Vol. 11, No. 1

245A and T.D. 9865: Two Steps Forward, One Step Back for Temporary Treasury Regulations?

Kristin E. Hickman*

            In June 2019, the Treasury Department (Treasury) adopted temporary regulations implementing the new § 245A,[1] enacted by Congress as part of the Tax Cuts and Jobs Act (TCJA).[2]  Among many changes to the provisions governing the non-U.S. activities of U.S. taxpayers, § 245A includes a 100% dividends-received deduction for U.S. corporations receiving dividends from certain non-U.S. subsidiaries.[3]  The temporary regulations deny the dividends-received deduction under certain circumstances in order to close what some have labeled as a “loophole” that some taxpayers could exploit “to avoid subjecting income to the Subpart F and GILTI regimes in a way that allows the use of Section 245A to contravene congressional intent.”[4]  Procedurally, the § 245A temporary regulations are unique as the first and only post-TCJA regulations to date (1) to be issued by Treasury in temporary form and (2) to invoke the good cause exception, including an extended explanation of Treasury’s reasons for doing so.  I have long been critical of the Treasury Department for issuing temporary Treasury regulations without pre-promulgation notice and comment or a claim of good cause for foregoing those procedures,[5] and I want to give Treasury credit where such is due.  Treasury’s more limited use of temporary regulations post-TCJA and its efforts to explain its choice to use temporary regulations in this instance represent significant steps toward greater compliance with general administrative law requirements by tax administrators.  On the other hand, some of the reasons that Treasury offered for using temporary regulations on this occasion are rather dubious, illustrating Treasury has not quite let go of its tax exceptionalist mindset.

            The Administrative Procedure Act (APA) requires notice and comment procedures before an agency adopts legally binding legislative rules unless the agency “for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.”[6]  Courts generally require agencies asserting this good cause exception to do so expressly and contemporaneously, and with specificity and particularity.[7]  Courts also tend to be skeptical of generic assertions of a need for immediate guidance, and they try to limit the good cause exception to truly unusual circumstances, such as when public safety is threatened or when advance notice of a rule might undermine the rule’s application.[8]

           In the past, Treasury typically has not relied on the good cause exception when issuing temporary regulations.  Instead, Treasury usually made two alternative claims:  first, that most of its regulations were exempt from APA notice and comment procedures as interpretative rules; and second, that § 7805(e) authorizes Treasury’s issuance of temporary regulations with only post-promulgation notice and comment, thereby reducing Treasury’s burden under the APA rather than imposing extra procedural requirements on Treasury when it uses temporary regulations.[9]  To date, however, courts have not found these arguments convincing.[10]  Also, in April 2018, shortly after Congress enacted the TCJA, Treasury signed an agreement with the Office of Information and Regulatory Affairs (OIRA) agreeing to submit significant regulatory actions to OIRA review, which would include extra scrutiny for temporary regulations without pre-promulgation notice and comment or a valid good cause claim.[11]  Perhaps for these reasons, Treasury has largely eschewed temporary regulations in implementing the TCJA.  In March 2019, Treasury issued a “Policy Statement on the Tax Regulatory Process” in which it committed to issue temporary regulations only “[i]n certain exceptional circumstances,” such as “to stop abusive practices or to immediately resolve an injurious inconsistency between existing regulations and a new statute or judicial decision,” and also “to include a statement of good cause when issuing any future temporary regulations.”[12]  As noted, the § 245A temporary regulations represent the first and only instance in which Treasury has issued temporary regulations post-TCJA, and the preamble to those regulations clearly and at some length asserted the good cause exception. 

            Treasury offered four separate, if not sometimes overlapping, rationales for postponing notice and comment for the § 245A temporary regulations―one arguably quite solid, but the other three really very questionable.  First, and perhaps most defensibly, Treasury asserted that notice and comment procedures and a delayed effective date “would provide taxpayers with the opportunity to engage in the transactions to which these rules relate with confidence that they achieve the intended tax avoidance results absent the applicability of regulations.”[13]  Treasury described at some length its concerns regarding the “aggressive tax planning to take advantage of the unintended interactions among the [TCJA’s] provisions.”[14]  Of Treasury’s four justifications, this is the strongest.  The APA’s drafters offered as a potential example of good cause “the issuance of financial controls under such circumstances that advance notice of such rules would tend to defeat their purpose,”[15] and subsequent cases have accepted similar justifications.  Although a court might disagree, the aggressive tax planning potential alleged by Treasury in the preamble to the §245A temporary regulations seems easily analogous.

