Notices on Communicating with IRS, Chief Counsel’s Office and Deference

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In Chief Counsel Notice 2020-002, “Communication with Taxpayers or Representatives by Email” the office announces a process for communication between Chief Counsel attorneys and practitioners on case matters.  This process has taken a long time to develop and is an important step forward in communication on cases.


Up to this point communicating with Chief Counsel attorneys could prove difficult.  The CC attorneys did not have permission to send taxpayer information via email.  You could send them information and, if it got through their security filters, they could see the information., But they would not send taxpayer information to you, because they took the position that doing so could create a problem, as someone could access the documents as it crossed through servers.  CC attorneys could send email messages that did not contain taxpayer information, such as “we can meet on November 10 at 1:00 in that [“that” being understood by the parties but with no names mentioned] case” but could not go much further without the risk of getting in trouble.

If you needed to prepare a stipulation with a CC attorney, you had no practical means of transmitting the document back and forth to allow each side to make comments and additions.  This added unnecessary time and effort to the endeavor.  The new procedure should allow parties to work with documents and information much easier.

The October 18, 2019 Notice provides:

Effectively immediately, Chief Counsel employees may exchange PII and return information with taxpayers or their representatives during Tax Court litigation and letter ruling or closing agreement processes, using one of two email encryption methods:

1. The LB&I Secure Email System (SEMS), which authorizes the exchange of encryption certificates under specific circumstances, allowing the exchange of fully-encrypted emails and attachments, and

2. SecureZIP encrypted email attachments, allowing the sending of password-protected encrypted email attachments to anyone with a compatible zip utility.
Counsel should use SEMS with taxpayer representatives that have the technical sophistication needed to use it. For taxpayers and for taxpayer representatives that cannot use SEMS, Counsel may use SecureZIP to send password-encrypted attachments. Before Counsel may use either email encryption method, the taxpayer must execute and return a Memorandum of Understanding (MOU) agreeing to the use of an email encryption method and acknowledging the risks of using email to send PII and return information.

The remainder of the notice deals with the procedures for using the new secured process.


Chief Counsel Notice CC-2019-006 “Policy Statement on Tax Regulatory Process (9-17-2019) addresses the issue of the deference due to certain IRS pronunciations.  The policy statement may have resulted from the Supreme Court’s decision last term in Kisor v. Wilkie, 139 S. Ct. 2400 (2019).  In the Kisor case, the Supreme Court declined to overrule Auer v. Robbins, 519 U.S. 452 (1997) but did significantly pare it back.  The Supreme Court decided Kisor on a 5-4 vote with Chief Justice Roberts joining the four judges generally viewed as more liberal.  While the court did not overrule Auer, it criticized the Federal Circuit for its blind deference to agency interpretation and made it clear that days of blind deference had ended.  Auer stands for the proposition that an agencies interpretation of its own regulations deserves deference.  Kisor now limits the situations in which Auer deference will apply by adopting the 5-part framework proposed by the Solicitor General in its brief:

  1. Genuine ambiguity: “a court must exhaust all the ‘traditional tools’ of construction.”
  2. Reasonable construction: this is “a requirement that an agency can fail.”
  3. Proper authority: The agency construction “must be the agency’s ‘authoritative’ or ‘official’ position.”
  4. Substantive expertise: Deference is limited to those agency’s constructions that “in some way implicate its substantive expertise.”
  5. No surprises: The agency’s decision “must reflect ‘fair and considered judgment.’”

The requirement for a genuine ambiguity may prove the most difficult for the government to overcome in seeking to interpret its own writing but each of the five tests provides a limitation on deference to the agency.  Many blog posts exist concerning the meaning of Kisor.  For those interested in this issue look here for links to posts. 

The new Notice from Chief Counsel’s office on the subject acknowledges that it expects no deference to its rulings that do not undergo the notice and comment process:

Treasury and the IRS clarify and affirm their commitment to sound regulatory practices. First, the policy statement provides that Treasury and the IRS will continue to adhere to their longstanding practice of using the notice-and-comment process for interpretative tax rules published in the Code of Federal Regulations. Second, the policy statement provides that future temporary regulations under the Internal Revenue Code will include a statement of good cause in the preamble, will expire within three years of issuance, and will be issued simultaneously with proposed regulations. Third, the policy statement affirms that subregulatory guidance does not have the force and effect of law and provides that Treasury and the IRS will not argue in the United States Tax Court for judicial deference under Auer v. Robbins, 519 U.S. 452 (1997), or Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), to interpretations set forth only in subregulatory guidance. Fourth, the policy statement provides that each future notice of intent to issue proposed tax regulations will state that if no proposed regulations or other guidance is released within 18 months after publication of such notice, taxpayers may continue to rely on the notice but, until additional guidance is issued, Treasury and the IRS will not assert a position adverse to the taxpayer based on the notice.

