What Does IRS Nonacquiescence Mean?
An IRS nonacquiescence signals a formal disagreement with a court ruling, creating different tax law applications for taxpayers based on their location.
When the IRS loses a case in federal court, it may issue a nonacquiescence. This is a formal declaration that the agency disagrees with the court’s legal reasoning and will not follow the ruling when dealing with other taxpayers in similar situations. This announcement can apply to unfavorable decisions from the U.S. Tax Court, U.S. District Courts, U.S. Court of Federal Claims, and U.S. Circuit Courts of Appeals. The IRS does not issue nonacquiescence for Supreme Court decisions, as those are binding nationwide.
The Purpose of IRS Nonacquiescence
The purpose of a nonacquiescence is to state the IRS’s litigation position and provide guidance to its personnel. When the agency loses a case and decides not to appeal, the nonacquiescence serves as an internal directive and a public announcement. It signals that the IRS believes the court’s decision is erroneous and wants to prevent it from becoming a widely accepted precedent.
This action contrasts with “acquiescence,” where the IRS announces it accepts the court’s holding and will apply that decision in future cases with similar facts. A more nuanced response is “acquiescence in result only.” This signifies the IRS accepts the specific outcome of the case but disagrees with the court’s legal reasoning, reserving the right to dispute the issue using a different argument.
A nonacquiescence also signals the IRS’s intent to create a “circuit split,” where different federal circuit courts rule differently on the same tax issue. A split in legal authority is a primary reason the U.S. Supreme Court may agree to hear a case. By litigating the issue in various jurisdictions, the IRS hopes to secure a favorable ruling in a different circuit, potentially bringing the matter before the Supreme Court for a final resolution.
Legal Effect and Geographic Scope
The impact of an IRS nonacquiescence is tied to the federal court structure and the Golsen rule. Tax disputes can be heard in the U.S. Tax Court, but its decisions can be appealed to the U.S. Court of Appeals for the circuit where the taxpayer resides. Rulings from these 12 regional circuit courts are binding on the Tax Court for cases within their territory.
This structure was addressed in Golsen v. Commissioner. Under the Golsen rule, the Tax Court must follow the precedent set by the Court of Appeals for the circuit where a case would be appealed. This rule ensures judicial efficiency by preventing the Tax Court from issuing decisions that would be automatically reversed.
The Golsen rule geographically limits an IRS nonacquiescence. For example, if the Court of Appeals for the Ninth Circuit rules against the IRS on a tax issue, a nonacquiescence does not affect taxpayers in that circuit. The agency is still bound by that ruling for all taxpayers residing within the Ninth Circuit’s jurisdiction. The nonacquiescence serves as a declaration that the IRS will apply its own interpretation and challenge taxpayers on that same issue in all other circuits.
This means the legal authority a taxpayer can rely upon depends on their geographic location. A taxpayer in a circuit with a favorable precedent is protected from an IRS challenge on that issue. However, a taxpayer in a different circuit cannot rely on that decision and should expect the IRS to enforce its position.
Identifying an Action on Decision
The IRS announces a nonacquiescence through a document called an Action on Decision (AOD). An AOD is a legal memorandum from the IRS Office of Chief Counsel recommending the agency’s response to an adverse court decision. These documents are not statements of law but are announcements of the IRS’s litigation strategy.
Each AOD identifies the case by name, the court, and the tax year. It states the issue decided against the government and summarizes the facts, the court’s reasoning, and the Chief Counsel’s recommendation. The recommendation will be stated as “Acquiescence,” “Acquiescence in Result Only,” or “Nonacquiescence.”
Taxpayers can find these announcements in the Internal Revenue Bulletin (IRB). The IRB is a weekly publication that contains the IRS’s official rulings, procedures, and other items of general interest. AODs are published in the IRB, making them publicly available and allowing taxpayers to understand the IRS’s position on recent court losses and assess their own risk.