IRS Announces Revamped Process for Updating FAQs for New Tax Legislation

By:
Ruth Singleton
Published Date:
Oct 18, 2021

GettyImages-174879501 IRS Internal Revenue Service

The IRS  announced on Friday that it will update its process for posting frequently asked questions (FAQs) about new tax legislation in order to address concerns about transparency and how taxpayers are affected during this process.  The agency will also provide more clarity about the ability of taxpayers to rely on its FAQs to avoid penalties. 

The IRS said that going forward, it will announce FAQs on new tax legislation, or other updates or revisions, in a news release and will post the announcement on IRS.gov in a separate fact sheet. These fact sheets will be dated so that taxpayers can confirm when the changes were made. And the IRS will maintain prior versions of fact sheet FAQs so that , if a FAQ is later changed, taxpayers can locate the version they relied on.  

Accounting Today explained that the change in policy came about as a result of taxpayers and tax professionals expressing confusion over FAQs that the IRS posted with regard to tax legislation enacted by Congress in response to the economic fallout from the COVID-10 pandemic. It noted that after passage of the CARES Act and other pandemic-related legislation, the IRS had to "clarify various tax aspects of the emergency legislation on its FAQ pages rather than going through the lengthy process of drafting proposed tax regulations, submitting them for public comment and eventually finalizing the regulations.” These FAQs were frequently amended without much notice, forcing tax professionals to track the FAQ pages carefully.  

The IRS emphasized that the Internal Revenue Bulletin is the authoritative document for announcing official IRS rulings and procedures, along with decision of the Department of the Treasury, executive orders, tax conventions, legislation, court decisions and other items of interest. 

The IRS noted that “FAQs are a valuable alternative to guidance published in the Bulletin because they allow the IRS to more quickly communicate information to the public on topics of frequent inquiry and general applicability.” It add, “FAQs typically provide responses to general inquiries rather than applying the law to taxpayer-specific facts and may not reflect various special rules or exceptions that could apply in any particular case. FAQs that have not been published in the Bulletin will not be relied on, used or cited as precedents by Service personnel in the disposition of cases. Similarly, if an FAQ turns out to be an inaccurate statement of the law as applied to a particular taxpayer's case, the law will control the taxpayer's tax liability. Only guidance that is published in the Bulletin has precedential value.” 

Yet the agency added that a taxpayer's reasonable reliance on a FAQ will be recognized in some circumstances as a way to avoid penalties: “Notwithstanding the non-precedential nature of FAQs, a taxpayer's reasonable reliance on an FAQ (even one that is subsequently updated or modified) is relevant and will be considered in determining whether certain penalties apply. Taxpayers who show that they relied in good faith on an FAQ and that their reliance was reasonable based on all the facts and circumstances will have a valid reasonable cause defense and will not be subject to a negligence penalty or other accuracy-related penalty to the extent that reliance results in an underpayment of tax.” 

The IRS said that it will add the following legend to its fact sheet FAQs: 

“These FAQs are being issued to provide general information to taxpayers and tax professionals as expeditiously as possible. Accordingly, these FAQs may not address any particular taxpayer's specific facts and circumstances, and they may be updated or modified upon further review. Because these FAQs have not been published in the Internal Revenue Bulletin, they will not be relied on or used by the IRS to resolve a case. Similarly, if an FAQ turns out to be an inaccurate statement of the law as applied to a particular taxpayer's case, the law will control the taxpayer's tax liability. Nonetheless, a taxpayer who reasonably and in good faith relies on these FAQs will not be subject to a penalty that provides a reasonable cause standard for relief, including a negligence penalty or other accuracy-related penalty, to the extent that reliance results in an underpayment of tax. Any later updates or modifications to these FAQs will be dated to enable taxpayers to confirm the date on which any changes to the FAQs were made. Additionally, prior versions of these FAQs will be maintained on IRS.gov to ensure that taxpayers, who may have relied on a prior version, can locate that version if they later need to do so.” 

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