            A second, much weaker justification offered by Treasury was that, consistent with the requirements of § 7805(e), the temporary regulations “have a fixed expiration date,” Treasury simultaneously requested public comments, and Treasury committed to consider the comments it receives.[16] Treasury asserted―without citation―that “the good cause exception may apply when regulations are by their nature short term and there is an opportunity to comment before final rules are introduced.”[17]  Certainly, providing notice and an opportunity for public comment before issuing final regulations will often persuade courts to overlook flawed assertions of the good cause exception for temporary regulations.[18]  The mere use of such post-promulgation procedures alone, however, typically does not constitute good cause in and of itself.[19]

            Treasury’s remaining two rationales, though stated separately, are intertwined in that they both derive from Treasury’s decision to apply the § 245A regulations retroactively to the TCJA’s enactment.  In a rather circular claim, Treasury said that delaying the effective date of the regulations until after notice and comment would “increase taxpayer compliance costs because certain taxpayers would only be able to come into compliance with the regulations by amending and refiling returns and paying additional taxes owed with interest.”[20]  Treasury did not elaborate how this could be the case except that the eventual regulations, “as applied retroactively, will affect taxable years of certain taxpayers ending in 2018.”[21]  Of course, if Treasury utilized notice and comment procedures to adopt regulations to be applied prospectively only, as most agencies do, then no amending and refiling of tax returns would be required.  In other words, this claimed justification for asserting the good cause exception was not imposed upon Treasury by external sources beyond its control, but rather arises from Treasury’s own discretionary choice. 

            Meanwhile, Treasury asserted as good cause its desire to apply the new § 245A temporary regulations, and the final regulations that will eventually replace them, retroactively to 2017, as well as the then-looming statutory deadline imposed by § 7805(b)(2) to make that happen.[22]  Elsewhere in its discussion of the good cause exception, Treasury suggested―without citation―that “good cause is supported where regulations are required to be issued and effective by a certain statutory deadline, and in light of the circumstances affecting the agency and its functions leading up to that statutory deadline, the agency is unable during that timeframe to conduct a timely and fulsome notice-and-comment process.”[23]  But courts are at best mixed regarding whether imminent statutory deadlines constitute good cause.[24]  The statutory deadlines on which most good cause claims are predicated tend to be specific congressional mandates to adopt particular regulations within a fixed time frame,[25] whereas §7805(b)(2) serves more generically to limit Treasury discretion to make its regulations retroactively applicable.  Moreover, Treasury’s justification for not meeting the § 7805(b)(2) deadline was that it was too busy with other TCJA-related regulations, forms, etc., to complete the § 245A regulations sooner.  Yet every agency—even those faced with implementing sweeping new legislation—must prioritize its regulatory goals in accordance with its resource constraints.  According to the Second Circuit in a non-tax case just last year, “[g]ood cause cannot arise as a result of the agency’s own delay, because ‘[o]therwise, an agency unwilling to provide notice or an opportunity to comment could simply wait until the eve of a statutory, judicial, or administrative deadline, then raise up the ‘good cause’ banner and promulgate rules without following APA procedures.’”[26]  Again, this justification for postponing notice and comment procedures is the result of Treasury’s own choices, rather than facts and circumstances outside of its control. 

