Professional Tax Research Solutions from the Founder of Kleinrock. tax and accounting research
Parker Tax Pro Library
Accounting News Tax Analysts professional tax research software Like us on Facebook Follow us on Twitter View our profile on LinkedIn Find us on Pinterest
federal tax research
Professional Tax Software
tax and accounting
Tax Research Articles Tax Research Parker's Tax Research Articles Accounting Research CPA Client Letters Tax Research Software Client Testimonials Tax Research Software Federal Tax Research tax research

Accounting Software for Accountants, CPA, Bookeepers, and Enrolled Agents

CPA Tax Software



Failure to Allow Notice and Comment Period Invalidates Reg on Inversion Transactions

(Parker Tax Publishing October 2017)

A district court held that the issuance of Reg. Sec. 1.7874-8T violated the Administrative Procedures Act (APA) because the IRS and the Treasury Department did not follow the notice-and-comment procedure required by the APA when they issued the regulation. Because the regulation was unlawfully issued, the court set aside the regulation. Chamber of Commerce v. I.R.S., 2017 PTC 456, 2017 PTC 455 (W.D. Tex. 2017).

In April 2016, the IRS issued Reg. Sec. 1.7874-8T, which is aimed at addressing certain inversion transactions. The regulation provides a rule identifying stock of foreign acquiring corporations that is to be disregarded in determining an ownership fraction relevant to categorizing the stock. Reg. Sec. 1.7874-8T was issued as a temporary regulation that was immediately effective and as a proposed regulation subject to notice and comment.

The Chamber of Commerce of the United States of America (Chamber of Commerce) and the Texas Association of Business (TAB) filed a lawsuit asserting that the IRS, the Treasury Department, and John A. Koskinen (IRS Commissioner), and Jacob J. Lew (former Secretary of Treasury), violated the Administrative Procedures Act (APA) by issuing Reg. Sec. 1.7874-8T.

According to the Chamber of Commerce and TAB, the regulation exceeded the IRS's and Treasury Department's (i.e., the Agencies) statutory jurisdiction and the issuance of the regulation was arbitrary and capricious and done without notice and opportunity for comment in violation of the APA. They moved for summary judgment on their claims while the Agencies moved to dismiss the case, arguing that the Chamber of Commerce and TAB lacked standing to challenge the regulation, and that the lawsuit was barred by the Anti-Injunction Act. According to the Agencies, the Chamber of Commerce and TAB lacked standing because they had not alleged an injury in fact that justified prospective relief.

The district court held that Reg. Sec. 1.7874-8T was unlawfully issued without adherence to the APA's notice-and-comment requirements and, as a result, the court set aside the regulation.

With respect to the claim that the Agencies' issuance of Reg. Sec. 1.7874-8T exceeded their statutory jurisdiction, the court concluded that, based on the broad authority granted by Congress in Code Sec. 7874, the issuance of the regulation did not exceed the statutory jurisdiction of the Agencies. The court noted that the regulation directs that certain stock be disregarded in calculations made under the statute, which falls into the statute's allowance that regulations may "treat stock as not stock." Further, the court said, regulation aims to "prevent the avoidance of the purposes" of the statute, which is specifically named as an authorized function of regulations issued pursuant to the statute.

With respect to the claim that the Agencies issuance of the regulation was arbitrary and capricious, the district court reviewed the full analysis by which the Agencies determined the regulation was necessary to achieve the goals of the Internal Revenue Code. The court concluded that the Agencies did not rely on factors that Congress did not intend for them to consider and that the Agencies did not fail to consider an important aspect of the issue before them. The court found that the Agencies offered a plausible explanation for the regulation that did not run counter to the evidence before them. Accordingly, the district court concluded that the Agencies did not engage in an arbitrary and capricious rulemaking in issuing Reg. Sec. 1.7874-8T.

Finally, with respect to the claim that the Agencies violated the APA in issuing the regulation because the Agencies failed to provide affected parties with notice and an opportunity to comment on the regulations, the court agreed with the Chamber of Commerce and TAB. The court found that the temporary nature of the regulation did not excuse the Agencies from the notice-and-comment procedure required by the APA. The court noted that the APA permits agencies to issue interpretative rules without subjecting them to notice and comment and that a rule is interpretative if it is "issued by an agency to advise the public of the agency's construction of the statutes and rules which it administers." The court concluded, however, that Reg. Sec. 1.7874-8T was a substantive or legislative regulation, not an interpretive regulation, and the Agencies were therefore not excused from the notice-and-comment procedure required by the APA.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

Parker Tax Pro Library - An Affordable Professional Tax Research Solution.

Professional tax research

We hope you find our professional tax research articles comprehensive and informative. Parker Tax Pro Library gives you unlimited online access all of our past Biweekly Tax Bulletins, 22 volumes of expert analysis, 250 Client Letters, Bob Jennings Practice Aids, time saving election statements and our comprehensive, fully updated primary source library.

Parker Tax Research

Try Our Easy, Powerful Search Engine

A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play

Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.

Parker Tax Research Library

Dear Tax Professional,

My name is James Levey, and a few years back I founded a company named Kleinrock Publishing. I started Kleinrock out of frustration with the prohibitively high prices and difficult search engines of BNA, CCH, and RIA tax research products ... kind of reminiscent of the situation practitioners face today.

Now that Kleinrock has disappeared into CCH, prices are soaring again and ease-of-use has fallen by the wayside. The needs of smaller firms and sole practitioners are simply not being met.

To address the problem, I’ve partnered with a group of highly talented tax writers to create Parker Tax Publishing ... a company dedicated to the idea that comprehensive, authoritative tax information service can be both easy-to-use and highly affordable.

Our product, the Parker Tax Pro Library, is breathtaking in its scope. Check out the contents listing to the left to get a sense of all the valuable material you'll have access to when you subscribe.

Or better yet, take a minute to sign yourself up for a free trial, so you can experience first-hand just how easy it is to get results with the Pro Library!


James Levey

Parker Tax Pro Library - An Affordable Professional Tax Research Solution.

    ®2012-2017 Parker Tax Publishing. Use of content subject to Website Terms and Conditions.

IRS Codes and Regs
Tax Court Cases IRS guidance