The heart of Judge Ward’s ruling was that the I.R.S.’s retroactive use of tougher Treasury Department rules in 2003 on liabilities like those in Blips was “ineffective” and “not enforceable” because it was retroactive. The Internal Revenue Code generally prohibits retroactive regulations. The I.R.S. said in 2000 that it would formally challenge Blips deductions claimed by taxpayers.
Jerrold Cohen, a lawyer in Atlanta for Mr. Nix and Mr. Patterson, said yesterday that Judge Ward’s ruling showed that “the government isn’t allowed to change the rules just because it doesn’t like the result.”
Great example of the mess that is our tax system. The Opinion (PDF).