The interpretation and administration of the tax law are the subject of treasury regulations and service rulings. Regulations, if not inconsistent with the controlling statute, have the force of law. Rulings are guides to service policy, but have little weight in litigation. A taxpayer may obtain a private ruling to cover his own completed or prospective transaction.

Although the tax statutes are ultimately subject to interpretation by the tax court and other judicial tribunals, the first governmental agency with an interpretive function is the treasury department. An important function of the treasury department is the promulgation of regulations and rulings so the taxpayers may rely upon administrative interpretations of their transactions.

Regulations are issued by the treasury. Revenue rulings are published by the Internal Revenue Service. The regulations are given great weight by the courts, especially with the passage of time, although they will be invalidated when they are unreasonable. The services published rulings, on the other hand, normally mean little to the courts but often are decisive administratively, since they represent the services position on an issue.

Unpublished, or private letter rulings, cover only the taxpayers receiving them. They are not regarded as precedent.

REGULATIONS

Treasury regulations and decision are prescribed by the commissioner and approved by the Secretary of the Treasury. Under the administrative procedure act, a preliminary notice of proposed regulations is published in the federal register. Comment upon proposed regulations is published in the federal register. Comment upon proposed regulations, or a petition to change a final regulation, may be addressed to the Commissioner, and will be given careful consideration. Names, comments, and data which are not designated as confidential are available to the public. Regulation section 601.601. Drafts of proposed regulations and related transmittal memoranda are exempt from disclosure pursuant to the Freedom of Information Act since they are pre-decisional documents. Pies v I.R.S., 668 F.2d 1350.

Each portion of the regulations is published currently in the Federal Register and in the weekly Internal Revenue Bulletin as a numbered treasury decision (t.d.), and is reprinted in the semi-annual cumulative bulletin.

EFFECT OF REGULATIONS

A reasonable treasury regulation is binding upon both the commissioner and the taxpayer Helvering v Reynolds Tobacco Co., 306 U.S. 110; Commissioner v Wheeler, 324 U.S.542 (Commissioner v Sternberger Estate, 348 U.S. 187; Cammarano v United States, 358 U.S. 498.

A regulation has special force where it is considered as "interpretive," i.e. broad rule-making power has been delegated to the commissioner by the particular statute involved. Commissioner v South Texas Lumber Co., 333 U.S. 496; Textile Apron Co., 21 tax court 147.

A regulation which contravenes the applicable statute is invalid. Bingham Trust v Commissioner, 325 U.S. 365; Commissioner v Acker, 361 U.S. 87; Mitchell v Commissioner, 300 F.2d 533; Smith v Commissioner. 332 F.2d 671; Dorfman v Commissioner, 394 F.2d 651. Where a statute lists a series of requirements, regulations may not add to that list.

Although a regulation represents a reasonable interpretation of the law, it may be altered prospectively in favor of another reasonable interpretation. Helvering v Wilshire Coil Co., 308 U.S. 90; U.S. v Leslie Salt Co., 350 U.S. 383.

PUBLIC RULINGS

The service has extended its publication policy for the Internal Revenue Bulletin to include all rulings issued to field officers or to tax payers which are intended to be used as precedents or guides. Each ruling is designated as a "revenue ruling" (rev.rul.). In 1954 a new numbering system was instituted: each ruling is prefixed by the last two digits of the year. Example rev.rul.54-1, rev.rul.54-2, etc. during 1954. Statements of practice and procedure are published as "revenue procedures." Rev.proc.72-1, c.b.1972-1,693. Published rulings are contained in the weekly Internal Revenue Bulletin (I.R.B.), and are accumulated semi-annually in the Cumulative Bulletin (C.B.).

The services, file, and background documents on a revenue ruling are exempt from disclosure under the Freedom of Information Act as intra-agency information which was part of the pre-decisional process. Arthur Anderson and Co. v I.R.S., 679 F.2d 254.

The courts have recognized a substantial difference between treasury regulations and mere rulings or practice of the Internal Revenue Service. In the latter case, not even the fiction of implied congressional approval lends weight to such interpretations when they are challenged in court, whether the challenge is by the taxpayer or by the government. Helvering v New York Trust Co., 292 U.S. 455; Biddle v Commissioner, 302 U.S. 573; Commissioner v Lake, Inc., 356 U.S. 260. A revenue ruling, without more, is simply the contingent of one of the parties to the litigation and is entitled to no greater weight. Grace E. Lang Estate, 613 F.2d 770. In one interesting application of this rule, a taxpayer was upheld in challenging an administrative interpretation that had been applied for nearly 30 years. Alcoma Association, Inc. v U.S., 239 F.2d 365.