            Quite simply, Treasury has confused good cause under the APA with its own preference for retroactivity to the date of enactment and its inability to achieve that result due to its own failure to act within the necessary timeframe.  The real question is whether Treasury’s more questionable good cause justifications will undermine the more plausible one.  Somewhat ironically, with its fixation on the expiring window for retroactivity under § 7805(b)(2) and its past overreliance on temporary regulations as a tool for accomplishing its goals, Treasury missed what seems to be a more obvious basis for making its § 245A regulations retroactively applicable:  the authorization in § 7805(b)(3) for Treasury to make regulations retroactive “to prevent abuse.”[27]  Treasury’s first justification for issuing temporary regulations arguably fits that rationale.  Maybe they had a reason for not going that route.  One can only glean so much from a preamble.  When last I checked, however, Treasury had yet to develop a more comprehensive policy or set of guidelines for evaluating either when to exercise its discretion to make regulations retroactively applicable or when good cause might exist to utilize temporary regulations.  Perhaps doing so would help Treasury not only in making those choices but also justifying them in the future.   


* Distinguished McKnight University Professor and Harlan Albert Rogers Professor in Law, University of Minnesota Law School. 

[1] T.D. 9865, 84 Fed. Reg. 28398 (June 18, 2019).

[2] Tax Cuts and Jobs Act of 2017, Pub. L. No. 115-97 (2017).

[3] I.R.C. §245A.

[4] Temporary Regs Address Section 245A Loophole, Grant Thorton,  https://www.grantthornton.com/library/alerts/tax/2019/Flash/temporary-address-section-loophole.aspx [https://perma.cc/ZBT2-UH5M] (June 19, 2019); see also Lee A. Sheppard, Are the Temporary Dividends Received Deduction Rules Valid?, 164 Tax Notes Fed. 453 (July 22, 2019) (recognizing the same issue).

[5] See, e.g., Kristin E. Hickman, Unpacking the Force of Law, 66 Vand. L. Rev. 465, 492-502 (2013) (describing Treasury’s use of temporary regulations and the surrounding legal context); Kristin E. Hickman, Coloring Outside the Lines: Examining Treasury’s (Lack of) Compliance with Administrative Procedure Act Rulemaking Requirements, 82 Notre Dame L. Rev. 1727, 1749-51 (2007) (quantifying Treasury’s use of temporary regulations).

[6] 5 U.S.C. § 553(b)(B).

[7] See Hickman, Unpacking the Force of Law, supra note 5, at 493-94 (citing specific cases).

[8] Id.

[9] The APA alone does not require agencies claiming the good cause exception to pursue post-promulgation notice and comment, although the practice is common. See 5 U.S.C. § 553(b) & (c).

[10] See, e.g., Intermountain Ins. Serv. Of Vail, LLC v. Comm’r, 134 T.C. 211, 245-46 (2010) (Halpern & Holmes, JJ. concurring) (rejecting IRS interpretation of § 7805(e) and the APA’s interpretative rule exception as authorizing lack of pre-promulgation notice and comment for temporary Treasury regulations); Chamber of Commerce of the United States v. Internal Revenue Service, No. 1:16-CV-944-LY, 2017 WL 4682050 (W.D. Tex. Oct. 6, 2017) (same); see also Altera Corp. & Subs. v. Comm’r, 145 T.C. 91, 115-17 (2015) (rejecting characterization of Treasury regulations issued under § 7805(a) general authority as interpretative rules); rev’d on other grounds, Altera Corp. & Subs. v. Comm’r, 898 F.3d 1266 (9th Cir. 2018).

[11] Memorandum of Agreement, The Department of the Treasury and the Office of Management and Budget Review of Tax Regulations under Executive Order 12866 (Apr. 11, 2018), available at https://home.treasury.gov/sites/default/files/2018-04/04-11%20Signed%20Treasury%20OIRA%20MOA.pdf [https://perma.cc/2QDF-NUK4].

[12] Treasury Department, Policy Statement on the Tax Regulatory Process (Mar. 5, 2019), available at https://home.treasury.gov/system/files/131/Policy-Statement-on-the-Tax-Regulatory-Process.pdf [https://perma.cc/M6GC-V6BU].

[13] T.D. 9865, 84 Fed. Reg. 28398 (June 18, 2019).

[14] Id.

[15] Attorney General’s Manual on the Administrative Procedure Act 31 (1947) (citing Senate Hearings (1941), p. 812)

[16] T.D. 9865, 84 Fed. Reg. 28398 (June 18, 2019).

[17] Id.

