Taxpayer Advocate Raises Concerns About Increasing FAQ Use by IRS

National Taxpayer Advocate Nina Olson spoke critically at a recent accounting conference about the increased use of FAQs and other informal guidance by the IRS. While such guidance can have an upside, it terms of becoming available more quickly, it also can be changed without notice and often without an official record of what has been said previously.

Background on IRS Guidance. In the world of exempt organizations, as with other tax areas, the IRS can give guidance in a number of ways. Published guidance can include regulations, Revenue Rulings and Revenue Procedures, which can be relied on by taxpayers generally who are within the covered facts and are afforded some deference by the courts. The IRS also publishes Revenue Rulings and Technical Advice Memoranda, which can only be relied on by the requesting taxpayer but nonetheless can give valuable guidance on how the IRS views an issue.

With all of the above guidance, an IRS change in position will be reflected in updated guidance. For instance, with the recent proposed regulations around 501(c)(4) organizations and political activity that attracted so much criticism(see previous post here), the IRS likely will issue a new set of proposed regulations that will make some changes and will almost certainly reference the older set and explain how they differ. When the IRS issues a new Revenue Procedure, it will clearly state that it modifies and supersedes a prior procedure. It is always possible to find and review the older guidance.

Use of FAQs. Lately, FAQs posted on the IRS website have been a more popular way for the IRS to provide public information. This has been the case with issues like offshore voluntary disclosure initiatives and various aspects of the health reform law. While use of this more informal process can get information out to the public more quickly, it also is uncertain to what extent it can be relied on. Often, the IRS will issue updated FAQs and the older ones will no longer be available, although they may have provided different guidance or information that a taxpayer relied on at the time in taking (or not taking) action. Sometimes they provide a date stamp and sometimes they have a disclaimer, but not consistently.

Looking Ahead. With budget issues likely to plague the IRS for some time, it is possible that the use of FAQs will increase and spread into other areas because they require fewer resources to produce. The Taxpayer Advocate has given a heads up that this practice can give the IRS an unfair advantage and put taxpayers at risk. It is important for organizations that are dealing with an unfamiliar issue to try to find the most solid guidance they can. And if an FAQ is all that is out there, talking with counsel can be especially helpful.

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