The treasury regulations state, "no unpublished ruling or decision will be relied on, used, or cited by any officer or employee of the service as a precedent in the disposition of other cases." Regulation section 601.601 (d)(2)(v)(d).

TAXPAYER REQUESTS FOR RULINGS

Under some circumstances a taxpayer may obtain an advance ruling on a prospective transaction. Except in the few cases where the statute requires a prior determination the issuance of such a ruling is discretionary. A ruling may also be requested as to a completed transaction. However, if the return has already been filed, the request will normally be referred to the field office. The taxpayer may then request the field office to seek technical advice from Washington.

The general policies and procedures are set forth in regulation section 601.201; revenue procedure 88-1, I.R.B. 1988-1,7. In an attempt to limit and formalize procedure, the service has ruled that a taxpayer may normally have only one conference, attended by a person in the appropriate branch of the office of the associate commissioner who has authority to act for the branch chief. The conference will be held after the branch has had the opportunity to study the problem presented in the request. Possible adverse factors will be discussed with the taxpayer, but no advice as to final disposition will be given until after review. There is no further administrative appeal unless the branches own recommendation is adversely changed by a higher echelon, or an adverse recommendation is sustained but on a different issue or on substantially different grounds. Information as to the status of a pending ruling request may be obtained by the taxpayer. A closing agreement may be required as a condition to issuing a ruling.

While no ruling will be issued on an oral request, oral inquiry as to whether the service will rule on a particular matter may be made. The name and identifying number of the taxpayer must be disclosed. However, within 21 days after the written request is received, the service will contact the taxpayer or his authorized representative to inform him whether the service will rule as requested, rule adversely, or not rule; whether more information must be submitted; or whether no conclusion can be reached because of the nature of the issue presented. The taxpayer will also be informed if modification of the transaction might result in a favorable ruling. Revenue procedure 88-1, Supra.

After a person has received his ruling, it should be attached to the return to which it applies. It is the duty of the examining agent to determine the existence of any material discrepancy between the ruling and the actual transaction. A ruling request may be withdrawn, but Washington may nevertheless furnish its views or other information to the field office.

THE EFFECT OF A PRIVATE RULING

As a matter of practice, rulings made on the basis of complete and accurate representations are generally respected. Nevertheless, a retroactive revocation of an exemption ruling was justified where the taxpayer did not notify the commissioner of changed activities. Stevens Brothers Foundation, Inc., v Commissioner 324 F.2d 633; Birmingham Business College, Inc. v Commissioner, 276 F.2d 476; Coastal Club, Inc., 386 F.2d 231.

In the absence of a change in law or a discrepancy in facts, a revocation of a ruling will be made only prospectively if the taxpayer has relied upon the ruling and if retroactive revocation would be to his detriment. Revenue procedure 88-1, I.R.B. 1988-1,7. McMurtry v Commissioner, 203 F.2d 659.

Such a ruling has no statutory sanction as a binding agreement. It may be revoked as part of a general policy applicable to all similar situations, and the revocation may affect a period preceding formal notice of the new policy to the particular taxpayer. Automobile Club of Michigan v Commissioner, 353 U.S. 180. The commissioner's retroactive revocation of a ruling which was relied upon by the taxpayer is subject to judicial review. The issue of whether the commissioner abused his discretion is resolved by looking at the full record before him when he made his decision. Pierson v United States, 428 F.Supp 384.

If the taxpayer desires the finality of a closing agreement, he should make his application in that form, but with the understanding that a closing agreement is a more difficult and more time consuming procedure.

The code expressly provides that absent a contrary procedure established by regulations, a private ruling "may not be used or cited as precedent. Internal Revenue Code section 6110(j)(3).

