IRS formal guidance gets pushed aside by FAQs

When I was an undergraduate in college, I had one more science class to take to fulfill my core requirements. The only fit in my schedule seemed to be vertebrate zoology.

I had a friend who was a biology major who had taken that class and with the same instructor. I asked if I should take the class. He said “yes,” and then he laughed. I asked why he laughed. He laughed again and said, “Take it; you’ll like the professor.” Then he laughed again.

I had little choice, so I took the class. The professor was well past his prime. Now I knew why the joke was on me.

When the first exam was returned, about twothirds of the class pointed out several questions that had been answered exactly like our notes that were based on class lectures.

The other third of the students were the people who never attended class. Everyone who had attended class agreed that the professor had said what we wrote on the exam.

The professor told us that it was our responsibility to go to the library after each class and to check every statement that he had made. He said even if he made the statement, he could not give credit for wrong answers.

I have written about the price we all pay because our elected representatives have slashed IRS resources. Our leaders, who claim we should run government like a business, have slashed the accounts receivable staff and wonder why cash flow is not surging.

One consequence of IRS budget cuts is the inability of the IRS to keep pace with formal guidance to help taxpayers comply with the laws.

Helpful regulations and rulings have, in many cases, been replaced with frequently asked questions (FAQs) on the IRS website. The informal replaces the formal.

Why is this a big deal? If you have a tax question in need of an answer, and find that question on the FAQs, isn’t this a good thing?

It might be. But the problem is that FAQs are not authoritative. And they also lack permanence. And they also lack accountability.

An authoritative answer means one that may be relied upon to convince the IRS of the merits of your tax filing position. Authority may also be used to fight off a proposed penalty for your tax filing position.

The IRS Director of Examination (Small Business and SelfEmployed Division) recently made it clear that FAQs will not be accepted as authority. The IRS’ internal examination manual also makes that point for its agents.

FAQs can disappear from the IRS website at any time. So even if you wanted to argue that a FAQ was authoritative, when the IRS raises an examination issue you may not be able to find the FAQ that you relied upon when preparing your return.

FAQs also do not identify an author. So no one is accountable for an incorrect FAQ.

I suspect that taxpayers believe that if they find a FAQ on the IRS’ website that addresses their situation that they have found the correct answer. Ha-ha-ha.

Like my zoology professor, IRS says that you need to go to the library after reading the FAQ and make sure its answer is correct. And when audited, no credit is given for an incorrect answer, even one coming from the IRS FAQs.

Formal guidance, such as regulations, IRS rulings, IRS procedures, and so on, are published in the Internal Revenue Bulletin. They are authoritative, even if they are later withdrawn, and they may be used to hold the IRS accountable.

Let me make clear that I am not against FAQs as one means of IRS communicating with

taxpayers. The problem is when informal guidance such as FAQs begins to sweep the formal guidance out of the way.

I’m speculating here, but there are likely two reasons for the growth of FAQs relative to formal guidance. One is the reduction in the IRS workforce.

The second, which might be felt more in the future, is the executive order requiring that two regulations be eliminated for every new regulation.

So before you submit your exam answers, go to the library and check the validity of any IRS FAQs.