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IRS FAQs Observations And Cautions



IRS FAQs

FAQs published by the IRS seem to increase exponentially each year. Just for the advance child tax credit of the American Rescue Plan Act (P.L. 117-2, 3/11/21), the IRS has over 80 FAQs and continue to update them even 10 months after enactment (but then, it is a multi-facited somewhat complex provision).

On October 15, 2021, the IRS announced a modification to its FAQ process for those issued on newly enacted legilation and emerging issues (IR-2021-202). Those FAQs will be released in a news release along with a Fact Sheet. Later updates should result in an updated Fact Sheet and we should be able to find any deleted or modified FAQs in prior fact sheets. As a news releases these FAQs are “authority” under Reg. 1.6662-4, although a low level of authority.

Fact Sheet FAQs will also include a disclaimer which includes:

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.”

Note that FAQs, even Fact Sheet ones released in a news release are not publishd in the Internal Revenue Bulletin (IRB) so are not binding law, as noted in the disclaimer. Also note the part about “the law will control…” another reminder that FAQs themselves are not the law.

When you find an FAQ that answers your question, you should find the underlying binding authority to be sure it exists and because that is what you need to rely on. I think probably 95% of IRS FAQs are just describing the Code, text from a Public Law, regs, or court cases, so are binding.

If you can’t find underlying binding law, proceed with caution. A few examples where you won’t find underlying law: FAQs 39 – 41 for virtual currency and the extensive written documentation IRS calls for the FFCRA sick and family leave employment tax credit (as well as for self-employed individuals).

Something not noted in the October 15, 2021 announcement about the new FAQ process for those on newly enacted legislation and emerging issues, is that some FAQs might end up in a Notice published in the IRB so are binding guidance. For example, a good number of FAQs on the Employee Retention Credit enacted by the CARES Act and modified by two later laws, are in Notice 2021-20 and perhaps a few other notices.

For example, Q&A 31 in Notice 2021-20 on full-time employee, is exactly the same as FAQ #49 on the IRS website. But the FAQ website is not updated to note which FAQs have been published in the IRB making them binding authority – and more binding than Fact Sheet FAQs! So, one more thing to consider in using FAQs, even those not in a Fact Sheet – an FAQ may be more binding than expected.

A few additional points:

I have added FAQ Fact Sheets to the documents I maintain on items published in the IRB – here.

I have been raising issues about FAQs for over 10 years. For some prior blog posts, please search “FAQ” in my blog’s search box.

What do you think? And, do you think we should seek more FAQs or more binding guidance such as regs, revenue rulings and notices? And bear in mind that only regs are not generally retroactively effective (other types of guidance are retroactively effective) and only proposed regs require.

Professor Annette Nellen, San Jose State University

Tax Professionals: Your commentary is welcome below.

Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.

Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.

Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.

Prior to joining SJSU, Annette was with Ernst & Young and the IRS.

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