The IRS National Taxpayer Advocate’s 7/26/17 blog post notes that FAQs “can be a trap for the unwary.” She notes:
“my view is that the IRS should use FAQs when there is a need to provide guidance on an emergency or highly expedited basis. Examples include relief provided to victims of Hurricane Katrina or victims of the Bernard Madoff Ponzi scheme. However, my recommendation is that the IRS converts FAQs into published guidance as quickly as possible whenever an issue affects a significant number of taxpayers or will have continuing application. U.S. taxpayers are entitled to finality, and the prospect that the IRS may change its position and assess additional tax after a tax return has been filed in reliance on an IRS’s position is simply unfair.”
“In addition, to ensure taxpayers understand the limitations of FAQs and other unpublished guidance, we recommend the IRS prominently display a disclaimer near such guidance that says something along the following lines: “Taxpayers may only rely on official guidance that is published in the Internal Revenue Bulletin. Various IRS functions try to provide unofficial guidance to taxpayers by posting Frequently Asked Questions (FAQs) and other information on IRS.gov. Unless otherwise indicated, however, this information is not binding, and taxpayers may not rely on it because it may not represent the IRS’s official position.”” [emphasis added]
The IRS recently reminded its examiners of that FAQs aren’t binding (see my 6/4/17 blog post).
Most FAQs are like IRS publications – just a summary of the law. It is the FAQs, such as those on the Offshore Voluntary Disclosure Program (OVDP), that are not summarizing binding guidance (statute, regulations, IRS rulings published in the IRB, court cases), that are problematic. They are not binding, but there is usually nothing else out there.
It is not just FAQs that are a concern. Chief Counsel Advice (CCA) are also issued where sometimes new interpretations of the law of noted. These are not considered “authority” for purposes of avoiding a taxpayer (Section 6662) or preparer (Section 6694) penalty. For example, CCA 201504011 on how unicap does not apply to a marijuana business in applying Section 280E that disallows deductions, but not cost of sales, for such businesses. Why wasn’t this issued as a revenue ruling or as regulations under Section 280E (which has no regulations despite its enactment in 1982 and its increased importance when states started legalizing marijuana in the mid-1990s)? There are also some Information Letters that have not binding underlying authority.
What do you think?