The Notice represents a significant shift at the IRS but one consistent with judicial trends and trends within this administration.  In situations in which deference to the IRS’ interpretation of its own regulations could make a difference or in situations in which the IRS relies on subregulatory guidance in support of its position, the playing field no longer tilts towards the IRS but has leveled significantly.


  1. Rochelle Hodes says

    Regarding email communication with Counsel, this move toward electronic communication, while helpful, could have limited benefit for many and might be more onerous than faxing information. First, under the IRS rules each practitioner must separately enter into an MOU with the IRS. For practitioners in firms, the process of getting an MOU signed and confirming that the IRS technology standards are satisfied can be time-consuming. In addition, it appears from the guidance that this step must occur each time a practitioner from a firm wishes to enter into such an agreement. IRS should offer a firm-based process as an option and provide a simplified method for confirmation after the first agreement has been entered into.

    Second, it is unclear whether a practitioner who has entered a similar email-enabling arrangement with IRS under LBI’s program is required to enter into a separate arrangement with Chief Counsel. A one-time process and perhaps a confirmation that nothing has changed would be helpful.

    Finally, the secure email choices permitted in the guidance are limited. There are several recognized secure email options that are used by practitioners and their firms. The IRS should develop a mechanism to add to the list of approved secure email options.

  2. Just a few points that came to my mind when I read your excellent posting. The points are not short ones, for which I apologize.

    1. Even though an interpretation whether by regulation or subregulatory document does not get deference, the IRS can still assert that the interpretation is the most reasonable interpretation of the statute. Deference is thus outcome determinative only in that sliver of cases where the judge determines that the most reasonable interpretation is not the IRS reasonable interpretation. In many, perhaps most, cases where the judge reaches a different interpretation than the IRS, he would think the IRS interpretation unreasonable (how common is it for persons with an interpretation (or opinion) to think that different interpretations (or opinions) are unreasonable). So, having reached his own reasonable interpretation other than the IRS interpretation, the judge might be inclined just to find the IRS interpretation unreasonable (thus stopping the inquiry at Chevron Step one or Step Two or, in a conflated Chevron universe, just at the get-go).

    2. To illustrate the limited scope of Chevron, I offer this breakdown by category from my Federal Tax Procedure Book (pp. 78-79, footnotes omitted, although I change from numbers to letters to avoid confusion since my comments to your blog are numbered):

    a. If the statute is unambiguous, the statute controls without either the court or the agency interpreting it further. No deference there.
    b. If the statute is ambiguous and the agency has not interpreted the statute, the court interprets it. No deference there.
    c. If the statute is ambiguous, the agency has interpreted it, and the court believes the agency interpretation is the best interpretation, that common interpretation applies. But, since the court reached that same interpretation, the court did not defer to the agency interpretation. No deference there. (This Third Category fits what is called Skidmore deference but which, in fact, is really no deference at all because the court is persuaded as to the interpretation it applies; I discuss Skidmore below beginning on p. 97.)
    d. If the agency has interpreted the statute and the court believes a different and better interpretation applies, and the court applies its own interpretation rather then the agency interpretation because the court believes the agency interpretation is unreasonable, it does not defer. No deference there.
    e. If, in the same circumstances as the 4th category except that the agency interpretation is reasonable but not the most reasonable (in the court’s mind), and the court applies the agency interpretation, then the court has deferred to the agency interpretation. Deference there. (This Fifth Category is what is now called Chevron deference but,,as we shall note, similar deference was accorded prior to Chevron as shown in the tax cases such as National Muffler.

    3. The CCN, as did the Policy Statement, affirms the Treasury and IRS long-standing position that, as a matter of good policy, interpretive rules can be adopted by notice and comment regulation. The law is that interpretive regulations do not require notice and comment. But, given how ubiquitous the tax law is our lives, the Treasury and IRS commitment to notice and comment process is good governance and good policy.

