Proposed IRS Regulations: How the Process Works

When Congress passes a new tax law, the text is often written in broad terms. To translate this legislative language into actionable rules for taxpayers, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) are authorized to write and publish regulations. These regulations provide the detailed guidance necessary for individuals and businesses to understand their obligations and comply with the law.

A proposed regulation is the public’s first look at the IRS’s interpretation of a specific part of the tax code. It functions as a draft, released to invite public feedback and ensure the final rule is well-considered and practical. This step is a part of a transparent rulemaking process governed by the Administrative Procedure Act, which allows for public input before any rule gains the full force of law.

The Regulation Lifecycle

The journey of a tax regulation begins when a clear need for guidance arises. This can be triggered by major legislation passed by Congress, such as the Inflation Reduction Act of 2022, which necessitated a host of new rules. Other catalysts include significant court decisions that alter the interpretation of existing law or instances where the IRS itself identifies ambiguity that is causing confusion for taxpayers.

Once a need is established, attorneys and policy specialists within the IRS Office of Chief Counsel and the Treasury’s Office of Tax Policy begin the process of drafting the rule. The first formal stage is the publication of a Notice of Proposed Rulemaking (NPRM) in the Federal Register. This document introduces the proposed regulation to the public, explains its purpose, and sets a period for interested parties to submit comments.

This is the draft version of the rule, and it does not yet carry the weight of law. Taxpayers generally cannot rely on it for planning purposes unless the document explicitly states they can. In situations requiring immediate guidance, the IRS may issue temporary regulations. These are effective upon publication and provide binding rules that both taxpayers and the IRS must follow.

Under Internal Revenue Code Section 7805, temporary regulations automatically expire within three years and must be issued concurrently with an identical proposed regulation, ensuring they also undergo the public comment process. The final stage is the issuance of a final regulation. This occurs only after the IRS and Treasury have reviewed and considered all public comments submitted in response to the proposed rule. The final regulation is published as a Treasury Decision (TD) and, once effective, has the full force and effect of law.

Locating Proposed Regulations

To participate in the rulemaking process, one must first know where to find the relevant documents. The primary and most authoritative source for all proposed regulations is the Federal Register, the official daily journal of the United States government. Its website, FederalRegister.gov, serves as a comprehensive database for all federal rulemaking activities.

The IRS also publicizes proposed regulations on its own website, IRS.gov, often in the “Newsroom” or “Tax Pros” sections with links to the full documents. Searching for the specific regulation number, if known (e.g., REG-117631-23), can lead directly to the guidance.

Once a Notice of Proposed Rulemaking is located, it contains all the necessary information for public engagement. The preamble of the notice explains the background, the reasons for the proposed rule, and a summary of the proposed changes. The document will also clearly state the deadline for submitting public comments and provide the specific addresses for both electronic and mail submissions.

The Public Comment Process

After locating a proposed regulation, any individual or organization can submit feedback directly to the IRS. The most efficient method for submitting comments is through the Federal eRulemaking Portal at Regulations.gov. Each proposed regulation is assigned a specific docket number, which will be listed in the NPRM. Users can search this docket number on the portal to find the correct page and use the “Comment” button to submit their feedback.

For those who prefer to submit comments by mail, the NPRM will also provide a physical mailing address. Comments sent by mail must be received by the deadline specified in the notice.

To craft an effective comment, be specific. Referencing particular sections of the proposed rule and explaining the anticipated real-world impact is effective. Including data, business case examples, or analysis of how the rule might affect a specific industry or group of taxpayers can provide context for regulators. Offering concrete alternative language or solutions can also be influential in shaping the final rule.

In some cases, the NPRM will announce a public hearing on the proposed regulation or provide instructions on how to request one. A public hearing offers an opportunity for commenters to present their views directly to the panel of IRS and Treasury officials responsible for writing the regulation. Individuals who wish to speak at a hearing must submit a request by a specified deadline, along with an outline of the topics they intend to discuss.

From Proposed to Final Regulation

The close of the public comment period marks the beginning of the final review phase. The IRS and Treasury are legally obligated to read and analyze all substantive comments they receive. This feedback is a component of the process and can lead to significant changes in the final rule. The agencies may decide to alter provisions, clarify language, or in some cases, withdraw the proposal entirely if the comments reveal fundamental issues.

This deliberative process culminates in the publication of a final regulation, which is issued as a Treasury Decision (TD) in the Federal Register. The preamble to the final regulation often includes a summary of the comments received and the agencies’ responses, explaining why certain suggestions were adopted and others were not.

The final regulation will also specify its effective date, which is the date the rule officially takes effect. In some instances, a rule may apply retroactively to transactions that occurred before its publication date, but this will be clearly stated.