Monday, January 24, 2011
The IRS has multiple roles in the tax system. It is perhaps best known as the tax collector for the federal government, but it has service roles, as well. The IRS facilitates compliance with the tax laws not only by promulgating forms and answering taxpayer questions, but also by providing interpretations of the law that help guide taxpayers. In its service capacities, the IRS is something of a neutral party. However, the IRS is also often a litigant in disputes with taxpayers about the meaning or application of federal tax laws. What happens when the IRS, or the Department of which it is a part, the Department of the Treasury, releases guidance that purports to apply to a case in litigation?
This question is not merely academic. In a number of cases, the IRS has issued Revenue Rulings, its most authoritative form of guidance, in apparent attempts to influence the outcome of court cases. And sometimes the Treasury Department has promulgated regulations—even ones that purport to apply retroactively—to try to alter case outcomes. The Article considers whether deference to tax guidance should be reduced if the guidance was issued during pending litigation to which it arguably applies, and what should be the level of deference in that circumstance. It argues that Chevron deference should apply to Treasury regulations that have gone through the notice-and-comment process, while Skidmore should apply to Revenue Rulings, and that the timing of the ruling and potential unfairness the timing engenders should be taken into account under the applicable deference standard.