Overview
IR-2021-202 announced a new process for issuing Frequently Asked Questions (FAQs) regarding newly enacted tax legislation.1 The IRS will now issue new fact sheets as well as archive previous FAQs. Taxpayers will now be able to rely on FAQs for penalty protection and, in some instances, they will have precedential value.
FAQs provide taxpayers with practical guidance on the application of tax laws and IRS programs. In IR-2021-202, the IRS stated that significant FAQs on newly enacted tax legislation, as well as later updates and revisions to these FAQs, will be announced in a news release and posted on the IRS website in a separate fact sheet. These fact sheets will be dated to confirm the dates when changes were made. The archiving process is intended to help taxpayers who relied on FAQs to find earlier versions to support their positions. The new fact sheet and archiving process is limited to FAQs that provide guidance on newly enacted legislation or emerging issues and does not apply to procedural matters.
Penalty Avoidance
Before the announcement, the IRS had maintained that taxpayers could not rely on FAQs for penalty protection.
IR-2021-202 clarified that if a taxpayer relies in good faith on FAQs, including previous FAQs issued before the announcement of this new process, the taxpayer will have a valid "reasonable cause" defense.2 If the FAQs are not a correct statement of law and the taxpayer relied on the FAQs in good faith and if that reliance is reasonable, the taxpayer will have a potential defense against negligence and accuracy-related penalties. This represents a significant change in IRS tax policy.
Precedential Value of FAQs
IR-2021-202 also clarified the precedential value of FAQs.3 If the IRS publishes the FAQs in the Internal Revenue Bulletin (IRB), the FAQs will have precedential value. If the IRS does not publish the FAQs in the IRB, the IRS will not rely on, use, or cite the FAQs as precedent in the disposition of cases.
Endnotes
1 IR-2021-202, "IRS Updates Process for Frequently Asked Questions on New Tax Legislation and Addresses Reliance Concerns" (Oct. 15, 2021), available at https://www.irs.gov/newsroom/irs-updates-process-for-frequently-asked-questions-on-new-tax-legislation-and-addresses-reliance-concerns.
2 Id.
3 Id.
