments that a PLR or other non-precedential sub-regulatory guidance is not a reasonable interpretation of existing law or that the reasoning is not applicable to the taxpayer's case. [...]Appeals recognizes the hazards of litigation attendant on IRS reliance on non-precedential guidance and may also consider whether it is in the IRS' interest for a court to be asked to rule.