National Taxpayer Advocate Urges IRS to Protect Rights of Taxpayers Relying on FAQs

The National Taxpayer Advocate (NTA) has urged the IRS to protect the rights of taxpayers relying on its FAQs.

IRS FAQs Not Legal Authority

“It may seem obvious that FAQs posted on the IRS website constitute ‘Internal Revenue Service information,’ but the IRS has declined to concede that point,” NTA Erin M. Collins wrote in recent blog post, referencing the Internal Revenue Manual 4.10.7.2.4. As noted in the IRS manual, “FAQs that appear on IRS.gov but that have not been published in the Bulletin are not legal authority and should not be used to sustain a position unless the items (e.g., FAQs) explicitly indicate otherwise or the IRS indicates otherwise.”

The IRS has increasingly relied on FAQs as a means for relaying guidance to taxpayers. However, that form of guidance is considered sub-regulatory, which lacks legal authority. And while it is understandable that the IRS wants to reserve the ability to change its position in FAQs, taxpayers simultaneously have a right to transparency and fair dealing from their government, according to the Collins. “If a taxpayer takes the time to visit a government website to locate information to help comply with tax obligations, the taxpayer should be rewarded for trying to do the right thing – not penalized,” Collins writes.

Although Collins generally supports the IRS’s use of FAQs for providing timely guidance, she is urging the IRS to consider the following recommendations, as listed in the NTA blog:

  • The IRS should continue to use FAQs to provide timely guidance to taxpayers where appropriate. We acknowledge that quick answers will sometimes be changed upon more thorough review. It is reasonable for examining agents to retain the authority in limited cases to challenge taxpayer return positions if an FAQ has been changed, but when that situation arises, examining agents should be required to consider the previously issued FAQ.
  • For penalty relief purposes, Treasury and the IRS should clarify that the information presented in FAQs constitutes “Internal Revenue Service information” under Treasury Regulation § 1.6662-4(d)(3)(iii). Further, the IRS should never assess a penalty against a taxpayer for taking a position consistent with an FAQ posted on the IRS website at the end of a taxpayer’s taxable year or at the time of return filing unless the IRS has convincing evidence the taxpayer knew the FAQ had been changed.
  • The IRS should include the versions and dates of each FAQ on its website or create an archive of obsolete or modified FAQs, including applicable dates, so that taxpayers can locate an FAQ that was in effect at the time they filed their returns. Regardless of the level of deference a taxpayer’s reliance on an FAQ ultimately receives, it is a basic requirement of government transparency that a taxpayer be able to locate and cite the FAQ that appeared on IRS.gov at the time the taxpayer filed a return. An FAQ should not just “disappear” if the IRS decides to change it or remove it as current guidance.

The NTA blog can be located here.

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