How much authority do revenue rulings have?

• Author: Rood, Joan L.

Tax advisers must understand the weight (or deference) courts give to revenue rulings when they determine a level of authority (e.g., reasonable basis, substantial authority, or more-likely-than-not) for a tax return position that implicates a revenue ruling. If a revenue ruling clearly supports the tax return position, the taxpayer can rely on it; see Regs. Sec. 601.601(d)(2)(v)(e). If, however, the ruling is contrary to the proposed tax return position, tax advisers must first determine the judicial standard under which they should analyze the ruling.

The courts have uniformly deferred to long-standing revenue rulings that Congress has either implicitly or explicitly approved. In contrast, they have wrestled for years with the issue of how much weight to give other ("garden variety") revenue rulings. Some courts, including the Tax Court, historically have given no weight to revenue rulings, on the theory a ruling is merely an interpretation of the law asserted by one of the parties in litigation. Other courts historically have deferred to revenue rulings that are reasonable and consistent with prevailing law. Although there is still controversy among the courts over this issue, the Supreme Court reshaped the debate in Mead Corp., 533 US 218 (2001), which sheds light on the Court's likely view of the weight revenue rulings deserve.

Congressionally "Blessed" Revenue Rulings

All revenue rulings are not created equal. Some actually have the force and effect of law, according to Supreme Court precedent. For example, the Supreme Court anointed a ruling involving the so-called "overnight rule" under the statute permitting business travelers to deduct meal and lodging expenses. In Correll, 389 US 299 (1967), it upheld the Service's determination that a salesman could not deduct meal expenses incurred on business trips that did not require either sleep or rest away from home. The Court held that the overnight rule had gained the effect of law because Congress was aware of the rule, as evidenced by legislative history, when it re-enacted the underlying statute in the 1954 Code and chose not to overturn the rule. "Treasury regulations and interpretations [such as revenue rulings] long continued without substantial change, applying to unamended or substantially reenacted statutes, are deemed to have received congressional approval and have the effect of law." Courts now call this rule the "reenactment doctrine"; see, e.g., ABC Rentals of San Antonio, Inc., 97 F3d 392 (10th Cir. 1996).

Garden Variety Revenue Rulings

Although Correll elevates longstanding rulings that have Congressional approval to some type of legal status on par...