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Kevin Kenworthy Quoted on Possible Impact of Federal Court Ruling that IRS Violated APA Requirement in Law360 Tax Authority

"Top 5 International Tax Cases Of 2022: Midyear Report"

Law360 Tax Authority

Member Kevin Kenworthy commented on the possible impact of a Tennessee federal court in March striking down an IRS notice requiring companies to disclose microcaptive insurance arrangements, determining that the agency violated the Administrative Procedure Act's (APA) notice and comment requirement. The IRS failed to solicit public comments on the potential impact of the notice, the court said, ruling in favor of appellant CIC Services LLC. It further found the agency issued the notice arbitrarily because it did not justify why the transactions were potentially abusive. The IRS' loss in the case follows the Sixth Circuit's decision in Mann Construction v. U.S., in which the appeals court voided a similar notice that created reporting requirements for potentially abusive benefit trust arrangements. The CIC and Mann rulings might give other courts the courage to overturn federal regulations that do not comply with the APA, Kenworthy said. "Although a case like Mann Construction is binding precedent only in the Sixth Circuit, one would think that if a rule is determined to be invalid for failure to follow the APA, it would be invalid and unenforceable against all taxpayers," he said. However, circuit courts have reached different conclusions on the same APA challenge, he cautioned.