Whether Treasury's failure to respond to comments raising concerns about the Proceeds Regulation, 26 C.F.R. § 1.170A-14(g)(6)(i) violated the Administrative Procedure Act?

Question Presented This petition presents a direct conflict regarding whether the Treasury Department violated the Administrative Procedure Act (the “APA”) by failing to respond to comments from the public when promulgating a regulation governing charitable donations. Petitioner donated a conservation easement on land that it owned to a qualified charity, and it claimed the corresponding income tax deduction. The IRS—invoking 26 C.F.R. § 1.170A-14(g)(6)Gi) (the “Proceeds Regulation”)—denied the entire deduction. The Proceeds Regulation requires easement deeds to guarantee that the charity will receive a specified portion of the proceeds in the unlikely event that the easement is judicially extinguished. The IRS determined that Petitioner’s easement did not guarantee a sufficient portion of the proceeds to the charity. When Treasury proposed the Proceeds Regulation, multiple commenters identified problems with the regulation (including the very issue on which the Tax Court disallowed Petitioner’s deduction) and explained why those problems mattered. Treasury did not respond to—or even acknowledge—the comments. A divided Sixth Circuit panel held that Treasury’s failure to respond to the comments did not violate the APA. The Sixth Circuit acknowledged that its holding conflicts with a unanimous published Eleventh Circuit decision that the same regulation violated the APA. The question presented is: Whether Treasury’s failure to respond to comments raising concerns about the Proceeds Regulation, 26 C.F.R. violated the Administrative Procedure Act?