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IRS Says FAQs Not Legal Authority – Finally!

Annette Nellen

In May 2017, the IRS Small Business Division issued a memo to field directors to remind them that FAQs and other items posted to the IRS website are not legal authority unless published in the Internal Revenue Bulletin (IRB)! [SBSE-04-0517-0030 (5/18/17)]


I’ve been writing about this issue since at least 2010 and in 2012 had the opportunity to discuss the issue with IRS, Treasury and congressional staff.


Nellen, How Heavy is an IRS FAQ?, AICPA Tax Insider, 11/11/10

Horwitz and Nellen, FAQs: Problems with InformalGuidance from the IRS (2012) by Horwitz and Nellen, presented to staff of House Ways & Means, Senate Finance, Joint Committee on Taxation, IRS Chief Counsel, Treasury, as well as to National Taxpayer Advocate Nina Olson and her staff, as part of the California Bar Tax Section DC Delegation activity of May 2012.

My concern with so many FAQs (see the paper above with Robert Horwitz) is that it means less time is spent on issuing binding guidance. There are numerous examples, such as CCA 201504011 (1/23/15) that holds that in measuring cost of sales for a marijuana business, the inventory rules in existence when IRC Section 280E was enacted (1982) apply rather than current rules, such as Section 263A. Section 280E is the provision that disallows expense deductions for marijuana businesses, but does allow cost of sales. Some try to lessen the impact of this rule by using the Unicap rules of Section 263A to treat more type of costs as inventoriable rather than as period costs. Why wasn’t the CCA issued as a revenue ruling to be binding. Yes, more IRS and Treasury time would have been required, but it would have greater effect.

What do you think?

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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