Menu
Tax Notes logo

FAQ Disclaimers: Balancing the Need for Guidance and Taxpayer Reliance on FAQs

Posted on July 10, 2020

Today we follow up on Alice G. Abreu and Richard K. Greenstein‘s post discussing the recent NTA blog on IRS FAQ with some additional thoughts from guest blogger James Creech. As yesterday’s post noted, IRS FAQs have grown more important since the coronavirus hit, as the IRS responded to the urgent need for a high volume of guidance by increasing its use of website FAQs in place of IRB guidance.

While IRS FAQs are particularly voluminous and consequential right now, recent observations build on years of criticism. For example, in 2012 Robert Horwitz and Annette Nellen authored a policy paper for the State Bar of California’s Taxation Section. This paper recounts the evolution of the IRS’s use of website FAQs and proposes solutions to concerns, including “(1) the lack of transparency, (2) the lack of accountability, (3) the lack of input by the public, (4) the difficulty in finding specific FAQs on the IRS website, (5) whether FAQs are binding on IRS personnel, and (6) the extent to which FAQs can be relied upon by taxpayers and tax practitioners.” I recommend reading this paper not only for the history of IRS website FAQs but for the authors’ proposals to address these concerns without scrapping the practice or reducing its utility as a quick method of communication to taxpayers.

Former NTA Nina Olson also addressed IRS FAQ in reports to Congress and in Congressional testimony, as discussed and linked in this 2017 blog post.

In addition to her recent blog post discussed yesterday, NTA Erin Collins addressed FAQ in several sections of her 2021 Objectives Report to Congress. The report discusses the pros and cons of informal guidance “in the face of widespread closures of core IRS functions as well as the enactment of the FFCRA and CARES Act,” and notes that by June 10, the IRS had issued 273 FAQ relating to pandemic tax relief. That number has continued to grow in the last four weeks. Due to the uncertainties facing taxpayers, the NTA argues that “if the IRS continues issuing and relying on FAQs, the regulations under IRC § 6662 need to be amended to clarify that FAQs can be used to establish reasonable cause for relief from the accuracy-related penalty.” I wholeheartedly agree. Christine

The IRS has routinely used FAQs as a way inform the public about some of the nuances of tax administration. However as part of the COVID-19 FAQs something new has emerged. The IRS has started to put disclaimers at the beginning of some recently issued FAQs. For example the preamble to the Employee Retention Credit FAQs states:

This FAQ is not included in the Internal Revenue Bulletin, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case.

and the preamble to the COVID Opportunity Zone FAQs states:

These Q&As do not constitute legal authority and may not be relied upon as such. They do not amend, modify or add to the Income Tax Regulations or any other legal authority.

As discussed in some detail in a previous post by Monte Jackel, these disclaimers are necessary because of the lack of weight given to these otherwise official sounding pronouncements. Technically speaking, FAQs are considered unpublished guidance because they are not printed in the Internal Revenue Bulletin like Notices and Revenue Rulings. They are not binding on the IRS. They are not binding on the taxpayer and cannot be used by a taxpayer as substantial authority when taking a legal position or penalty protection. FAQs are subject to change at any time (which is why practitioners should print any on point FAQs instead of bookmarking the webpage) and are frequently revised based upon real world feedback.

Yet despite these limitations, FAQs have real value because they allow the IRS to push out guidance faster without the worry of unintended consequences. For taxpayers they can offer some comfort that their interpretation of how to approach a murky situation is not at odds with the IRS’s approach. The trouble is that for many taxpayers there is no recognizable difference between FAQs published on IRS.gov and a Notice (published in the Internal Revenue Bulletin) done in FAQ format and also published on IRS.gov.

While including disclaimers on some of the COVID guidance is a good start, it is a little disappointing that the disclaimers are not uniform and are not part of every set of FAQs regardless of when they were issued. Recognizing, of course that this is not the right time for the IRS to start new projects, even the COVID specific FAQs are haphazard. Surprisingly the FAQs regarding the Economic Impact Payments (at the time this article was written) do not have a disclaimer. This is despite the target audience being individual taxpayers who may be less able to parse statutory language when compared to sophisticated opportunity zone investors.

For an FAQ disclaimer to be effective for all taxpayers it should be written in plain English in a manner understandable to all taxpayers. The Employee Retention Credit disclaimer for example does not make it clear that the FAQs are not binding on the IRS. Unless the reader knows the importance of publication in the Internal Revenue Bulletin, the statement that the FAQs “cannot be used to support a legal argument in a court case” could seem to indicate that a taxpayer could cite to the FAQ during an administrative dispute regarding the credit.

A better disclaimer might read “These FAQs are informational purposes only and are subject to change at any time. Taxpayers cannot rely on these FAQs as the official position of the IRS and cannot be cited as legal authority. FAQs do not change the Internal Revenue Code or Treasury Regulations. For more information on FAQs click here”

Effective FAQs are an important element of agency communication and like it or not they are here to stay. However getting them right means not only drafting answers that reflect the law but giving taxpayers the tools to understand exactly what they can and cannot rely on.

DOCUMENT ATTRIBUTES
Copy RID