The IRS recently issued guidance on the utility of and weight to be afforded informal “frequently asked questions” (FAQs) published on its website—clarifications that became necessary given the IRS’s heavy reliance on FAQs as the preferred form of guidance throughout COVID-19 in its attempt to swiftly clarify and interpret standards of newly enacted relief programs often administered by the IRS and the US Department of the Treasury.
According to former IRS Chief Counsel Michael Desmond, “I don’t see [FAQs] as the ideal way to be delivering guidance, but they do serve a very important function for a number of taxpayers.” The reason the IRS views FAQs to be important and a valuable alternative to more formal guidance is that FAQs allow the IRS to more quickly communicate information and the agency’s views to the public. To be fair, FAQs have become a favored vehicle of the IRS for issuing interpretative guidance—particularly during the COVID-19 pandemic—because the FAQ drafting, approval, and publication processes are far less formal than the lengthy and technical processes that regulations, revenue procedures, and other substantial authority–level pronouncements follow. FAQs, in turn, have allowed the IRS to release important information about IRS views much sooner, in many instances to the benefit of the taxpaying public. [1]
Yet IRS FAQs’ relatively low position in the hierarchy of tax law authorities, as the Government Accountability Office noted in a 2016 report, has raised concerns among tax practitioners about whether FAQs can and should be relied upon by taxpayers— especially in recent times, as taxpayers grapple with whether and when they may qualify for any of the myriad of new COVID-19 tax relief programs.
Tax practitioners have identified several concerns with the IRS issuing substantive guidance through FAQs, namely, the following:
For these reasons, taxpayers and tax practitioners have remained skeptical about relying too heavily on FAQs that have at times changed or disappeared.
Issued on October 15, 2021, IR-2021-202 addressed each of the above tax practitioner concerns as follows:
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[1] The IRS has also issued FAQs on more traditional areas of employee benefits, such as with respect to qualified retirement plans (e.g., recent changes under the SECURE Act), and health and welfare issues (e.g., healthcare information forms for individuals and for government entities regarding cafeteria plans).
[2] Specifically, under Treas. Reg. 1.6662-4(d)(3)(iii), only the following are authority for purposes of determining whether there is a substantial authority for the tax treatment of an item: (1) the Internal Revenue Code; (2) regulations; (3) revenue rulings and revenue procedures; (4) tax treaties and regulations thereunder; (5) court cases; (6) congressional intent as reflected in committee reports, etc.; (7) general explanations of tax legislation prepared by the Joint Committee on Taxation (the Blue Book); (8) certain private letter rulings and technical advice memoranda; (9) certain actions on decisions and general counsel memoranda; (10) IRS information and press releases; (11) and notices, announcements and other administrative pronouncements published by the IRS in the Internal Revenue Bulletin.
[3] The IRS has on occasion incorporated FAQs into a notice, thereby elevating the substance of the referenced FAQs to substantial authority status. See, e.g., IRS Notice 2021-20, concerning certain aspects of the Coronavirus Aid, Relief, and Economic Security Act employee retention credit relief program.