SECTION 18. HOW MAY

RETROACTIVE EFFECT BE LIMITED?

Commissioner has discretionary authority under § 7805(b)

Taxpayer may request Commissioner to exercise authority

Form of request to limit retroactivity—before an examination

Form of request to limit retroactivity—during course of an examination

(5) the taxpayer directly involved in the letter ruling or technical advice memorandum or determination letter acted in good faith in relying on the letter ruling or technical advice memorandum or determination letter, and the retroactive modification or revocation would be to the taxpayer’s detriment. For example, the tax liability of each employee covered by a letter ruling or technical advice memorandum or determination letter relating to a pension plan of an employer is directly involved in the letter ruling or technical memorandum or determination letter. However, the tax liability of members of an industry is not directly involved in a letter ruling or technical advice memorandum or determination letter issued to one of the members, and the holding in a modification or revocation of a letter ruling or technical advice memorandum or determination letter to one member of an industry may be retroactively applied to other members of the industry. By the same reasoning, a tax practitioner may not obtain the nonretroactive application to one client of a modification or revocation of a letter ruling or technical advice memorandum or determination letter previously issued to another client.

When a letter ruling or determination letter to a taxpayer or a technical advice memorandum involving a taxpayer is modified or revoked with retroactive effect, the notice to the taxpayer, except in fraud cases, sets forth the grounds on which the modification or revocation is being made and the reason why the modification or revocation is being applied retroactively.

In order for a technical advice memorandum that modifies or revokes a letter ruling or another technical advice memorandum or a determination letter not to be applied retroactively either to the taxpayer to whom or for whom the letter ruling, technical advice memorandum or determination letter was originally issued, or to a taxpayer whose tax liability was directly involved in such letter ruling, technical advice memorandum or determination letter, such taxpayer generally must request relief under § 7805(b) in the manner described in section 18 below.

.01 Under § 7805(b) the Commissioner or the Commissioner’s delegate has the discretion to prescribe the extent, if any, to which a technical advice memorandum will be applied without retroactive effect.

.02 A taxpayer who has received a technical advice memorandum or for whom a technical advice request is pending may request that the Assistant Commissioner (Employee Plans and Exempt Organizations), the Commissioner’s delegate, exercise the discretionary authority under § 7805(b) to limit the retroactive effect of any holding stated in the technical advice memorandum or to limit the retroactive effect of any subsequent modification or revocation of the technical advice memorandum.

.03 When a technical advice memorandum that concerns a continuing transaction is modified or revoked by, for example, a subsequent revenue ruling or final regulations, a request to limit the retroactive effect of the modification or revocation of the technical advice memorandum must be made in the form of a request for a letter ruling if submitted before examination of the return that contains the transaction that is the subject of the request for letter ruling. See Rev. Proc. 97–4.

.04 When, during the course of an examination of a taxpayer’s return by a key district director or consideration by the chief, appeals office, a taxpayer is informed that the key district director or the chief, appeals office, recommends that a technical advice memorandum be modified or revoked, a request to limit the retroactive application of the modification or revocation of the technical advice memorandum must itself be made in the form of a request for technical advice. See sections 7 through 9 of this revenue procedure and sections 18.07 and 18.08 below.

The taxpayer must also submit a statement that the request is being made pursuant to § 7805(b). This statement must also indicate the relief requested and give the reasons and arguments in support of the relief requested. It must also be accompanied by any documents bearing on the request. The explanation should discuss the five items listed in section 17.06 of this revenue procedure as they relate to the taxpayer’s situation.

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Form of request to limit retroactivity—technical advice that does not modify or revoke prior memorandum

Taxpayer’s right to a conference

Exhaustion of administrative remedies—employee plans determination letter requests

Exhaustion of administrative remedies—exempt organization matters