District Court Rejects Challenge to Proposed Regs for Listed Transactions

(Parker Tax Publishing November 2025)

A district court dismissed a challenge to the government's right to issue proposed regulations that would identify "monetized installment sale transactions" as listed transactions subject to disclosure requirements. The court held that the Administrative Procedure Act waives sovereign immunity for challenges of an agency action seeking non-monetary relief, but limits that waiver to "final agency action for which there is no other adequate remedy in a court" or agency action "made reviewable by statute", and the proposed regulations were neither. Crow and S. Crow Collateral Corp. v. U.S., 2025 PTC 337 (D. Idaho 2025).

Background

Stanley Crow is the president and director of S. Crow Collateral Corp. (Crow Collateral). Crow Collateral deals in capital assets and facilitates transactions between sellers and buyers by purchasing capital assets from sellers through installment obligations that mature in later tax years, then immediately reselling the properties to buyers for cash. The IRS refers to these deals as "monetized installment sale transactions" or "MIS transactions."

On August 4, 2023, the IRS issued proposed regulations, entitled Identification of Monetized Installment Sale Transactions as Listed Transactions. The proposed regulations would designate the MIS transaction as a "listed transaction," a subset of "reportable transactions" specifically identified by the IRS in Reg. Sec. 1.6011-4 as a tax avoidance transaction. Although taxpayers remain free to participate in listed transactions, existing regulations in Reg. Secs. 1.6011-4(e)(2)(i), 301.6111-3(b)(4)(iii), and Reg. Sec. 301.6111-3(e) (collectively, the "Reporting Regulations") require "participants" in a listed transaction and their "material advisors" to file certain disclosures. The proposed regulations would subject MIS transactions to these disclosure requirements and impose monetary penalties for non-compliance.

The IRS published the proposed regulations in the Federal Register, inviting public comments and scheduling a public hearing. The proposed regulations were issued following the notice-and-comment procedures required by Section 553 of the Administrative Procedure Act (APA). Under this rulemaking process, the proposed regulations become effective only upon publication in the Federal Register adopting them as final regulations.

Crow and Crow Collateral (the Plaintiffs) filed a suit in an Idaho district court seeking to have the proposed regulations and the Reporting Regulations declared unlawful and set aside. The Plaintiffs argued that the proposed regulations (1) are arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with law; (2) are unconstitutionally vague and impose impossible reporting obligations; and (3) exceed the IRS's statutory authority to identify "listed transactions." With respect to the Reporting Regulations, they alleged that, "working in tandem" with the proposed regulations, the Reporting Regulations impermissibly impose retroactive reporting obligations in violation of Code Sec. 7805(b).

The Plaintiffs disputed that the rules are merely "proposed" and instead characterized them as the IRS's "final and cumulative policy position" that MIS transactions are "scams" violating the Internal Revenue Code. The plaintiffs also contended that the proposed regulations are reviewable under Code Sec. 7805(b), which limits retroactive application of certain proposed regulations. They claimed that the Reporting Regulations, "working in tandem" with the proposed regulations violated Code Sec. 7805(b) and argued that this provision is the exact type of statute that makes a nonfinal agency action "reviewable" under the APA. They reasoned that any other interpretation would render Code Sec. 7805(b)'s prohibition on certain retroactive regulations "surplusage."

The government moved to dismiss the complaint. The proposed regulations, the government noted, represent only the first step in the APA's notice and-comment rulemaking process - a process designed to ensure that agencies finalize rules with fair notice and opportunity for feedback, and courts review only finalized rules in a concrete setting. The government argued that the plaintiffs were impermissibly seeking to circumvent these bedrock principles by challenging the proposed regulations before they become final.

Analysis

The district court agreed with the government that there was no basis for challenging the proposed regulations before they were finalized and thus dismissed the complaint. The court held that an agency action is "final" only if it satisfies both prongs of the test established in Bennett v. Spear, 520 U.S. 154 (1997). First, the court said, the action must mark the consummation of the agency's decision-making process and thus cannot be of a merely tentative or interlocutory nature. Second, the court said, the action must be one by which rights or obligations have been determined, or from which legal consequences will flow. The court found that the proposed regulations failed both prongs of the Bennett test.

The court also rejected the Plaintiffs' Code Sec. 7805 argument, noting that they cited no supporting case law and also failed to acknowledge that cases finding agency actions "made reviewable by statute" involve statutes containing explicit review provisions. For example, the court observed, in Iowa League of Cities v. E.P.A., 711 F.3d 844 (8th Cir. 2013), the Eighth Circuit reviewed a plaintiff's challenge to two EPA letters sent to a U.S. senator - not as "final agency action" under the APA's general review provisions, but under the Clean Water Act, which "expressly makes specified agency actions reviewable." By contrast, the court said, Code Sec. 7805(b) contains no judicial review provision. It is a substantive limitation on the Treasury Secretary's rulemaking authority, not a jurisdictional grant to the courts. According to the court, making an agency action reviewable under Code Sec. 7805(b) would read into the statute words not explicitly inserted by Congress and the court noted that it lacked such power without evidence of Congress' clear intent to create such a right.

Finally, the court concluded that the ripeness doctrine posed an additional bar to the Plaintiffs' claims seeking to set aside the proposed regulations. This doctrine, the court said, serves to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements. In the administrative agency context, the court observed, this doctrine serves the additional purpose of protecting agencies from judicial interference until an administrative decision has been formalized and its effects felt in a concrete way by the challenging parties. The court concluded that a challenge to agency action is ripe when the government issues a final decision that inflicts concrete, particularized, and actual or imminent injury.

For a discussion of the rules relating to listed transactions, see Parker Tax ¶250,140.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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