After *Green Valley*, IRS "Listing" Notices Are on Shaky Ground: The APA Catches Up to Tax Guidance

Key takeaways

• *Green Valley Investors, LLC v. Commissioner*, 159 T.C. No. 5 (November 9, 2022), invalidated Notice 2017-10's listing of syndicated conservation easements as a reportable transaction under IRC § 6011 because the IRS did not follow APA notice-and-comment procedures before issuing the Notice.
• The decision sits alongside a developing body of circuit-court decisions rejecting IRS guidance issued without APA compliance — including the Eleventh Circuit's *Hewitt v. Commissioner* (December 2021) in the conservation-easement context and Sixth Circuit decisions on related issues.
• A finding that a listing notice is invalid does not mean the transactions are legal — it means taxpayers were not properly required to disclose them as listed transactions, and that penalties under § 6707A (failure to disclose listed transactions) may not apply.
• The practical implication: any IRS Notice that designates transactions as listed or reportable, issued without formal notice-and-comment rulemaking, is now more exposed to APA challenge than it was before November 2022.

What the Tax Court held in *Green Valley*

The IRS designated certain syndicated conservation easement transactions as "listed transactions" — transactions specifically identified by the IRS as tax avoidance schemes — in Notice 2017-10. Designation as a listed transaction triggers disclosure requirements under § 6011 and exposure to substantial penalties under § 6707A for failure to disclose.

The *Green Valley* taxpayers challenged the Notice on the ground that it was a legislative rule — a rule with the force of law — and therefore required APA notice-and-comment rulemaking under 5 U.S.C. § 553. The IRS had issued the Notice using only the streamlined "notice" format, without prior public comment.

The Tax Court agreed with the taxpayers. The court held that Notice 2017-10 was a legislative rule because it imposed a legal obligation (disclosure) with substantive consequences (penalties) — it did not merely interpret existing law or make a policy statement. Under the APA, legislative rules must go through notice-and-comment rulemaking unless an exception applies. The IRS did not follow that process, and no applicable exception existed. The Notice was set aside.

What this means beyond conservation easements

The APA challenge to IRS listing notices is not a theory invented for conservation-easement taxpayers. It rests on a principle — that rules with the force of law require notice-and-comment procedures — that applies across the full range of IRS notice-and-comment guidance.

The implications branch in two directions:

For existing listing notices. Notice 2017-10 is the clearest example, but the IRS has issued listing notices for numerous other transaction types over the years, using the same streamlined format. Each of those notices is now a potential APA challenge candidate. The government has argued, in various circuits, that listing notices are interpretive rules exempt from notice-and-comment — but *Green Valley* and the pre-existing circuit decisions have narrowed the credibility of that position in some jurisdictions.

For sub-regulatory guidance more broadly. The APA challenge extends beyond listing notices to other forms of IRS guidance issued without notice-and-comment rulemaking — revenue rulings, notices, and announcements that impose legal obligations or meaningfully affect taxpayer rights. Courts have increasingly applied APA scrutiny to agency guidance issued without public comment, and *Green Valley* is part of that broader trend rather than an isolated exception.

The penalty implications

The practical significance of invalidating a listing notice is concentrated in the disclosure-penalty context. Section 6707A imposes penalties for failure to include information required under § 6011 — and § 6011 incorporates listed-transaction disclosure by reference to whatever the IRS has designated as a listed transaction.

If the listing notice is invalid, the § 6011 obligation to disclose does not arise, and the § 6707A penalty for failure to disclose cannot be imposed. Taxpayers who received § 6707A assessments based on Notice 2017-10 have filed — and in some cases won — refund suits on this theory.

What the invalidity of the Notice does not address: the underlying substantive correctness of the position. A syndicated conservation easement that fails the § 170 requirements for a qualified conservation contribution is still disallowed on the merits, regardless of whether it was a listed transaction. The APA challenge affects the procedural disclosure obligation and associated penalties — not the substantive income tax consequence.

What taxpayers should do with this development

Assess any prior listed-transaction designation. If a taxpayer received a § 6707A penalty based on a listing notice issued without notice-and-comment rulemaking, the *Green Valley* decision provides grounds for a refund claim or penalty abatement argument. The statute of limitations for filing a refund claim is generally three years from the filing of the return or two years from the payment of the tax, whichever is later.

Do not assume that invalidating a notice resolves the underlying position. The Tax Court's holding affects the IRS's procedural authority to impose disclosure penalties under a listing notice. It does not shield the underlying transaction from substantive examination. A transaction that was listed because the IRS considered it abusive remains subject to challenge on its merits.

Track the regulatory process for re-proposed notices. The IRS can and does re-issue guidance in proper APA-compliant form after an adverse court decision. Some listing notices that were challenged under the APA were subsequently re-proposed with notice-and-comment rulemaking. If re-proposed guidance is finalized, it carries the force of law prospectively.

Evaluate the APA argument for other notices. For taxpayers in disputes involving other forms of IRS sub-regulatory guidance — particularly guidance that imposes disclosure obligations or that the IRS is using as the basis for examination positions — the *Green Valley* decision supports an APA-based procedural challenge that was not as well-established before November 2022.

Bottom line

*Green Valley* is not a get-out-of-jail card for conservation-easement transactions. It is a structural precedent — the Tax Court's affirmation that the IRS must follow the APA when issuing rules that impose legal obligations. The ripple effects extend to other listing notices and other forms of sub-regulatory guidance issued in the same format. Taxpayers with open disputes involving IRS notices should evaluate whether an APA procedural challenge is available and worth pursuing.