Stenson Tamaddon LLC v. IRS – June 23, 2025

Here’s a breakdown of the June 23, 2025, decision by the U.S. District Court for Arizona in Stenson Tamaddon LLC v. IRS—which upheld the validity of IRS’s Notice 2021‑20 guidance on the Employee Retention Credit (ERC), rejecting the challenge brought under the Administrative Procedure Act (APA):

Case Overview & Result

• Parties Involved

Stenson Tamaddon LLC (a tax advisory firm specializing in ERC claims) sued the IRS, asserting that Notice 2021‑20—comprising 102 pages of FAQ-style guidance—improperly imposed binding rules without following APA notice-and-comment procedures.

• Court’s Holding

The District Court granted summary judgment to the IRS. It determined that Notice 2021‑20 is an interpretive rule—not a legislative rule—and thus did not require formal APA procedures.

⚖️ Court’s Key Reasoning

1. Standing

• Stenson Tamaddon claimed economic injury because the IRS used Notice 2021‑20 to deny ERC claims, directly affecting their client revenue and contingency fees.
• The court affirmed both constitutional and prudential standing: the guidance is “inextricably intertwined” with eligibility determinations, and professional preparers fall within the “zone of interests” under the CARES Act.

2. Sovereign Immunity

• The IRS argued that refund suits under I.R.C. § 7422 should bar this kind of APA challenge.
• The court disagreed, noting that Stenson wasn’t seeking refund relief but challenging IRS rulemaking. The APA provides an independent remedy for final agency actions, such as interpretive notices.

3. Interpretive vs. Legislative Rule

• The court examined key provisions (household employer exclusion, partial suspension safe harbor, and record-keeping aspects) and found that they interpret statutory language rather than create new rights or obligations.
• Particularly, the FAQs serve as safe harbors (e.g., “10% nominal impact” for partial suspension), not inflexible thresholds. Thus, the Notice remains an interpretive guidance exempt from APA formal rulemaking.

4. Arbitrary/Capricious & Statutory Authority

• The court found no arbitrary or capricious reasoning; the IRS explained its Q&A based on statute and considered substantial stakeholder input.
• There was no overreach of statutory authority, and the major‑questions doctrine did not apply since the Notice carries no binding legal weight.

💡 Broader Context & Implications

• IRS Enforcement Approach

Separately, the IRS is now using an automated “risk‑assessment” model to sift ERC claims—a development previously upheld when preliminary injunctions were denied.

• Ongoing Review Delays

As of late 2024, around 1.2 million ERC claims remained unprocessed due to moratoriums and complexity. The National Taxpayer Advocate highlighted delays, issues with notice clarity, and communication gaps affecting taxpayers.

What This Means for You

 Next Steps You Might Consider

• Adhere to the FAQ safe harbors, but be prepared to counter cases where the IRS relies on its automated risk model.
• Track IRS processing—expect delays and automated denials; evaluate appealing disallowances.
• Monitor IRS updates—procedures could shift via future guidance, clarifications, or rulemaking (though unlikely APA rulemaking).