More "Treasury Legislation" in Notice 2009-5

As we all know, Congress is the branch of goverment that can legislate. And we all know that the IRS/Treasury cannot legislate. Unfortunately, Treasury has legislated in Notice 2009-5. I gave you one example the other day when Notice 2009-5 LEGISLATED reliance on another person as meeting the "substantial authority" standard.

Here is one more example of IRS UNLAWFUL LEGISLATION.

Section 6694(a)(2)(C) is quoted below:


6694(a)(2)(C) TAX SHELTERS AND REPORTABLE TRANSACTIONS. --If the position is with respect to a tax shelter (as defined in section 6662(d)(2)(C)(ii)) or a reportable transaction to which section 6662A applies, the position is described in this paragraph unless it is reasonable to believe that the position would more likely than not be sustained on its merits.

We all know how to read - the MLTN standard applies to tax shelters and reportable transactions. Now read the following language in Notice 2009-5

Notice 2009-5, I.R.B. 2009-3, December 15, 2008.

C. Interim Penalty Compliance Rules for Tax Shelter Transactions

Until further guidance is issued, solely for purposes of section 6694(a), a position with respect to a tax shelter (as defined in section 6662(d)(2)(C)(ii)) will not be deemed an "unreasonable position" described in section 6694(a)(2)(A) through (C) if there is substantial authority for the position and the tax return preparer advises the taxpayer of the penalty standards applicable to the taxpayer in the event that the transaction is deemed to have a significant purpose of Federal tax avoidance or evasion. This advice to the taxpayer must explain that, if the position has a significant purpose of tax avoidance or evasion, then there needs to be at a minimum substantial authority for the position, the taxpayer must possess a reasonable belief that the tax treatment was more likely than not the proper treatment in order to avoid a penalty under section 6662(d) as applicable, and disclosure in accordance with § 1.6662-4(f) will not protect the taxpayer from assessment of an accuracy-related penalty if section 6662(d)(2)(C) applies to the position. The tax return preparer must contemporaneously document the advice in the tax return preparer's files.

Now if the return preparer believes that the MLTN standard is satisfied, he only has to meet the substantial authority standard.

It is obvious to me that the above language in Notice 2009-5 is just one more example of IRS/Treasury LEGISLATION.

It is Treasury that sets tax policy, not the IRS. Therefore, it is Treasury that thinks it has the legislative authority of Congress. Is this their way of getting jobs with law firms after they are replaced by Obama appointees?

As a tax attorney, I have spent my life interpreting tax statutes, regulations, case law, legislative history, etc. I believe we have to follow the intent of Congress. The most fundamental of statutory rules of construction is that the clear language of a statute is applicable and trumps any other interpretation. I saw only MLTN language in the statute. Treasury tax policy is clearly wrong in legislating a different rule.


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