Today guest blogger James Creech brings us his take on the recent IRS news release and fact sheet announcing important changes in the agency’s use of frequently asked questions. Part One in this series can be found here. Christine
As an extended filing day surprise the IRS has released a news release on the role Frequently Asked Questions (FAQ) play in tax administration. Anyone who has been following the expanded role FAQs have been playing over the last few years, especially in the areas of the Employee Retention Credit and Virtual Currency, will not be surprised by the conclusions the IRS reaches in the press release.
The IRS states that FAQs are not guidance rather they are a form utilized by the Service to quickly communicate general concepts to taxpayers. From the viewpoint of the IRS, FAQs synthesize authoritative guidance that is binding on the IRS, either through guidance published in the Internal Revenue Bulletin, or the Internal Revenue Code and Treasury Regulations. The IRS acknowledges that as a general application of the law the statements contained in FAQs may not be perfect and “if an FAQ turns out to be an inaccurate statement of the law as applied to a particular taxpayer’s case, the law will control the taxpayer’s tax liability.”
The most important part of the press release is a statement on what happens if a taxpayer relies on an incorrect FAQ for the purpose of penalty protection. The press release states “a taxpayer’s reasonable reliance on an FAQ (even one that is subsequently updated or modified) is relevant and will be considered in determining whether certain penalties apply.” As a practical note the IRS’s reference to updated or modified FAQs is an endorsement of the practice of printing out or saving FAQs that are helpful to a position because once an FAQ is updated the prior version can no longer be found on IRS.gov
Perhaps the most novel point of the press release is that FAQs issued in a press release have more weight than FAQs simply published to IRS.gov without fanfare. This is an extrapolation of Treasury Regulation 1.6662-4(d)(3)(iii) that lists “Internal Revenue Service information or press releases” as types of authority that can be relied upon for penalty protection even though FAQs are conspicuously absent from the regulation. Although the IRS as assured practitioners that it does not take positions contrary to FAQs it may be worth saving all of the IRS emails in your inbox in case you ever need to show that certain FAQs were part of an “information or press release”.
The IRS has stated that in the near future it would begin archiving all FAQs and would release more formal guidance about reliance on FAQs for the purposes of penalty protection. Until then this press release will have to suffice about the interaction of FAQs, weight of authority, and penalty protection.