The Systemic Collapse of the Listed Transaction Regime: From Mann to Ryan

For decades, the Internal Revenue Service maintained a powerful deterrent against certain transactions through its "listed transaction" system. By simply issuing a Notice, the agency could brand a strategy as abusive, triggering massive reporting requirements and six-figure penalties. But that era of administrative convenience has come to a grinding halt.

The IRS's disclosure regime is currently facing a systemic collapse, caught in a legal pincer movement. While the Mann and Green Valley decisions forced the agency to abandon its informal Notices in favor of formal regulations, the Ryan challenge now threatens to invalidate those very regulations as "arbitrary and capricious." If the IRS must use regulations, but its regulations are substantively invalid, the entire listed transaction system may be effectively defunct.

The First Blow: The Procedural Wall of Mann and Green Valley

The first stage of this collapse was procedural. For years, the IRS bypassed the Administrative Procedure Act (APA), arguing that designating a listed transaction was merely an "interpretive" act that didn't require public notice or comment.

The courts disagreed. In Mann Construction, Inc. v. United States, the Sixth Circuit ruled that these designations were "legislative rules" that imposed new legal obligations and penalties. As such, they must undergo formal notice-and-comment rulemaking. The Tax Court followed suit in Green Valley Investors, LLC v. Commissioner, invalidating the IRS's attempt to list syndicated conservation easements via Notice.

These rulings forced the IRS into a corner: to keep its enforcement teeth, it had to stop issuing quick Notices and start the long, grueling process of formal rulemaking for every single transaction it wanted to police as a listed transaction.

The Second Blow: The Substantive Challenge of Ryan

The Ryan LLC v. United States case represents the second, stage of the pincer movement. If Mann said the IRS must issue regulations, a taxpayer victory in Ryan would hold that that the regulations the IRS produced are arbitrary and capricious and therefore invalid under the APA.

At the heart of the Ryan case are the new micro-captive insurance regulations. To satisfy the Mann requirement, the IRS issued formal rules that replaced its previous vague descriptions with hard mathematical "magic numbers"—specifically a 30% loss ratio for listed transactions and a 60% ratio for transactions of interest.

The thesis of the Ryan challenge is that these numbers are "arbitrary and capricious" under the APA. The firm argued—and the court allowed the challenge to advance—that the IRS failed to provide a reasoned basis for choosing these specific percentages. By picking a fixed number based on large commercial insurers rather than a system that effecctively distinguishes between valid micro-captives and tax abusive ones, Ryan argues the IRS created an arbitrary and capricious rule.

Are the Listed Transactions Rules Valid?

The significance of Ryan is that it threatens the clear path forward for the Listed Transactions system.

If the IRS is forced by Mann to use the formal regulatory process, but it cannot justify the "bright-line" rules that make that process efficient, the agency is left with a system it cannot practically manage. Without the ability to use "per se" mathematical rules like the 30% threshold by regulation, the IRS would lack an efficient way to police the listed transactions.

The Mann and Green Valley cases forced the IRS to issue formal regulations under the APA, but the Ryan case threatens to undermine the formal rule-making process after it's finished.

The "Which" vs. "What" Distinction: Why Some Reporting Rules Survive

A critical nuance in the Green Valley and Mann Construction rulings is the distinction between "which transactions" are subject to penalties and "what process" the IRS must use to designate them.

The IRS's reporting regime under Treasury Regulation § 1.6011-4 includes several categories of "reportable transactions." While the "Listed Transaction" and "Transaction of Interest" categories are currently in turmoil, other categories remain fully enforceable. This is because their substantive definitions were baked directly into the original regulation via the formal APA process.

• Confidential Transactions (§ 1.6011-4(b)(3)): These require reporting if offered under conditions of confidentiality for a minimum fee.
• Transactions with Contractual Protection (§ 1.6011-4(b)(4)): These involve arrangements where fees are contingent on tax benefits.
• Loss Transactions (§ 1.6011-4(b)(5)): These trigger reporting based on specific dollar thresholds (e.g., $10 million for corporations).

As the court noted in Green Valley (referencing Mann), the statutes "address a 'which transactions' question, not a 'what process' question." Because the specific criteria for confidential, loss, and contractually protected transactions are explicitly defined in the regulation itself, they satisfy the APA's requirements. The "Listed Transaction" category failed precisely because it attempted to delegate the "which" question to future, informal Notices—a process the courts have now definitively blocked.

The Four Tiers of Listed Transactions

As of early 2026, the "36 Listed Transactions" historically identified by the IRS are currently fragmented into different legal categories. The old system of "Listing by Notice" is largely unenforceable for penalties, forcing the IRS to either finalize formal regulations or abandon the "listed" status entirely.

