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Saturday, July 23, 2011

IRS Guidance Issues - Tax Analysts Forum

As I've discussed previously here, the IRS has been issuing a fair amount of unofficial guidance, such as FAQs on its website or information in form instructions or publications that does not come directly from official guidance. By unofficial, I mean it is not published in the Internal Revenue Bulletin or as a news release. It also does not count as "authority" for purposes of determining if there is, for example, "substantial authority" for a position taken on a return. Even the IRS excludes these items in explaining "official guidance" - here.

For more information, see "How Heavy is an FAQ?" in AICPA Tax Insider (11/11/10). I thought this was also a taxpayer rights issue and raised it with the Taxpayer Advocate Office, but only heard back that, yes, it is not something that can be relied upon to obtain relief from a penalty. I was hoping they would take up the issue because not only might taxpayers rely on this unofficial guidance, but many practitioners are too. Particularly where there is no other guidance.

I think this topic is also relevant in what is expected of a practitioner - they are to follow substantive law (see IRS info on this - here). Many of the FAQs are summaries of existing substantive law in that they are summarizing the Code or regs. But not all. Some are interpretations by IRS and some are just IRS guidance - such as in explaining their program on regulating tax return preparers.

Tax Analysts held a forum on this topic on July 22, 2011 - Taxes and the Guidance Process. They discuss these issues. I'm glad to see that as this is an issue that needs more attention. You can listen to the recording of this forum - here.

FAQs are useful, but the IRS needs to make them official guidance. They could be issued as a Notice or Revenue Ruling. Then it is there forever. If the IRS modifies it, that subsequent ruling will say it is modifying an earlier specific ruling. And both the old and new guidance will be in the permanent record. That is not the case with an FAQ that is later changed or deleted. The history is gone unless you printed the FAQ before it was removed from the IRS website. This is not the way to issue guidance. The same goes for when information only appears in IRS form instructions or publications.

What do you think?


Ask TaxGuru said...

I agree. FAQs are definitely useful but if they can't provide something official, people have no choice but to rely on these FAQs as official sources which may or may not hurt them in their situations.

Kelly Jones said...

Definitely FAQs are always helpful but this is not the ultimate source on which people can fully rely.

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