[18] See Kristin E. Hickman & Mark Thomson, Open Minds and Harmless Errors: Judicial Review of Postpromulgation Notice and Comment, 101 Cornell L. Rev. 261, 291-97 (2016).

[19] See generally 1 Kristin E. Hickman & Richard J. Pierce, Jr., Administrative Law Treatise §5.10 (6th ed. 2018) (discussing the good cause exception and summarizing illustrative cases).

[20] T.D. 9865, 84 Fed. Reg. 28398 (June 18, 2019).

[21] Id.

[22] See I.R.C. § 7805(b)(2) (authorizing Treasury to backdate “regulations filed or issued within 18 months of the date of the enactment of the statutory provision to which the regulation relates). Because the TCJA was enacted on December 22, 2017, the 18-month window closed on June 22, 2019.   

[23] T.D. 9865, 84 Fed. Reg. 28398 (June 18, 2019).

[24] See, e.g., Western Oil & Gas Ass’n v. U.S. EPA, 633 F.2d 803 (9th Cir. 1980) (rejecting the pressure of statutory deadlines as good cause, and citing other circuit courts as in agreement).

[25] See, e.g., Philadelphia Citizens in Action v. Schweiker, 669 F.2d 877, 885-86 (3d Cir. 1982) (recognizing good cause where Congress made a complicated benefits statute effective 49 days after enactment, requiring the agency to adopt implementing regulations within that period).

[26] Nat. Res. Def. Council v. Nat’l Highway Traffic Safety Admin., 894 F.3d 95, 114-15 (2d Cir. 2018) (quoting Council of the S. Mountains, Inc. v. Donovan, 653 F.2d 573, 581 (D.C. Cir. 1981))

[27] I.R.C. § 7805(b)(3).


Two Steps Forward, Two Steps Back?  Good Cause and the Section 245A Temporary Regulations

*Kandyce Korotky

            Public notice and comment (“N&C”) is one of the foundational principles of administrative rulemaking.  There are two limited exceptions to the N&C procedure—one for particular types of rules, such as interpretive rules, and the other for situations where N&C would be “impracticable, unnecessary, or contrary to the public interest.”  5 U.S.C. § 553(b)(3)(B).  In promulgating section 245A temporary regulations with an immediate effective date, the Treasury Department invoked this second exception, the so-called “good cause exception.”

            Treasury provided four distinct “good cause” statements for the immediate applicability of the section 245A regulations.  The first of these statements, which Professor Hickman describes as the “strongest” of the four, justifies immediate application as necessary to avoid abuse.[1]  According to Treasury, a delayed effective date “would provide taxpayers with the opportunity to engage in the transactions to which these rules relate with confidence that they achieve the intended tax avoidance results absent the applicability of regulations.”[2]

            There are both substantive and procedural reasons why even this “strongest” justification for immediate applicability does not withstand scrutiny.  This comment focuses on the former.  As a substantive matter, the temporary regulations deny the section 245A deduction in circumstances where a taxpayer is entitled to it under the plain language of the unambiguous statute.  This results in the denial of a deduction to which taxpayers are statutorily entitled,[3] not the curbing of potential abuse.

Treasury itself acknowledges that “a literal application of section 245A” entitles taxpayers to the deduction in the circumstances addressed in the temporary regulations, justifying its departure from the statute “[b]ased on the structure and history of the international provisions of the Code, including changes made by the [TCJA].”[4]  In other words, the temporary regulations do not interpret section 245A—they override it.

            Courts are very wary of the good cause exception to N&C and interpret good cause statements narrowly, lest the exception “become[s] an all-purpose escape clause.”[5]  (Indeed, even regulations implementing rules for sex offenders have not met the good cause requirement.[6])  Given that the section 245A temporary regulations effectively rewrite the statute, it is unlikely that a court would consider this justification for immediate applicability to be a narrowly tailored necessity instead of an “escape clause.”

