IRS Action on Decision (AOD) 2024-01[^1] addresses the validity of listing notices issued without following the Administrative Procedure Act (APA) notice-and-comment rulemaking procedures, specifically after the American Jobs Creation Act of 2004 (AJCA).

Justification for the IRS Action on Decision:

• Legal Challenges: The AOD is a response to multiple court decisions, specifically Green Rock LLC v. Internal Revenue Serv., 104 F.4th 220 (11th Cir. 2024), where the Eleventh Circuit affirmed that Notice 2017-10, which identified certain syndicated conservation easement transactions as “listed transactions,” was invalid because it did not follow APA notice-and-comment rulemaking procedures. This ruling followed the precedent set by the Sixth Circuit in Mann Construction, Inc. v. United States 27 F.4th 1138 (6th Cir. 2022). Additionally, the Tax Court reached the same conclusion in Green Valley Investors, LLC v. Commissioner, 159 T.C. 80 (2022).
• APA Violation: The courts found that the IRS violated the APA by issuing listing notices without providing a Notice of Proposed Rulemaking in the Federal Register and giving the public a chance to comment. The courts determined that the listing notices, particularly those issued after the AJCA, are considered legislative rules because they create new substantive duties, the violations of which can lead to financial penalties and criminal sanctions.
• Post-AJCA Penalties: The AOD emphasizes the importance of the statutory penalties under I.R.C. § 6707A, which were enacted as part of the AJCA. The courts have held that these penalties make post-AJCA listing notices legislative rules that must adhere to APA notice-and-comment procedures. Pre-AJCA notices were not backed by statutory penalties at the time of their issuance.
• Controlling Adverse Precedent: Despite the IRS’s disagreement with the court rulings, the AOD acknowledges that there is controlling adverse precedent in the Sixth and Eleventh Circuits, as well as the Tax Court. The IRS will follow these decisions in all circuits.

Impact on Listed Transactions:

• Non-Enforcement of Post-AJCA Notices: The IRS will no longer enforce the disclosure and reporting requirements for reportable transactions identified in post-AJCA guidance that did not follow notice-and-comment procedures.
• Penalty Relief: The IRS will not assert penalties under sections 6662A, 6707, 6707A, and 6708 that result from the identification of reportable transactions based on invalid post-AJCA notices. The IRS will concede or abate these penalties in ongoing cases, including those in Tax Court, district courts, or at any stage in which taxpayers request administrative relief.
• No Exception to Limitations or Interest Rules: The IRS will not use transactions identified in invalid post-AJCA guidance as the basis for applying the exception to the assessment period of limitations under section 6501(c)(10) or the exception to the suspension of interest rules under section 6404(g)(2)(E).
• Limited Applicability: The AOD does not apply to pre-AJCA notices. The IRS will still enforce pre-AJCA listing notices. The AOD will not apply in cases with a court-approved settlement, closing agreement, a final court decision, or if the applicable statutes of limitations have expired.
• New Regulations: In response to these court decisions, the Treasury has issued final and proposed regulations following APA notice-and-comment rulemaking procedures to identify certain transactions as listed transactions. For example, T.D. 10007 was issued to identify syndicated conservation easement transactions as a listed transaction. This indicates a move towards compliance with the APA in future listings. In summary, the AOD was issued in response to court decisions that invalidated post-AJCA listing notices that did not follow notice-and-comment procedures. The IRS will no longer enforce these invalid notices and will provide relief for associated penalties. The IRS is now using the proper APA process for issuing new regulations.

[^1]: AOD 2024-01, December 23, 2024, https://www.irs.gov/pub/irs-aod/aod-2024-01.pdf