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Wednesday, March 16, 2011

IRS FAQs - Modern Guidance or Risky Stuff?

I have written on this before -"How Heavy is an FAQ" in the AICPA Tax Insider (11/11/10). The IRS has been making significant use of FAQ to get quick guidance out. Many of the FAQs just summarize the Code and legislative histories so in following those, you are really following primary authority. But a few are beyond that primary authority and thus are something we'd instead expect to see from IRS or Treasury in regulations or revenue rulings. An FAQ is not binding guidance as it is not published in the Internal Revenue Bulletin or even released as a news release. FAQs are also not "authority" for "substantial authority" purposes. 

When a revenue ruling is changed by the IRS, there is a process for announcing that. When an FAQ is changed or removed, there is no history of its existence. Also, I don't think all FAQs are like IRS publications (which are not binding guidance) because publications should just be summaries of primary authority rather than guidance that only exists in the publication. That is not true for all FAQs, some are interpretations by the IRS. 

I think it is good for the IRS to use FAQ because it is a modern way to reach so many people using the website for getting information. But to continue with them including at times in place of regs or revenue rulings, they or Congress needs to elevate them to official guidance. 
In late 2010, I submitted my concerns to the National Taxpayer Advocate website for such purposes and got a response back yesterday. They do not think there is an issue and note that FAQs can't be relied upon to avoid penalties (yet, I think many practitioners are likely doing just that - particularly when there is no other guidance). Here is the text of the message: 
"In your submission, you question whether Frequently Asked Questions (FAQs) can be designated as official guidance, and if the guidance provided in FAQs can be used to avoid penalties. FAQs are intended to offer timely information to the general public. The IRS abates penalties on a case-by-case basis and considers all of the facts and circumstances of a taxpayer’s unique situation when making an individual penalty abatement determination. FAQs do not consider the taxpayer's individual facts and circumstances, and as such, FAQs do not meet the standard of reliance for court cases. Therefore, taxpayers would most likely not be able to avoid penalties based on FAQ reliance. More information explaining what constitutes “authority” for the accuracy-related penalty on underpayments is published in the Treasury Regulation §1.6662–4(d)(3)(iii). 
Every submission helps us identify trends, which lead to new approaches to improving the IRS and tax administration. We carefully review and assess all issue submissions, then score them based on uniform criteria to decide which ones should become advocacy projects. Those that are not immediately selected to become projects still help us analyze trends and provide us data for the National Taxpayer Advocate’s Annual Report to Congress. If you have further questions on your submission, you may contact our office at If you do, please refer to the issue number above. We appreciate you bringing this to our attention and taking the time to report it on SAMS." 
What do you think?

1 comment:

Anonymous said...

How would that work now? Something like this?

Shaw, Webb. "Professionals are Required to Report Abuse." Akron (Ohio) Beacon Journal, 14 Nov. 1984: A-14. NewsBank: Welfare and Social Problems 14 (1984): fiche 6, grids B6-8.

- from

OR -

Schrock, Kathleen. "Digital Gadgets." Kathy Schrock's Guide for Educators. 20 February 2002. Discovery Channel. 11 March 2003. .

"Great Gatsby Study Guide." 5 January 2002. 11 March 2003.

- from

Who is the authority for preserving a FAQ as it existed at a point-in-time for verification?

The internet way-back machine could do it!