Tier 1: Finalized Regulations (The "Active" List)

These are the few transactions where the IRS successfully navigated the APA "Notice and Comment" process. They are the only transactions currently carrying the full weight of Section 6707A penalties.

Transaction Name	Regulation Citation	Status
Micro-Captive Insurance	Reg. § 1.6011-10	Finalized (Jan 2025)
Syndicated Conservation Easements	Reg. § 1.6011-11	Finalized (Dec 2023)
Malta Pension Schemes	Reg. § 1.6011-12	Finalized (Late 2024)
Certain Charitable Remainder Trusts	Reg. § 1.643(a)-8	Historically in Regs; likely valid.
Step-Down Preferred/Fast Pay Stock	Reg. § 1.7701(l)-3	Historically in Regs; likely valid.

Tier 2: The Regulatory Retreat (Withdrawn or Suspended)

These were either "Transactions of Interest" or recently proposed/finalized rules that the IRS has officially withdrawn as of 2025, usually due to their complexity or burden under new executive mandates.

• Partnership Basis-Shifting (Withdrawn April 2025 via Notice 2025-23)
• Disregarded Payment Losses (DPL) (Withdrawn 2025 via Notice 2025-44)
• Complex Corporate Spin-Offs (Withdrawn September 2025)
• Producer Owned Reinsurance Companies (PORC) (De-listed previously via Notice 2004-65)

Tier 3: The "Grey Zone" (Proposed Regulations)

These have a "Notice of Proposed Rulemaking" (NPRM) attached. While the IRS intends to list them, the penalties are generally not enforceable until the rules are finalized (though they may attempt to apply them retroactively).

• Monetized Installment Sales (NPRM issued Aug 2023; pending)
• CRATs (Charitable Remainder Annuity Trusts) (NPRM issued 2023; pending)
• Welfare Benefit Funds (Cash Value Life Insurance) (NPRM issued 2024 to fix Notice 2007-83)

Tier 4: Legacy "Notice-Only" (Procedurally Invalid)

This is the "Graveyard" of the early 2000s tax shelters. These 20+ transactions were only ever identified by Notice. Following Mann Construction and AOD 2024-01, the IRS has largely conceded it cannot enforce penalties for these without new rulemaking.

Notice #	Common Name / Description
Notice 2001-45	Section 302 Basis-Shifting (The "Foreign Bank" strategy)
Notice 2000-44	Son of Boss (Inflated Partnership Basis)
Notice 99-59	BOSS (Corporate Distributions of Encumbered Property)
Notice 2001-16	Intermediary Transactions (The "Mid-term" company)
Notice 2002-21	CARDS (Inflated Basis via Credit-Linked Notes)
Notice 2003-54	Common Trust Fund Straddle
Notice 2000-60	Stock Compensation Transactions
Notice 2001-17	Section 351 Contingent Liabilities
Notice 2002-35	Notional Principal Contracts
Notice 2004-8	Abusive Roth IRA Transactions
Notice 2004-20	Foreign Tax Credit Intermediary
Rev. Rul. 2000-12	Debt Straddles
Notice 2000-61	Guam Trust
Notice 2002-50	Pass-Through Entity Straddle
Notice 2002-65	S-Corp Tax Shelter
Notice 2003-81	Offsetting Foreign Currency Options
Notice 2004-30	S-Corp Charitable Contribution Bailout
Notice 2008-34	Distressed Asset Trust (DAT)

Displacing the APA: The Congressional Option

While the courts have largely sided against the IRS's informal "Notice" system, Judge Pugh’s concurrence in Green Valley highlights a potential escape hatch for the government: explicit congressional language. The core legal question, Pugh noted, is "whether Congress has established procedures so clearly different from those required by the APA that it must have intended to displace the norm."

This analysis creates a spectrum of legal outcomes for agency procedures:

• The "Irreconcilable" Side: Congress can override the APA by mandating a "sole and exclusive procedure" for a specific action (as it did with certain immigration procedures in Marcello v. Bonds), or by establishing a custom timeline and process that simply cannot coexist with notice-and-comment requirements.
• The "Coexistence" Side: When statutory language is permissive or "wide-ranging" and lacks specific deadlines (as seen in Coalition for Parity, Inc. v. Sebelius), courts assume the APA remains the baseline.

In the Ryan case, the court determined that the APA indeed applies to the micro-captive regulations. Congress could re-empower the IRS through a new statute, or more generally craft statutes going forward that deny application of the APA. Frankly, either tact is a tall order.

Conclusion: A Shift in Power

The Ryan case threatens a deeper collapse of the IRS’s enforcement of the listed transaction system. If the regulations are determined to be arbitrary and capricious, then the listed transaction system appears even more dubious than it has already become.

Full Case Documents:

• Ryan v. IRS PDF
• Mann Construction PDF
• Green Valley Investors PDF