IRS: Taxpayers Cannot Rely Solely on FAQs When Making Decisions about Their Returns

The Internal Revenue Service (IRS) regularly publishes frequently-asked questions (FAQs) on important topics for individual and corporate U.S. taxpayers. For example, the IRS recently published a series of FAQs on the tax implications associated with Coronavirus State and Local Fiscal Recovery Funds (SLFR Funds). However, while the IRS encourages taxpayers to review its guidance, it also wants taxpayers to know that they cannot rely on its guidance exclusively. New Jersey IRS lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains:

The IRS’ Position on Taxpayer “Reliance”

Some of the guidance the IRS issues for U.S. taxpayers is binding, and some is not. While taxpayers are entitled to rely on the IRS’ binding guidance, the IRS’ FAQs generally do not fall into this category.

Official (and binding) guidance appears in the IRS’ Internal Revenue Bulletin (the “Bulletin”). FAQs, however, are simply published on the IRS’ website—usually in the form of a Fact Sheet. As the IRS explains:

“FAQs . . . may not reflect various special rules or exceptions that could apply in any particular case. FAQs that have not been published in the Bulletin will not be relied on, used, or cited as precedents by [IRS] personnel in the disposition of cases. Similarly, if an FAQ turns out to be an inaccurate statement of the law as applied to a particular taxpayer’s case, the law will control the taxpayer’s tax liability. Only guidance that is published in the Bulletin has precedential value.”

In short, while the IRS intends its FAQs to be helpful for U.S. taxpayers, they are not binding on the agency, and the answers they provide are not always comprehensive—or even correct. As a result, if a taxpayer submits a false return based on the information contained in an IRS FAQ, the taxpayer is still liable for all amounts owed pursuant to the statutory language of the Internal Revenue Code and the IRS’ binding guidance issued in the Bulletin.

However, while taxpayers cannot avoid liability for underpayment caused by reliance on IRS FAQs, showing good-faith reliance may allow a taxpayer to avoid penalties. “[A] taxpayer’s reasonable reliance on an FAQ (even one that is subsequently updated or modified) is relevant and will be considered in determining whether certain penalties apply.” Specifically, if a penalty requires “reasonable cause,” a taxpayer’s reliance on published FAQs may be enough to protect the taxpayer from the penalty.

What Should Taxpayers Do to Avoid IRS Penalties?

Given that this is the case, what should U.S. taxpayers do? While taxpayers can review the IRS’ frequently-asked questions to learn about basic tax principles, they must rely on personalized legal advice when making decisions about their tax reporting and payment obligations. This means consulting with a New Jersey IRS lawyer before submitting a return or payment to the IRS. For those who have already submitted inaccurate returns or underpayments based on IRS FAQs, it will be important to consult with a lawyer to determine what options are available.

Request a Confidential Consultation with New Jersey IRS Lawyer Kevin E. Thorn

If you need help understanding your personal or business tax obligations, or if you need help to correct a past filing mistake, we encourage you to schedule an initial consultation at Thorn Law Group. To request an appointment with New Jersey IRS lawyer and Managing Partner Kevin E. Thorn, please call 201-355-8202, email ket@thornlawgroup.com or contact us confidentially online today.