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Sunday, June 4, 2017

IRS Says FAQs Not Legal Authority - Finally!

In May 2017, the IRS Small Business Division issued a memo to field directors to remind them that FAQs and other items posted to the IRS website are not legal authority unless published in the Internal Revenue Bulletin (IRB)! [SBSE-04-0517-0030 (5/18/17); this memo seems to have been removed from the IRS website, but I found it using the Wayback Machine and have posted it for us all]


I've been writing about this issue since at least 2010 and in 2012 had the opportunity to discuss the issue with IRS, Treasury and congressional staff.

  • Nellen, How Heavy is an IRS FAQ?AICPA Tax Insider, 11/11/10
  • Horwitz and Nellen, FAQs: Problems with InformalGuidance from the IRS (2012) by Horwitz and Nellen, presented to staff of House Ways & Means, Senate Finance, Joint Committee on Taxation, IRS Chief Counsel, Treasury, as well as to National Taxpayer Advocate Nina Olson and her staff, as part of the California Bar Tax Section DC Delegation activity of May 2012.
My concern with so many FAQs (see the paper above with Robert Horwitz) is that it means less time is spent on issuing binding guidance. There are numerous examples, such as CCA 201504011 (1/23/15) that holds that in measuring cost of sales for a marijuana business, the inventory rules in existence when IRC Section 280E was enacted (1982) apply rather than current rules, such as Section 263A. Section 280E is the provision that disallows expense deductions for marijuana businesses, but does allow cost of sales. Some try to lessen the impact of this rule by using the Unicap rules of Section 263A to treat more type of costs as inventoriable rather than as period costs. Why wasn't the CCA issued as a revenue ruling to be binding. Yes, more IRS and Treasury time would have been required, but it would have greater effect.

What do you think?


shilpa_ahuja said...

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Andrew P. said...

We agree wholeheartedly. We have sometimes had difficulty with inconsistent information. For example, we commonly submit forms to the IRS. For many, the only way to determine whether a digital signature is accepted on that form is to submit it and see what happens.

Eamon said...

Our Accounting and tax system is a lot different in the UK. This makes for interesting reading however. I think all countries suffer from ambiguities within their tax systems