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Tax Notes: The Limits of Mayo Foundation v. United States

Baker Hostetler partner Stuart J. Basin co-authored an article with Beatrice Larkin, “The Limits of Mayo Foundation v. United States: Retroactive Regs,” which was published in the April 18, 2011, issue of Tax Notes. Larkin is currently completing a law externship at Baker Hostetler.

The article discusses the impact of the Supreme Court’s recent decision in Mayo Foundation v. United States. The opinion, which addressed the validity of a Treasury regulation proclaimed to resolve a frequently litigated issue involving the tax treatment of medical resident stipends, refined the analysis used to evaluate validity challenges to tax regulations. The Court unanimously upheld the validity of the challenged regulation and appears to have lowered the standards the government must satisfy in defending Treasury regulations.

The article focuses upon the impact of the Mayo decision for future cases involving challenges to other regulations. “One area in which the effect of Mayo is likely to be litigated involves challenges to the validity of determinations to apply new Treasury regulations retroactively,” note the authors. “Section 7805(b) establishes the limits of the IRS’s authority and requires the Service to establish unambiguous statutory authority for retroactive applications of regulation.” Because the IRS bears the burden of proving unambiguous statutory authority, taxpayers challenging a retroactive regulation should face an easier road than the taxpayers in Mayo. Accordingly, the authors conclude by saying, “Thus, while the Mayo decision may benefit the IRS in future litigation involving other types of challenges to regulations, it will provide it with little (if any) help in defending retroactive regulations.”