Food goes bad. Medications, skincare products, and batteries all expire. But what about IRS’s written guidance?
Can IRS guidance go bad? What if it is guidance for a particular taxpayer and about a specific transaction or seires of transactions? What happens when tax laws change after the IRS has issued its determination? Can businesses continue relying on prior IRS advice when Congress modifies the underlying statutory framework?
The Trail King Industries Inc. v. United States, 4:24-CV-04164 (D.S.D. July 24, 2025), gets into this issue. It involves a situation where the taxpayer received technical guidance from the IRS and then the law changed.
Facts & Procedural History
The taxpayer, a South Dakota corporation, manufactured specialized trailers. During a 2003 IRS audit, the company requested technical advice from the IRS Office of Associate Chief Counsel regarding whether sales of these trailers were subject to federal excise tax under Section 4051(a).
On November 1, 2004, the IRS issued a technical advice memorandum concluding that the taxpayer’s trailer sales were exempt from federal excise tax for quarterly periods from March 31, 2001, through September 30, 2002. The IRS determined the trailers were not “highway vehicles” as defined in Treasury Regulation § 48.4061(a)-1(d) and therefore weren’t subject to the excise tax.
The technical advice memorandum was issued ten days after Congress had passed the American Jobs Creation Act, which enacted a new statutory definition of “off-highway vehicle” that was more restrictive than the previous regulatory definition. The memorandum did not address this statutory change, as it analyzed tax periods before the Act’s enactment.
Relying on the IRS’s technical advice, the taxpayer continued applying the “off-highway” exemption to sales of its trailers in subsequent tax years. This included March 31, 2017, through June 30, 2019. During a 2019 audit, the IRS proposed adjustments increasing the company’s federal excise taxes on trailer sales during these quarters. The revenue agent stated that the taxpayer had incorrectly applied the “off-highway” exemption because the trailers did not meet the current statutory definition of off-highway vehicles.
The IRS assessed $3.2 million in federal excise taxes, plus sizeable penalties and interest. The taxpayer paid the assessment, filed refund claims with the IRS, and then filed refund suit in distirc court to recover the excise taxes, penalties, and interest.
What is a Technical Advice Memoranda?
When taxpayers or IRS examination teams have questions about how tax laws apply to specific situations, they can request technical advice from the IRS Office of Chief Counsel. A Technical Advice Memorandum represents the IRS’s official position on how tax laws apply to a particular taxpayer’s facts and circumstances.
According to Revenue Procedure 2004-2, a technical advice memorandum “represents an expression of the views of the [IRS] as to the application of law, regulations, and precedents to the facts of a specific case.” Once issued, such memoranda are binding on IRS officials who must “process the taxpayer’s case on the basis of the conclusions” contained in the advice.
The binding effect of technical advice creates important protections for taxpayers. When the IRS has formally determined that a taxpayer’s position is correct for specific tax periods, field agents cannot simply ignore that determination during subsequent examinations of those same periods. This prevents inconsistent treatment and provides taxpayers with certainty regarding the IRS’s position.
However, the scope of technical advice is limited in several important ways. A memorandum applies only to the specific tax periods addressed and the specific taxpayer to whom it was issued. While such memoranda may not be cited as precedent by other taxpayers, they do provide insight into how the IRS interprets and applies tax laws to particular situations.
When does technical advice lose its binding effect? Revenue Procedure 2004-2 specifies that technical advice applies until it is “specifically withdrawn or until the conclusion is modified or revoked by the enactment of legislation, the ratification of a tax treaty, a decision of the United States Supreme Court, or the issuance of regulations (temporary or final), a revenue ruling, or other statement published in the Internal Revenue Bulletin.”
Can Taxpayers Continue Relying on Technical Advice After a Law Change?
The central question in the case was whether the company could continue relying on the 2004 technical advice memorandum after Congress enacted the American Jobs Creation Act (“ACJA”). The AJCA changed the relevant definition of “off-highway vehicle.” The court had to determine whether this legislative change effectively modified or revoked the conclusion in the memorandum.
The taxpayer argued that the IRS had never specifically withdrawn, modified, or revoked the 2004 technical advice. The company maintained that because the IRS itself had not taken action to invalidate the memorandum, it remained binding for all subsequent tax periods involving the same trailers and the same legal issue.
The court rejected this interpretation. While the taxpayer correctly observed that the 2004 memorandum “was never modified, withdrawn, or revoked *by the IRS,” the court noted that the real question was whether the enactment of the AJCA itself modified the memorandum’s conclusion for tax periods after the Act’s passage.
The court concluded that because the Act enacted a definition of “off-highway vehicles” different from the one applied in the 2004 memorandum, the memorandum’s conclusion was effectively modified for quarters to which the Act applies. The court emphasized that the 2004 memorandum was backward-looking, applying to taxable periods in 2001 and 2002, and its conclusion was based on a definition that predated the legislative change.
The taxpayer attempted to rely on a prior court case where a court held that the taxpayer could rely on a 1992 technical advice memorandum because the IRS had not modified, withdrawn, or revoked it. However, the court distinguished that case because that case involved no intervening legislative change affecting the legal conclusions in the memorandum.
This provides the rule for when taxpayers can rely on prior IRS determinations. Technical advice remains valid when the underlying legal framework remains unchanged, but legislative modifications to that framework can effectively supersede prior IRS conclusions even without formal IRS action.
Can Estoppel Apply Against the IRS in Tax Cases?
The taxpayer also argued that the IRS should be estopped from assessing the federal excise tax because the company had relied on the 2004 technical advice memorandum. Equitable estoppel against the government requires a high standard of proof and is rarely successful in tax cases.
To establish equitable estoppel against the government, a taxpayer must demonstrate a false representation by the government, government intent to induce the claimant to act on the misrepresentation, a lack of knowledge or inability to obtain true facts, reliance on the misrepresentation to the claimant’s detriment, and affirmative misconduct by the government.
The court found that the taxpayer failed to allege any affirmative misconduct by the IRS. The court noted that the taxpayer did not allege that the IRS incorrectly advised it of its tax liability for the 2001 and 2002 periods or that the IRS informed the company it could rely on the 2004 memorandum in subsequent years after the ACJA’s passage.
The court concluded that the taxpayer’s mere reliance on the 2004 memorandum did not create an estoppel claim against the government. This holding emphasizes that taxpayers bear responsibility for monitoring changes in tax law and cannot rely indefinitely on prior IRS determinations when the legal landscape shifts.
The Takeaway
The case demonstrates that while IRS technical advice memoranda provide valuable protection for the specific tax periods they address, their application becomes limited when Congress changes the underlying legal framework. Taxpayers cannot assume that favorable IRS determinations will continue to apply indefinitely, particularly when statutory definitions or requirements are modified. Legislative changes can effectively modify or revoke prior IRS conclusions without any formal IRS action. Companies engaging in ongoing transactions must reassess their tax positions when Congress changes relevant tax laws, even if they previously received favorable guidance.