Opinion ID: 206582
Heading Depth: 1
Heading Rank: 6

Heading: The New Treasury Regulations Apply to Previous Tax Years

Text: Grapevine first contends that even if the new regulations control assessments for future tax years, they do not meet the legal requirements for retroactive application to 1999 tax assessments. The Tax Code empowers the Treasury Department to promulgate retroactive regulations: (b) Retroactivity of regulations or rulings.The Secretary may prescribe the extent, if any, to which any ruling or regulation, relating to the internal revenue laws, shall be applied without retroactive effect. I.R.C. § 7805(b) (1995); see also Redhouse v. Comm'r of Internal Revenue, 728 F.2d 1249, 1250-51 (Fed. Cir.1984). [6] Grapevine claims that there is a strong presumption against retroactive application of certain statutes and regulations, citing Supreme Court cases from the nontax context as support. Appellees' Br. 22-26; see also Landgraf v. USI Film Prods., 511 U.S. 244, 114 S.Ct. 1483, 128 L.Ed.2d 229 (1994); Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988). Grapevine urges us to undertake the various tests set forth in those cases to review the Tax Code and the new regulations, presumably out of due process and fairness concerns. The government, on the other hand, points out that the Supreme Court has long upheld the retroactivity of tax legislation. See, e.g., United States v. Carlton, 512 U.S. 26, 30, 114 S.Ct. 2018, 129 L.Ed.2d 22 (1994) (This Court repeatedly has upheld retroactive tax legislation against a due process challenge.). Moreover, the Supreme Court specifically endorsed the Treasury Department's power to apply rules and regulations retroactively under § 7805(b), on an abuse of discretion standard: [I]t is clear from the language of the section [precursor to § 7805(b)] and its legislative history that Congress thereby confirmed the authority of the Commissioner to correct any ruling, regulation or Treasury decision retroactively[.] Auto. Club of Mich. v. Comm'r of Internal Rev., 353 U.S. 180, 184, 77 S.Ct. 707, 1 L.Ed.2d 746 (1957) (footnote omitted); see also id. at 187, 77 S.Ct. 707 (applying abuse of discretion standard); Redhouse, 728 F.2d at 1251 (applying abuse of discretion standard to retroactive rule). Further, we read Landgraf as emphasizing a requirement of clear Congressional intent for retroactive application. 511 U.S. at 266, 114 S.Ct. 1483 ([A] requirement that Congress first make its intention clear helps ensure that Congress itself has determined that the benefits of retroactivity outweigh the potential for disruption or unfairness.) Such an intent was manifest here, by § 7805(b)'s straightforward endorsement of retroactive regulation. We therefore must determine whether it was an abuse of discretion for the Treasury Department to state that the new regulations would apply to preceding tax years. We conclude that it was not. As we have already set forth above, the new regulations are a reasonable interpretation of the limitations statutes. By their terms, the new regulations will apply only to those taxpayers who are within the limitations period as computed under the new regulation, so there is no opportunity for these regulations to reach into the distant past. And while we recognize that some taxpayers whose past returns bear evidence of overstated basis may find themselves facing adjustments when they thought the limitations period had lapsed, we cannot say that the burden on those taxpayers is so great as to be an abuse of the Treasury Department's discretion. We therefore conclude that the new regulations may properly be applied to returns from past tax years whose limitations periods (as recomputed) has not yet expired.