Key Takeaways
- Final Regulations are binding on the IRS and carry significant weight.
- Temporary Regulations have same weight as Final but expire after 3 years.
- Proposed Regulations are generally non-binding (unless "reliance" is stated).
- 2024 Supreme Court ruling (Loper Bright) removed "Chevron deference."
- Courts now exercise independent judgment when reviewing regulations.
- Regulations interpret the Code but cannot contradict it.
Treasury Regulations: Administrative Interpretation
Why This Matters for the Exam
Treasury Regulations are the most authoritative form of administrative guidance. Part 3 tests your understanding of the different types of regulations, their weight, and—critically—how courts treat them after the 2024 Loper Bright decision.
The end of Chevron deference is a significant development that may appear on the exam. Understanding how this changes the landscape for challenging IRS positions is essential.
Expect at least 2-3 questions on regulation types and the post-Loper Bright standard.
What Are Treasury Regulations?
Treasury Regulations are the Treasury Department's official interpretation of the Internal Revenue Code. They are published in the Code of Federal Regulations (CFR) at Title 26.
Key Concept: Regulations explain how to apply the Code but cannot expand or contradict the Code. If a regulation conflicts with the statute, the statute wins.
Types of Regulations
| Type | Citation Format | Weight | Duration |
|---|---|---|---|
| Final | Treas. Reg. §1.162-1 | Highest administrative authority | Permanent until amended |
| Temporary | Treas. Reg. §1.162-1T | Same weight as Final | Expires after 3 years |
| Proposed | Prop. Treas. Reg. §1.162-1 | Generally non-binding | Until finalized or withdrawn |
Final Regulations
- Published after notice-and-comment rulemaking.
- Carry the force of law (unless successfully challenged in court).
- Binding on the IRS—examiners must follow them.
- Can be cited as "substantial authority" for penalty protection.
Temporary Regulations
- Issued for immediate guidance when the IRS believes urgent clarification is needed.
- Have the same legal effect as Final Regulations.
- Must expire within 3 years of issuance (cannot be renewed indefinitely).
- Often issued simultaneously with Proposed Regulations.
Proposed Regulations
- Published for public comment before finalization.
- Generally not binding on the IRS or taxpayers.
- Exception: Some proposed regulations include a "reliance" statement allowing taxpayers to rely on them until final regs are issued.
- Helpful for understanding IRS intent.
The Loper Bright Revolution (2024)
Before 2024: Chevron Deference
Under the Chevron doctrine (1984), courts gave "deference" to agency interpretations of ambiguous statutes. If the Code was unclear and the regulation was "reasonable," courts upheld the IRS's interpretation.
After 2024: Loper Bright v. Raimondo
In June 2024, the Supreme Court overruled Chevron in Loper Bright Enterprises v. Raimondo. Courts now exercise independent judgment when interpreting statutes.
| Factor | Chevron (Pre-2024) | Loper Bright (Post-2024) |
|---|---|---|
| Who Interprets Ambiguous Statutes? | Agencies (IRS/Treasury) | Courts |
| Deference to Agency? | Yes, if "reasonable" | No automatic deference |
| Challenge Regulations? | Hard (courts defer) | Easier (courts decide independently) |
| Impact on Taxpayers | Harder to challenge IRS | Stronger footing to challenge IRS |
Exam Relevance (Tax Year 2024): Since Loper Bright was decided in June 2024, it is testable on the May 2025 - February 2026 EA exam. The exam tests whether you understand that courts no longer automatically defer to Treasury interpretations. Taxpayers now have a better chance of overturning regulations that stretch beyond the Code.
Regulation Citation Format
Treasury Regulations follow a specific numbering system:
Example: Treas. Reg. §1.162-1(a)
| Component | Meaning |
|---|---|
| Treas. Reg. | Treasury Regulation |
| §1 | Part 1 (Income Tax) |
| .162 | Relates to IRC §162 |
| -1 | First regulation section under §162 |
| (a) | Subsection (a) |
Part Prefixes:
- 1. = Income Tax (Subtitle A)
- 20. = Estate Tax (Subtitle B)
- 25. = Gift Tax (Subtitle B)
- 31. = Employment Tax (Subtitle C)
- 301. = Procedure (Subtitle F)
Real-World Scenario
Scenario: The IRS issues a regulation that expands the definition of "income" beyond what §61 states. A taxpayer challenges the regulation in court.
- Under Chevron (pre-2024): Court would likely defer to the IRS if the statute was ambiguous and the regulation was "reasonable."
- Under Loper Bright (post-2024): Court exercises independent judgment. If the court finds the regulation exceeds the statutory text, it can invalidate the regulation.
On the Exam
Expect 2-3 questions on regulations, typically:
- Type Questions: "Which type of regulation expires after 3 years?"
- Deference Questions: "Under the Loper Bright standard, how do courts view regulations?"
- Weight Questions: "Can a proposed regulation be relied upon?"
The key is to remember: Final = binding, Temporary = 3 years, Proposed = generally not binding, Loper Bright = courts decide independently.
Which type of regulation expires 3 years after issuance?
Under the "Loper Bright" standard (post-2024), how do courts view Treasury Regulations?
Can taxpayers generally rely on Proposed Regulations?