The Court of Federal Claims on Thursday invalidated the retroactive application of Reg. § 1.752-6, which required a partner to reduce her outside basis for contingent obligations transferred to a partnership.  Murfam Farms LLC v. United States, No. 06-245T (Fed. Cl. July 30, 2009):

Plaintiffs argue that Treas. Reg. § 1.752-6 is invalid because (1) the Regulation’s retroactive date fails to comply with the statutory limitation on the issuance of retroactive regulations set forth in § 7805(b); (2) the Regulation prescribes rules that fail to carry out Congressional intent in accordance with the two-step test under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984); and (3) the Regulation was issued, without good cause, in violation of the notice and comment requirements under the Administrative Procedure Act, 5 U.S.C. § 553.

For the reasons discussed below, the Court finds that the Regulation is invalid because its retroactive date fails to comply with the statutory bar on retroactive regulations relating to the internal revenue laws of the United States, as provided in § 7805(b). Accordingly, the Regulation is not a legislative regulation entitled to deference under Chevron. Further, because § 7805(b) is an express statutory limitation on Treasury’s general rulemaking authority relating to the internal revenue laws of the United States, the Regulation also is not a valid interpretive regulation pursuant to its general authority to prescribe regulations.