            Indeed, the D.C. District Court found good cause to be lacking with respect to temporary regulations that expanded the underlying statute in a manner that imposed additional obligations and penalties not found in the statute.[7]  In World Duty Free Americas, Inc. v. Summers, duty-free store operators sought an injunction precluding the enforcement of certain temporary Treasury regulations, promulgated by the Bureau of Alcohol, Tobacco and Firearms (“ATF”), with respect to the exportation and re-importation of tobacco products.  The ATF invoked the good cause exception to N&C, in part on the basis that the regulatory language did not depart from, and was simply a restatement of, the underlying statute. 

            In granting the injunction, the court found that “plaintiffs have demonstrated a likelihood of success on the merits” that the temporary regulations did not meet the good cause exception.  In particular, the court noted that the regulations did not hew closely to the statutory language but rather provided definitions of terms that were undefined in the statute.  According to the court, this had the effect of “expand[ing] the substantive reach of the statute to impose obligations and potential penalties on residents returning to the United States.”[8] 

            Notably, in World Duty Free, the addition of definitions was sufficient for the court to conclude that the temporary regulations went beyond the plain language of the statute, and found that the good cause exception likely was not met at least partly on this basis.[9]  The section 245A regulations go well beyond defining statutory terms, with Treasury itself admitting that the temporary regulations expand the literal language of the statute.  Thus, the section 245A temporary regulations present an even weaker good cause justification than the regulations in World Duty Free.

            Further, where, as here, an agency asserts that immediate applicability is necessary because “the very announcement of a proposed rule itself can be expected to precipitate activity by affected parties that would harm the public welfare,”[10] courts have required a showing of “a significant threat of serious damage to important public interests” before finding good cause.[11]  In particular, cases that have upheld economic-focused regulations without N&C have done so when the regulations were meant to implement the law and immediate applicability was fundamental to the efficacy of the legislation that was being implemented.

            For example, a price freeze on football game tickets—effected by an executive order and accompanying regulations implementing the Economic Stabilization Act of 1970—was allowed immediate effect because a price rush would have occurred had the effective date been delayed, thereby negating the effect of the executive order.[12]  In another case, the immediate effective date of oil pricing regulations was upheld “in view of the emergency conditions prompting the petroleum price legislation” where prolonged ambiguity of a previous regulation would have led to market distortion.[13]  These cases are a stark contrast to the section 245A regulations, which have no tie to the statute, but instead were justified by looking to “the overall structure of the international provisions and its interaction with the subpart F and GILTI provisions,”[14] and which affect only a small number of taxpayers in “certain atypical circumstances.”[15]

            Treasury’s anti-abuse justification as good cause for immediately effective section 245A regulations does not pass muster.  Without any solid rationale for promulgating these temporary regulations, Treasury’s recent commitment to issue temporary regulations only “[i]n certain exceptional circumstances”[16] was two steps forward, quickly followed by two steps back.


* Associate in the Tax Practice Group of Covington & Burling LLP.

[1] See Hickman, Kristin E., § 245A and T.D. 9865: Two Steps Forward, One Step Back for Temporary Treasury Regulations? Colum. J. Tax L. Tax Matters (2020).  

[2] Limitation on Deduction for Dividends Received from Certain Foreign Corporations and Amounts Eligible for Section 954 Look-Through Exception, 84 Fed. Reg. 28,398 (June 18, 2019).

[3] A draft technical corrections bill would, if enacted, have a similar result to the temporary regulations, further suggesting that statutory, not regulatory, action is needed to validly achieve the effect of the temporary regulations.  See discussion draft of the Tax Technical and Clerical Corrections Act, 115th Cong., 2d Sess. (Jan. 2, 2019).

[4] 84 Fed. Reg. 28,400.

[5] Federation of Federal Employees v. Devine, 671 F.2d 607, 610 (D.C. Cir. 1982).

[6] See United States v. Cain, 583 F.3d 408 (6th Cir. 2009).

[7] World Duty Free Americas, Inc. v. Summers, 94 F.Supp.2d 61, 65 (D.D.C. 2000).

[8] Id.

[9] Based on the court’s decision, the ATF issued a notice of proposed rulemaking and, after a notice-and-comment period, finalized a version of the regulations that was a “complete revision” of the temporary regulations.  See T.D. TTB-115, 78 Fed. Reg. 38,560, 61 (June 27, 2013).

