Walsh had been nominated by the IRB to control the Grand Slam match between Wales and Ireland at the Millennium Stadium this weekend, but was taken off the fixture a few weeks ago.
He has yet to referee in the Super 14 tournament this season, citing "personal employment" issues, and appears to be at loggerheads with his employers in New Zealand and the IRB.
No stranger to controversy, Walsh was suspended for three days for inappropriate behaviour towards the England team after a row on the touchline with England's fitness coach Dave Reddin at the 2003 Rugby World Cup.
Two years later, when the Lions toured New Zealand, he earned a four-month suspension for verbally abusing the Irish wing Shane Horgan during the game at Taranaki. He controlled two tour matches, the loss against the Maoris and the win over Auckland.
With Walsh likely to drop out of the IRB Tier 1 referees panel it means the choices open to Paddy O'Brien, the IRB head of referees, to select candidates for the three-match series in South Africa this summer.
With referees from the Four Home Unions ruled out, along with their South African coutnerparts, it means the likes of Alain Rolland, Nigel Owens, Chris White, Alan Lewis, Jon Kaplan, Craig Joubert and Wayne Barnes aren't eligibile.
It could mean, with top ranked Frenchman Joel Jutge still on the injury list, that O'Brien will have to choose between Australia's Stu Dickinson, who contolled the England v France RBS 6 nations game last weekend, New Zealand's Bryce Lawrence and Frenchmen Christophe Berdos and Romain Poite.
Dickinson was in charge of the Lions' game against Queensland in 2001 and also refereed the pre-tour Test in 2005 against the Pumas at the Millennium Stadium.