    4. The Treasury and IRS commitment to a good cause statement for temporary regulations is a strange one for interpretive temporary regulations. Of course, Treasury and the IRS are to be commended for stating the reasons that they do anything, and I think they generally do for guidance documents, whether labeling the reasons a good cause statement or not. The good cause statement is required by the APA only for legislative regulations that otherwise could not be immediately effective under the APA without a good cause statement. Under standard administrative law, interpretive regulations are not the law but rather the statute is the law; interpretive regulations, like judicial interpretations, can be retroactive to the date of the statute, and § 7805 was so interpreted for § 7805 up to 1996 when § 7805(b) was amended. As amended, § 7805(b) limits retroactivity for § 7805(a) regulations (interpretive rather than legislative), except that, under subsections (3) and (4), the Treasury can issue fully retroactive regulations to prevent abuse or correct procedural defects in prior regulations. Another exception to § 7805(b)’s retroactivity limitation is that § 7805(b) does not apply to regulations issued to interpret statutory text adopted before the 1996 amendment to § 7805(b). Taxpayer Bill of Rights II, Pub. L. No. 104-168, § 1101(b), 110 Stat. 1452, 1469 (1996) (the amendment “shall apply with respect to regulations which relate to statutory provisions enacted on or after the date of the enactment of this Act.”) This exception for pre-1996 statutory text was invoked for the regulations interpretation in United States v. Home Concrete & Supply, LLC, 566 U.S. 478, 488 (2012), with a statement of the abuse reason for making it retroactive and the exception for pre-1996 statutory text; the Treasury retroactive interpretation failed in Home Concrete only because the interpretation failed Chevron Step One because of prior Supreme Court precedent. My point is that the Treasury, in invoking retroactivity, will generally state why it is doing so, hence it will now just label that reason the good cause statement (a term of art that, really, does not apply to interpretive regulations in the first place). I am thus not sure that requiring a good cause statement really does that much.

    5. The Policy Statement committed the IRS (and Treasury, at least for its IRS component) not to argue Auer or Chevron deference for subregulatory guidance, and of course the CCN confirms that commitment. But recall that the Policy Statement was issued prior to Kisor. Kisor left some Auer deference space for subregulatory guidance, although constricting that space. Treasury and the IRS seems to be sua sponte giving up that space that Kisor left. And, Chevron, as interpreted, left some potential Chevron space for subregulatory guidance, although I am not aware of Chevron ever applying to IRS subregulatory guidance and DOJ Tax at least committed not to asserting Chevron deference for subregulatory guidance. I guess the key point here is that Treasury and the IRS are surrendering sua sponte deference space their guidance documents might otherwise have and that other agencies (including Treasury for activity outside the Code) might still have. And, this raises the question of whether, when the IRS has subregulatory guidance for which it does not assert Auer or Chevron deference, a court can treat that as a waiver of deference, so that the court is not required to apply Chevron or Auer deference that might otherwise apply.

    6. In sum, from all of the above, I am not sure how much of a significant shift the Policy Statement and CCN really are. First, deference has limited application for the reasons I noted in paragraphs 1 and 2 above. Second, the shift is only in the IRS saying that it will not assert Chevron or Auer deference for subregulatory guidance. DOJ Tax had already committed to for Chevron deference that prior to the Policy Statement, a commitment that, probably prevented the IRS from asserting Chevron deference for subregulatory guidance. And, Auer guidance would have limited application anyway, because it only applies to interpretive regulations where, because of the care the IRS gives such regulations, the ambiguities are probably not that great anyway. In other words, the IRS regulations process is not like the meat-grinder process of legislation moving through Congress, often drafted with less care and expertise than the IRS brings to its process of drafting regulations after full notice and comment.

  3. It took me longer than it should have to figure out why Chief Counsel memos are already being numbered with 2020 when it’s not yet Halloween. The reason, of course, is that it’s a new fiscal year for the federal government.

    My second question was what was announced in CC-2020-001, since this one is -002. Issued October 4, the first memo of the fiscal year involves IRS instructions related to the May 2019 Tax Court administrative order on limited appearances by counsel. That proposed change was blogged here a year ago by guest James Creech, and may be blogged again now that the Tax Court and IRS procedures are final. Since such entries of appearance seem to be limited to trial sessions, they may be of particular interest to pro-bono volunteers who first meet their clients at the courthouse door.

  4. Kenneth H. Ryesky says

    Note that proposed regulations are mere suggestions for public commentary, and have no force of law above or beyond a position taken in a brief argued on behalf of the IRS Commissioner. LeCroy Research Systems Corp. v. Commissioner, 751 F.2d 123, 126 – 127 (2d Cir. 1984); Zinniel v. Commisioner, 89 T.C. 357, 369 (1989); Laglia v. Commissioner, 88 TC 894, 897 – 898 (1987); F. W. Woolworth Co. v. Commissioner, 54 T.C. 1233, 1265 – 1266 (1970).

    Proposed Treas. Reg. § 20.2036-2 has remained in limbo for a quarter-century since its publication in the Federal Register, 48 F.R. 35143 (3 August 1983).

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