IRS Announces Nonacquiescence in Mayo Regulation Invalidity Holding

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We previously wrote here and here about decisions made by the District Court of Minnesota and the US Court of Appeals for the Eighth Circuit in Mayo Clinic v. United States regarding challenges to the validity of certain Treasury Regulations promulgated under Internal Revenue Code (Code) Section 170. In that case, the Eighth Circuit held for the taxpayer in part and the government in part and remanded to the district court to further develop the record and address certain issues.

The Internal Revenue Service (IRS) recently announced in an Action on Decision (AOD) that it will not acquiesce in the Eighth Circuit’s holding, which invalidated Treas. Reg. § 1.170A-9(c)(1)’s requirement that the primary function of an education organization described in Code Section 170(b)(1)(A)(ii) must be the presentation of formal instruction. This means that in all cases not appealable to the Eighth Circuit, the IRS will not follow this holding and will continue to litigate the issue.

The IRS’s policy is to announce at an early date whether it will follow the holdings in certain cases, and it does so by making an announcement in an AOD. A nonacquiescence is not binding on courts or the taxpayers but merely signals the IRS’s position that it disagrees with a court decision. (Sometimes the IRS will acquiesce in a decision.) Given that an AOD is published in the Internal Revenue Bulletin, it could be argued that the IRS’s action constitutes published guidance taxpayers can rely on. The IRS’s list of AODs, with links to each action, can be found here.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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