[10] Mobil Oil Corp. v. Department of Energy, 728 F.2d 1477, 1492 (Temp. Emer. Ct. App. 1983).

[11] Id.

[12] DeRieux v. Five Smiths, Inc., 499 F.2d 1321 (Temp. Emer. Ct. App. 1974).

[13] Mobil Oil Corp., 728 F.2d at 1492.

[14] 84 Fed. Reg. 28,399.

[15] Id. at 28,400.

[16] Treasury Department, Policy Statement on the Tax Regulatory Process (Mar. 5, 2019), available at https://home.treasury.gov/system/files/131/Policy-Statement-on-the-Tax-Regulatory-Process.pdf [https://perma.cc/4KWU-4UXC].


Scrutinizing Treasury’s First Argument for the Good-Cause Exception

Steven R. Dixon*

            It is indeed a welcomed development that Treasury made the effort to include a statement of good cause in defending its choice to bypass the notice-and-comment process with its Temporary Regulations under section 245A. But effort alone is not enough to warrant an exception from the APA’s notice-and-comment procedures. Courts have made clear that the good cause exception “is to be narrowly construed and only reluctantly countenanced.”[1] Treasury’s arguments for invoking the exception deserve close scrutiny, lest Treasury mistake the exception for an “‘escape clause[]’ that may be arbitrarily utilized at the agency’s whim” rather than an exception that “should be limited to emergency situations ….”[2]

            In its first efforts under the TCJA to justify an exception from APA-mandated rulemaking procedures, Treasury proffered four arguments. Professor Hickman hits the mark with her assessment that the last three of Treasury’s four arguments are “really very questionable.”[3] None of those three arguments makes the case that there is the kind of public-policy emergency that warrants a departure from notice-and-comment rulemaking.[4]

            Setting those three arguments aside leaves only Treasury’s first argument, which appears—at least superficially—to identify a colorable rationale for invoking the exception. Treasury correctly observed that the good cause exception may be available where the “announcement of a proposed rule would enable or increase the sort of financial manipulation the rule sought to prevent.”[5] Assume for the sake of argument that the transactions that exploit the purported loophole in 245A (hereinafter “disfavored transactions”) amount to “financial manipulation,”[6] proposed regulations do not carry the force of the Temporary Regulations, and there is indisputably a relationship between the Temporary Regulations and the disfavored transactions they are meant to prevent. All of this makes Treasury’s assertion that issuing proposed regulations for notice and comment “would provide taxpayers with the opportunity to engage in the [disfavored] transactions” sound plausible.[7]

            But agencies cannot invoke the good cause exception to avoid notice and comment whenever they enact rules that are tailored to prevent “financial manipulation.” (For several agencies, such an exception would swallow the general rule requiring notice and comment.) Rather, the exception is available to agencies only “when ordinary [notice-and-comment] procedures—generally presumed to serve the public interest—would in fact harm that interest.”[8] In other words, Treasury is warranted to invoke the good cause exception here only if announcing proposed regulations would have enabled taxpayers to engage in disfavored transactions or increased the likelihood that taxpayers would do so.

            This is where Treasury’s argument falters. Treasury hypothesized that if it had issued proposed regulations subject to notice and comment, it would have “embolden[ed]” taxpayers to engage in the disfavored transactions.[9] Treasury took this assertion further, asserting that if taxpayers were to engage in the disfavored transactions, such proposed regulations would have given taxpayers the “confidence that [the disfavored transactions] achieve the intended tax avoidance results absent the applicability of the regulations.”[10] Presumably, what Treasury meant here is that if the regulations were merely proposed rather than temporary, taxpayers would infer that they could engage in disfavored transactions before those proposed regulations became final.

            Setting aside Treasury’s “tax avoidance” allegation, Treasury’s hypothesis is highly questionable. In one sense, it proves too much because temporary regulations will always have greater deterrent effects than proposed regulations. The good cause exception does not apply here not merely because temporary regulations have greater deterrent effect than proposed regulations; it does not apply unless proposed regulations would have had the effect of increasing the likelihood of the disfavored transactions.

