TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, September 21, 2017

IRS FAQs Are A Trap For The Unwary

IRSFAQMarketWatch, What the IRS Does on its Website That’s Unfair to Taxpayers:

Taxpayers can’t rely on Frequently Asked Questions (FAQs) and answers and other “unofficial” guidance that the IRS posts on its website, National Taxpayer Advocate Nina Olson recently explained in a blog post [IRS Frequently Asked Questions Can Be a Trap for the Unwary]. While tax professionals already know about this issue, you may find it unsettling. Here’s what you need to understand.

Unofficial guidance
The IRS puts out what it calls unofficial guidance in many forms. Unofficial guidance includes IRS tax forms and instructions (believe it or not), press releases, online publications, website articles, and website FAQs and answers. Such unofficial guidance is generally not subject to careful internal review or public commentary before being released. Worse yet, the IRS takes the position that taxpayers cannot rely on unofficial guidance even though the IRS has put it out there for public consumption. For example, FAQs and answers that are posted at www.irs.gov can be changed at any time and without any public notice. Ditto for information in IRS publications that are posted on its website. So if you rely on unofficial IRS guidance in taking a position on a federal tax return, the IRS can potentially audit you and assess additional taxes, interest, and even penalties because you did not “follow the rules” even though what you did was consistent with what the IRS said at the time. Not good!

The taxpayer advocate’s conclusions
Ms. Olson concludes that the IRS stance on its own “unofficial” guidance is unfair to taxpayers. The prospect that the IRS can assess additional taxes and even penalties after you’ve filed a tax return that relied on unofficial guidance that the IRS put out there for you to follow before it changed its mind is unacceptable. As far as IRS-provided FAQs and answers go, the taxpayer advocate concludes that they are appropriate in emergency circumstances and when guidance must be issued quickly. As examples, she cited the need for quick guidance on the tax treatment of relief provided to victims of Hurricane Katrina and losses suffered by victims of the Bernard Madoff Ponzi scheme. However, the taxpayer advocate says FAQs and answers should be released as official guidance that taxpayers can rely on (such as in IRS Notices and Announcements) as quickly as possible whenever an issue affects a significant number of taxpayers or will have ongoing relevance. True!

http://taxprof.typepad.com/taxprof_blog/2017/09/irs-faqs-are-a-trap-for-the-unwary.html

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