IRS Updates Process for FAQs

IRS finally figured out that taxpayers need help with IRS frequently asked questions (FAQs). IRS places FAQs on its website and taxpayers naturally read them and believe them to be true and reliable. IRS has issued more than 1,100 FAQs on myriads of topics and laws. However, in the past, the US Tax Court has said, “informal guidance, such as the FAQs posted to the IRS’s website, is not an authoritative source of federal tax law.”

The IRS recently announced that if a taxpayer relies in good faith on frequently asked questions (FAQs) that the IRS posts to its website, and if that reliance is reasonable, then the taxpayer will have a reasonable-cause defense against any negligence penalty or other accuracy-related penalty if it turns out that the FAQ does not correctly state the law as it applies to the taxpayer’s situation. This new policy applies to all FAQs, including those released by the IRS before the policy was announced.

The IRS updated its “General Overview of Taxpayer Reliance on Guidance Published in the Internal Revenue Bulletin and FAQs” webpage to reflect this new stance. Significant FAQs on newly enacted tax legislation, as well as any later updates or revisions to these FAQs, will now be announced in a news release and posted on in a separate Fact Sheet. 

FAQ archive and transparency about changes

The IRS also announced that it is updating its process for issuing FAQs following the enactment of new tax legislation. Under the new process, FAQs addressing new legislation, as well as any revisions or updates to those FAQs, will be announced in an IRS news release and posted on the IRS website in a separate fact sheet. Older versions of FAQ fact sheets will be kept on so that taxpayers can refer to any prior version that they may have relied on. The IRS says this process addresses taxpayer concerns about transparency and the potential impact on taxpayers when FAQs are amended.

Despite the IRS stating that it will retain prior versions if you rely on an IRS FAQ for a position, we recommend printing out the IRS FAQ and filing it away, at least until the statute of limitations on assessment has expired.

Some of those taxpayer concerns were voiced by National Taxpayer Advocate in a blogpost, in which she recommended that the IRS (1) “should never assess a penalty against a taxpayer for taking a position consistent with an FAQ posted on the IRS website at the end of a taxpayer’s taxable year or at the time of return filing unless the IRS has convincing evidence the taxpayer knew the FAQ had been changed” and (2) “should include the versions and dates of each FAQ on its website or create an archive of obsolete or modified FAQs, including applicable dates, so that taxpayers can locate an FAQ that was in effect at the time they filed their returns.”

Overall, the IRS news release should be viewed as a positive development. The IRS has acknowledged the important role that IRS FAQs play, and that taxpayers should not be penalized for relying on IRS FAQs. However, IRS FAQs remain not binding authority and informal guidance and, unlike guidance published in the Internal Revenue Bulletin, cannot be relied upon as support for the correctness of a tax reporting position. Also, the news release and fact sheet are not authoritative guidance and can be revoked at any time.

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