            In this regard, it is unclear why proposed regulations would make taxpayers more likely to engage in the transactions. If Treasury had issued proposed regulations in a timely fashion, the preamble undoubtedly would have explained Treasury’s reasoning why section 245A and other international rules under TCJA “collectively operate as a comprehensive framework” that prohibits taxpayers from reaping the tax benefits of the disfavored transactions.[11] It is more plausible to think that such proposed regulations—issued timely and accompanied by such an explanation—would have had a chilling effect on the disfavored transactions because taxpayers and their advisors would take proposed regulations and their accompanying explanation into account in considering disfavored transactions.[12]

            Treasury’s answer to this problem appears to be that its silence on the matter was a more effective deterrent for the disfavored transactions than proposed regulations would have been. Treasury asserted that some taxpayers who considered engaging in disfavored transaction did not do so “because of uncertainty about the operation and interaction of the various provisions of the Act.”[13] As far as the APA is concerned, Treasury’s reasoning is problematic. Treasury’s logic here suggests that the public interest would be best served by keeping the public in the dark about Treasury’s interpretation of how section 245A and related international provisions would operate. But public participation in rulemaking is foundational to the APA. The tension between this implicit premise in Treasury’s argument and the APA’s foundational principles is precisely why Treasury’s case for the good cause exception deserves particular scrutiny.


* Member of Miller & Chevalier Chartered.

[1] Util. Solid Waste Activities Grp. v. EPA, 236 F.3d 749, 754 (D.C. Cir. 2001).

[2] Am. Fed. Of Gov’t Emps. v. Block, 655 F.2d 1153, 1156 (D.C. Cir. 1981).

[3] See Hickman, Kristin E., § 245A and T.D. 9865: Two Steps Forward, One Step Back for Temporary Treasury Regulations? Colum. J. Tax L. Tax Matters (2020). 

[4] Treasury gestured toward an “emergency” with its argument that the exception is warranted to ensure that the Temporary Regulations are retroactive to the statute’s enactment date. But as Professor Hickman observes (more diplomatically than I do here), Treasury cannot invoke an emergency caused by its own indolence.

[5] Limitation on Deduction for Dividends Received From Certain Foreign Corporations and Amounts Eligible for Section 954 Look-Through Exception, 84 Fed. Reg. 28398-01, 28405 (June 18, 2019) (to be codified at 26 C.F.R. pt. 1).

[6] It is worth noting here that some taxpayers appear ready to challenge the Temporary Regulations and are confident that the Regulations will be invalidated. See Richard Rubin and Theo Francis, Companies Say They Can Ignore Cost of U.S. Tax Rules, The Wall Street Journal, updated Aug. 30, 2019 https://www.wsj.com/articles/companies-say-they-can-ignore-cost-of-u-s-rule-ending-international-tax-maneuver-11567157403. (reporting that at least two companies have taken financial reporting positions based on the conclusion that it is more likely than not that the Temporary Regulations will be invalidated).

[7] Supra note 5, at 28406.

[8] Mack Trucks, Inc. v. EPA, 682 F.3d 87, 95 (D.C. Cir. 2012) (emphasis added).

[9] Supra note 5, at 28406.

[10] Likewise, Treasury suggests that if taxpayers were to engage in such transactions, they would do so “with the comfort that their actions were not subject to the rules of the temporary regulations during the period of notice and comment and before the regulations’ effective date.” Id.

[11] Supra note 5, at 28399.

[12] Perhaps Treasury meant to suggest that if it had issued proposed regulations, it would have made taxpayers aware of the possibility of using disfavored transactions to lower their tax liabilities. But Treasury admits that “[t]he Treasury Department and the IRS are aware that taxpayers have considered engaging in” the disfavored transactions (id. at 28406). If Treasury and the IRS know about the disfavored transactions, then it is reasonable to infer that any taxpayers who might benefit from disfavored transactions also know about them.

[13] Limitation on Deduction for Dividends Received From Certain Foreign Corporations and Amounts Eligible for Section 954 Look-Through Exception, 84 Fed. Reg. at 28406.