The IRS has released an action on decision (AOD 2012-03)
formally rejecting a 1966 Court of Claims opinion in IBM v.
U.S. (343 F.2d 914) that addresses when the IRS can
retroactively apply adverse rulings or retroactively revoke
favorable rulings. The AOD officially establishes the IRS's
position on the issue and provides that the IRS will not acquiesce
to the decision.
The Court of Claims originally ruled in IBM that the
IRS abused its discretion under Section 7805(b) by revoking a
favorable letter ruling prospectively in a way that allowed
IBM's competitor to keep a previous refund based on the ruling
while IBM's refund claim was rejected.
Section 7805(b) generally allows the IRS wide latitude to
prescribe to what extent, if any, an IRS ruling will be applied
retroactively. The AOD points to several decisions that have eroded
IBM, and argues that a simple error by the IRS in applying the tax
code to one taxpayer should not effectively nullify that provision
of