The courts have sustained the commissioners right to ignore a ruling issued to another taxpayer on which the present taxpayer relied. Eli D. Goodstein, 267 F.2d 127. (An appellate court has held a taxpayer was not entitled to a deduction merely because other taxpayers secured similar deductions under an erroneous private letter ruling which was revoked prospectively. Over a dissent, the court held that unlawful discrimination between similarly situated taxpayers does not exist because the taxpayer was taxed the same as others similarly situated who did not obtain a ruling. The court also emphasized the absence of reliance and distinguished the case as not involving an unjustifiable favoring of one competitor over another. Bookwalter v Brecklein, 357 F.2d 78).

PUBLICITY OF PRIVATE RULINGS

The confidentiality of private rulings and the applications therefore has had a stormy history since the passage of the Freedom of Information Act in 1967. The problem involves elements of personal privacy, legal privilege, preference afforded special tax payers, political interference, and in one well known case apparent deception. Prior to a specific 1976 code amendment which superseded the Freedom of Information Act on this point, the leading cases had held that private rulings must be expurgated and then published including the taxpayers identity, but were divided about technical advice memoranda. Tax Analysts and Advocates v I.R.S., 505 F.2d 350; Fruehauf Corp. v I.R.S., 566 F.2d 574; Taxation With Representation Fund v I.R.S., 646, F.2d 666.

The current rules are set forth in the statute (drafted jointly by the service and the public interest law group which had brought the court challenges). Available for public inspection are all rulings, determination letters, or technical advice memoranda, together with their "background file documents" (ruling request, supplement, correspondence, etc., but not the services internal memoranda or that between the service and the justice department on tax matters). However, the name, address, and other identifying details of the taxpayer are not to be revealed. I.R.C. section 6110 (a), (b), (c), (1), (e); regulation sections 301.6110-127.

All rulings, etc., are available for inspection and copying at the reading room of the national office, upon written request. Regulation section 301.6110-1(c). Disclosure of revenue rulings may be had by a court order directing discovery. I.R.C. section 6110(1). If discovery of revenue rulings are sought in a tax court proceeding they are not exempt as privileged. They are discoverable if relevant to the pending case. Franco Corelli, 66 tax court 220. The court has also held that since private letter rulings to others may not be relied on so as to require this taxpayer to be given treatment as the one to whom the ruling was issued, such rulings are not relevant. Bernard E. Teichgraeber, 64 tax court 453.

FORM OF RULING REQUEST

The procedure for applying for a private letter ruling is stated in detail in revenue procedure 88-1, I.R.B. 1988-1, 7 revenue procedure 88-1. A written request should be addressed to the associate chief counsel (technical). A request need not be in duplicate unless more than one issue or a closing agreement is involved. The request must be accompanied by a declaration, under penalty of perjury, as to the accuracy of the facts presented, sworn to by the taxpayer (not his representative).

A complete statement of all the facts related to the transaction is required, including the names, addresses, and taxpayer account numbers of all interested parties. The request may also contain a copy of each contract or other document necessary to present the facts, as well as an analysis of the relevant portions of such documents. All of this must be in writing. The request must state whether the identical issue is in the return of the taxpayer and provide additional information if it is. There must be included a full and precise statement of the business reasons for the transaction. A taxpayer is encouraged to inform the service of and discuss any legislation, tax treaties, court decisions, regulations, revenue rulings or revenue procedures that the taxpayer determines to be contrary to the position advanced.

If prompt consideration is necessary, a request for consideration out of regular order should be included, showing clear need for such treatment. If a conference is desired, such a request should be included in the letter. Where the application does not comply with all requirements, it will not be acted on until the required data are submitted.

The taxpayer may request a determination letter by the director for the district in which the return is to be filed. Such determination may apply only to a completed transaction in which the return has not yet been filed, and only if the question is specifically covered by statute, treasury decision or regulation, or specifically by a ruling, opinion, or court decision published in the Internal Revenue Bulletin. The director will not issue a determination letter if a similar inquiry by the taxpayer has been addressed to Washington, or if the request is by an industry, trade association, or similar group, or if it involves an industry wide problem. A directors determination letter will probably have the same status as a Washington Ruling. Regulation section 601.201(c); revenue procedure 88-1, I.R.B. 1988-1, 7. (There is a special procedure for determination that an organization is exempt from tax.)

It has been the traditional policy of the service not to issue rulings on questions of fact. The service has also published an extensive list of particular questions on which it will not issue rulings. The latest such list can be found in revenue procedure 88-3, I.R.B. 1988-1, 29.

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