Question

Do Treasury Regulations apply retroactively? Explain Fully.

Answer 1

Treasury Regulations are the tax regulations issued by the Internal Revenue Service (IRS).

The courts have established that Federal agency rules are fixed unless Congress gives a retroactive authority. IRC Section 7805 (b) addresses issue of the retroactivity of the Treasury regulations and changes. If a taxpayer’s tax year ends before a regulation is released, the regulation will not apply to preceding tax years.

There are some exceptions like prospective application may be overridden by Congressional authorization, the Secretary may provide that any regulation may take effect retroactively to prevent abuse, regulations that only apply to internal agency policies may be retroactive.

It is not impossible for the Treasury Secretary to issue rules with retroactive effect. However, any such retroactive regulation or rule could be challenged on constitutional grounds, depending upon the facts of the situation