Aegis Convictions Affirmed Installment #5 - IRS Notices and Harmless Error (10/1/12)

IRS Notice 97-24, here, issued in April 1997, expressed the opinion of the IRS that trusts akin to the Aegis trusts were an unlawful means of tax avoidance.   The evidence established that the defendants were aware of the notice and continued their behavior anyway.  "The defendants proposed an instruction that would have advised the jury on the relative legal weight of IRS regulations, revenue rulings, letter rulings, and public notices, the last of which "have no force of law.'"  The question is what exactly was the role of the Notice that the defendant's ignored.  Was it like a regulation which usually does have the force of law or just an IRS opinion?  What was the jury to make of the defendants not taking heed of the Notice?

We study the various forms of IRS pronouncements in the UH Tax Procedure Class.  Here is the portions of the Federal Tax Procedure text (as revised for the next edition) discussing Notices ( most footnotes omitted):

The IRS issues “Notices” that are less formal than Regulations.  These notices are used to provide quicker notice to the public than allowed by the other forms of pronouncement. 

A notice, which is published in the Internal Revenue Bulletin and compiled annually in the Cumulative Bulletin, contains guidance that involves substantive interpretations of the Code or other provisions of law.  Topics can include changes to forms or to other previously published materials, solicitation of public comments on issues under consideration, and advance notice of rules to be provided in regulations when the regulations may not be published in the immediate future. Increasingly, notices have served as a critical component of the Service's efforts to combat abusive tax avoidance transactions, as they have been used to identify transactions about which the Service has concerns. Given the rapid pace of developments in this area, notices have proven particularly useful for quickly disseminating information that allows taxpayers to understand exactly which transactions will be of  interest to the Service, including so-called “listed transactions” and “transactions of interest,” both of which are "reportable transactions" under section 6011. fn