Menu

IRS Releases Update on Frequently Asked Questions Part 1


Last week the IRS issued a news release and fact sheet discussing its use of frequently asked questions. The IRS’s practice of using FAQs has been the subject of many Procedurally Taxing blog posts. This week we will run a series with different practitioners offering their perspective on the development. Today, we hear from frequent guest contributor Monte A. Jackel, Of Counsel at Leo Berwick. Les

In The Proper Role of FAQs, I discussed certain aspects of the use of FAQs in the tax system. I also wrote a short note in Tax Notes on the same topic at around the same time. See A Question of Two About FAQs (March 2, 2020).

The IRS very recently published an announcement on October 15, 2021 on the subject of FAQs, following up on its earlier promise to provide a more structured institutional approach to the use of FAQs in the federal tax system. See IRS Annoucement On FAQs. A Tax Notes story on this announcement followed the next day. Tax Notes Story On FAQs. The announcement explains how the IRS plans to maintain information about when versions of FAQs have been released, as well as whether and how taxpayers can rely on those FAQs.

read more…

As noted in the Tax Notes Story On FAQs, the announcement doesn’t go so far as to actually update the very much out of date accuracy related penalty regulations (particularly reg. sections 1.6662-4 and 1.6664-4), “but it does state that FAQs published in fact sheets will satisfy both the reasonable cause defense to tax penalties that allow it and can be part of a taxpayer’s assertion of substantial authority on a tax return. It also says that the FAQs and any resulting changes to them will be announced in news releases.”

I have a few questions about this FAQ announcement. First, does it matter that the pertinent regulatory list of authorities references “press releases” at reg. section 1.6662-4(d)(3)(iii), whereas this IRS announcement references those FAQs which can provide penalty protection as “news releases” that will incorporate the fact sheets published on IRS.gov? This should be clarified. However, it is believed that the two terms are intended to mean the same thing.

Second, the so-called “minimum legal justification” for tax shelters under reg. section 1.6664-4(f) requires the use of authorities at a MLTN basis as a minimum standard to establish reasonable cause and good faith when a tax shelter is involved. (The regulations expressly deal with corporate tax shelters because the statute was amended later on to apply to all tax shelters and the regulations do not reflect the statutory change.)

The extent to which this particular provision will be affected by the announcement is unclear given that a fact sheet FAQ issued in the future under the designated news release process could encompass a transaction that could be treated as a tax shelter under section 6662(d)(2)(C). This outdated regulation would have to control over the announcement and so, what now given that the term “tax shelter” as amended in 1997 remains undefined in the regulations to date.

Third, the disclaimer referenced in the announcement is only mandatory for the new FAQs (new legislation and emerging issues) but the reliance as reasonable cause and good faith, or as an authority, applies to all other FAQs, even those previously issued, but those other FAQs need not have a disclaimer. Why not?

Fourth. Why are the new FAQs (called fact sheet FAQs) limited expressly to new tax legislation with the possible expansion to so-called “emerging issues” (which is not a defined term)? It is understandable that new legislation would most often have a compelling need for immediate guidance but aren’t the chances for error on the part of the IRS equally great in this instance?

And what of the so-called “emerging issues”? Perhaps the thought there is that new topical and time pressure items can be showcased as a fact sheet FAQ because the IRS wants initial feedback on the approach it may want to later take in regulations and using FAQs in this manner could easily bypass the Administrative Procedure Act (APA)?

Speaking of the APA. There is currently a dispute in the Sixth Circuit Court of Appeals relating to two opposing district court opinions in that circuit on whether the APA requirement of advance notice and comment for legislative rules applies to IRS notices issued pursuant to regulations under section 6011 with respect to listed transactions. Update on CIC Services: The Scope of Relief Available if A Court Finds That An Agency’s Rulemaking Violates the APA

If the Sixth Circuit decides that such notices violate the APA, then even though it would just be one circuit, confusion would then surely resurface with respect to fact sheet FAQs.

Even though this announcement is not being issued pursuant to regulations granting such authority to the IRS, the question that arises is this; why shouldn’t that be done?  After all, we would not be talking about a long regulation to do this. Is the IRS worried about the result of an adverse Sixth Circuit opinion that would certainly carry over to FAQs?

We shall see.



Source link

You cannot copy content of this page

Social Media Auto Publish Powered By : XYZScripts.com