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The Eleventh Circuit's decision in Hewitt should serve as a reminder to all taxpayers and tax practitioners of the importance of submitting comments with respect to proposed Treasury regulations.
On 29 December 2021, the Eleventh Circuit issued an important decision in Hewitt v. Commissioner, No. 20-13700 (11th Cir. 2021), rev'g T.C. Memo 2020-89. In Hewitt, the court invalidated regulations (concerning conservation easements) that the IRS had issued decades ago (Treas. Reg. § 1.170A-14(g)(6)(ii), "Regulation") because the IRS had failed to comply with the requirements of the Administrative Procedure Act (APA) in connection with the issuance of the Regulation. In particular, the IRS and Treasury failed to respond to significant comments when the final regulations were promulgated, so the Regulation was invalidated for that reason.
When the Regulation was issued in 1985, the IRS publicly took the position that the APA did not apply to Treasury regulations, but that position did not help the IRS because of the Supreme Court's decision in Mayo Foundation for Medical Ed. and Research v. United States, 562 U.S. 44 (2010) (refusing to apply a different standard of review to Treasury Regulations than the rules of any other agency). Given the IRS's long-standing failure to recognize that the APA applies equally to Treasury regulations, many other such rules and regulations are equally (if not more) susceptible to challenge on similar grounds.
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