Biden on Agency Guidance

The IRS, Department of Labor (DOL) and related agencies typically release interpretive guidance about new laws and regulations in the form of frequently asked questions, or FAQs. Often, those FAQs are periodically updated to reflect new issues that might arise over time—and new lines of thinking. In other words, the IRS and other agencies often indicate changed positions in FAQs without enacting a formal new set of regulations. Although taxpayer advocates have recently suggested that taxpayers should be entitled to rely upon this informal guidance when taking action, the Trump administration disagreed. However, President Biden has now taken steps to reverse the Trump position on informal agency guidance by executive order—indicating that reliance on informal guidance may be sufficient to avoid future penalties.

We asked two professors and authors ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether taxpayers should have the right to rely upon informal agency guidance in 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 the past year, we have seen a dramatic increase in informal guidance from the IRS, DOL and related other agencies—often in the form of FAQs. While these are unprecedented times, informal guidance is often the only solid guidance that taxpayers have to rely upon. They provide the clearest, succinct summary of the agency’s thoughts with respect to enforcing the law. Taxpayers should fully expect that they can rely upon this guidance in taking action without fear that those FAQs will later be changed and applied retroactively.

Byrnes: Taxpayers should not be relying on any type of informal guidance, including agency FAQs. Treating these documents as though they were legally enacted laws creates a confusing patchwork of guidance for taxpayers to sift through. Laws and regulations are what people should look to when determining their actions. By definition, informal guidance doesn’t have the full weight of the law behind it and should not be used to inform taxpayers’ decision-making.

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Bloink: Unfortunately, informal guidance is sometimes all that we have available. When FAQs, IRS notices and other informal materials are the only guidance that taxpayers have, they should absolutely be able to rely upon them as authoritative. When the IRS decides to amend this guidance, 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 we have to remember that the agencies can’t adopt formal regulations in the blink of an eye and we need to do what we can to offer guidance.

Byrnes: Taxpayers should understand that informal guidance isn’t the law of the land. The law is the law of the land. Promulgating page after page of FAQ and other guidance only exacerbates the problem.

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Bloink: If the agencies don’t intend to allow taxpayers to rely upon informal guidance, that guidance shouldn’t 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 in light of quickly evolving circumstances.

Byrnes: Agencies have every right to change their minds. That’s why regulations are proposed and go through a vigorous comment period before being finalized. 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 for FAQ—and because of that, they often fail to accurately reflect the big picture.