Appeals Removes Challenges to Validity To Regs or IRB Guidance From Hazards of Litigation Analysis

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On Wednesday, November 16, 2022 from noon to 1:15 the Tax Court will hold a webinar panel discussion moderated by Chief Judge Kerrigan highlighting changes to Tax Court practice made in response to the pandemic.  Christine Speidel will be among the panelist.  Registration is required.  Information about registration is available on the QR code in this document announcing the program

The other day I discussed a recent ABA Tax Section panel that addressed the growing number of procedural challenges to both regulations and guidance that the IRS issues in the Internal Revenue Bulletin. The challenges focus on whether the IRS failed to use the APA’s notice and comment procedures, or even if it did use those procedures, whether the IRS failed to do what was required under those procedures, such as responding to significant comments.

While the courts tackle these issues, IRS recently announced in both proposed regulations and interim guidance that the IRS Independent Office of Appeals is not to take into account the validity of regulations or IRB guidance in applying the hazards of litigation for possible settlement.


To be sure, the regulations provide an exception if “there is an unreviewable decision from a Federal court” that  accepts the taxpayer’s position on the validity of the regulation or IRB guidance. But this rule limits Appeals’ discretion to resolve matters that may present significant litigation risks for the government.

Why take this off the table? The preamble explains that while Appeals is independent it is “an office within the Treasury Department and the IRS,” and is bound to follow the decisions of senior-level Treasury and IRS officials. In the interim guidance, IRS distinguishes challenges that implicate other substantive issues and states that “the judicial process is the appropriate forum for addressing taxpayer challenges regarding the validity of Treasury regulations or procedural validity of IRB notices and revenue procedures in the first instance.”

While I briefly discussed the proposed regulations when they came out, since then there has been some immediate reaction from some practitioners. In an excellent article in Tax Notes [$ paywall], Jeffrey Luechtefeld of Chamberlain Hrdlicka argues that the policy will curtail Appeals’ ability to resolve cases without litigation and have a longer term negative impact on tax administration:

The proposed regulations do not discuss or even acknowledge the potential negative effect on tax administration that will likely result from this invasion of Appeals’ independence. Taxpayers may well question whether a restrained Appeals function is capable of fairly resolving their case if one of these issues is present.

On Twitter, Professor Kristin Hickman, one of my co panelists on the ABA panel and a leading critic of the IRS for failing to comply with the APA, states that “Treasury and IRS have an established history of APA noncompliance, and it places a heavy burden on individual taxpayers to bear the litigation costs of taking these challenges to court when they could be settled as part of the IRS Appeals process.”

On the other hand, Professor Hickman also tweeted that “forcing these challenges into federal court is more transparent and long term will likely lead Treasury & IRS to better APA compliance. And my sense is lots of agency adjudicators are required to assume the validity of agency rules.” 


The proposed regulations comment period is open until November 14, and I suspect that the comments will largely be critical of the IRS position.

For what it is worth, I come down on the side of the IRS’s proposed position. To be sure, it does place an additional burden on taxpayers who may have good faith and reasonable disputes about the validity of guidance. Yet in my view the courts are in the best position to address these complex issues. The circuit split in Hewitt and Oakbrook Land Holdings, and the differing approaches that leading commentators have taken concerning whether guidance is indeed required to be issued under notice and comment, suggest a need for either a legislative fix or for the Supreme Court to clarify these challenging administrative law issues. While the proposed regulations and interim guidance limit Appeals’ independence, I wonder whether Appeals has previously factored the validity of regulations or other guidance into its settlement considerations.  If it did not, at least this puts parties on notice and can help focus litigation strategy. If it did, my sense is that Appeals would likely have a different perspective on the risks that a court would invalidate the rule in question.

Avatar photo About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.


  1. Robert Kantowitz says

    From a management perspective, one cannot really argue. But the issue would be less irksome if (i) Treasury and the IRS less frequently flouted the APA and dug in on positions that are just wrong and (ii) if taxpayers could recover serious damages (not just inadequately calculated legal fees) from the IRS in a successful litigation on a matter where the government position is without merit. Congress or the Taxpayer Advocate should order an audit of the converse: the extent to which the agency is making decisions to take positions that it knows (or should know) would likely not be sustained in court on the basis of “free revenue” to the extent that taxpayers will not be able to mount cost-effective challenges.

  2. I am trying to understand the basis (or bases) for Professor Hickman’s claim (quoted in this blog) that “Treasury and IRS have an established history of APA noncompliance.”

    The most frequent basis, and the only one I have seen written by Professor Hickman, is her claim that Treasury regulations are legislative rather than interpretive. Professor Hickman is the most persistent proponent of that claim as a basis for alleging APA noncompliance. See CIC Services LLC v. IRS, 925 F.3d 247, 258 (6th Cir. 2019) (citing Hickman and Kerska stating the basis for the claim as the interpretive/legislative distinction), rev’d 141 S. Ct. 1582 (2021) If Professor Hickman is wrong on the issue—so that Treasury regulations only interpreting the statute are interpretive rather than legislative within the meaning of the APA (not deference)—then that is a false basis for her claim of APA noncompliance. But, so far as I am aware, the legislative / interpretive distinction was the only basis for the claim of Treasury and IRS APA noncompliance.

    Are there any other bases for the claim that “Treasury and IRS have an established history of APA noncompliance?” I would appreciate any insights readers may have on that issue, either by comment or reply or by email to me at

    I suppose that the issue relates to the claim of tax exceptionalism. Of course, deference (which is not addressed in the APA) has spawned a claim of tax exceptionalism. Is there any other basis for the claim of tax exceptionalism? Insights on that issue would be appreciated.

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