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Section 7805(b) “sets out a blanket rule which specifically
permits the Commissioner to prescribe prospective effect to
regulations which would otherwise have retroactive application.”
Wendland v. Commissioner, 79 T.C. 355, 381-382 (1982), affd. 739
F.2d 580 (11th Cir. 1984), also affd. sub nom. Redhouse v.
Commissioner, 728 F.2d 1249 (9th Cir. 1984). Under section
7805(b), there is a presumption that every regulation will
operate retroactively, unless the Secretary specifies otherwise.
See Manocchio v. Commissioner, 710 F.2d 1400, 1403 (9th Cir.
1983), affg. 78 T.C. 989 (1982); Butka v. Commissioner, 91 T.C.
110, 129 (1988), affd. 886 F.2d 442 (D.C. Cir. 1989). In the
instant case, the Secretary did specify otherwise and, in doing
so, clearly acted within his authority. See Butka v.
Commissioner, supra at 129 (“Section 7805(b) certainly gives [the
Secretary] authority to provide, if he so chooses, that the new
regulation will operate only prospectively”).
Petitioner argues that respondent’s exercise of his
authority to issue prospective regulations, being discretionary,
is reviewable for abuse of discretion. Petitioner states on
brief:
Petitioner submits that when retroactive application of a
regulation would not have inequitable results, Respondent
does not have the authority to limit retroactivity.
Congress only gave Respondent the discretion to prevent
retroactivity to the extent required in order to avoid undue
hardship or discrimination.
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