IRS FAQ Reliance

The IRS and related agencies typically release interpretive guidance about new laws and regulations in the form of frequently asked questions, or FAQ. Often, those FAQ are periodically updated to reflect new lines of thinking. In other words, the IRS often changes position in FAQ without enacting a formal new set of regulations. Recently, suggestions that taxpayers should be entitled to rely upon IRS FAQ as formal guidance have been floated by taxpayer advocates, especially in situations where the IRS changes an earlier position.

We asked two professors and authors ALM’s Tax Facts with opposing political viewpoints to share their opinions about proposals to give taxpayers the right to formally rely upon IRS FAQ when taking actions based on that guidance.

Below is a summary of the debate that ensued between the two professors.



Their Votes:

Bloink

Byrnes

Their Reasons:



Bloink: In recent months, we have seen a tremendous uptick in IRS, DOL and related agency guidance provided in the form of FAQ. While these are unprecedented times, IRS FAQ are frequently the only solid guidance that taxpayers have to rely upon. They provide the most clear, succinct summary of the IRS’ thought process when it comes to enforcing the law. Taxpayers should fully expect that they can rely upon this guidance in taking action without fear that those FAQ will later be changed and applied retroactively.

Byrnes: Taxpayers should not be relying upon informal IRS guidance, including FAQs. Treating these documents as though they were legally enacted laws creates a confusing, informal patchwork of guidance for taxpayers to sift through. Laws and regulations are what people should look to when determining their actions. FAQ do not have the full weight of the law behind them and should not be used to inform taxpayers’ decision making.

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Bloink: Unfortunately, FAQ are sometimes the only guidance a taxpayer has available. When FAQ and IRS notices are the only guidance that taxpayers have, they should absolutely be able to rely upon them as authoritative. When the IRS decides to amend a set of FAQ, that amendment should be prospective in time only—and there should be a clear record of when the change is made. I do agree that the current system can be confusing, but this confusion primarily stems from a lack of a clear system for showing when the agency has changed its mind.

Byrnes: Taxpayers should understand that IRS FAQ are not the law of the land. The law is the law of the land. Promulgating page after page of FAQ only exacerbates the problem, which is an overly complicated tax governance system that the average American cannot possibly understand.

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Bloink: If the IRS doesn’t intend to allow taxpayers to rely upon FAQ and similar informal guidance, that guidance should not be released. Unfortunately, it’s unworkable for the IRS to immediately release regulations interpreting the laws—especially when legislation is being signed into law as quickly as it has amidst the covid-19 pandemic. Taxpayers need to be confident that their actions won’t later be challenged, especially when they need to take action quickly to protect themselves.

Byrnes: The IRS has every right to change their minds. That’s why regulations are proposed and go through a vigorous commend period. Taxpayers offer their opinions and suggestions with respect to a set of rules and the IRS often changes to adopt those suggestions and make the law more workable. There is no comment period with respect to FAQ. They are not set in stone, and they should not be set in stone for taxpayers to rely upon—because they often fail to fully reflect the big picture.