National Taxpayer Advocate Explaining Expanded Role for IRS FAQs

Frequently asked questions, or FAQs, can serve a very useful purpose for the Internal Revenue Service, particularly when it comes to getting information out quickly. But the role they play for taxpayers can be a challenging one when those FAQs are relied upon to make decisions that could otherwise result in penalties.

“Taxpayers need expeditious guidance,” National Taxpayer Advocate Erin Collins said in a recent interview. “At the same time, taxpayers need to be able to rely on the positions that are set forth by the IRS.”

To that end, she noted that FAQs are likely a source that taxpayers are turning to for quick information.

“The average taxpayer, and its not really a surprise, is not reading regulations,” she said. “They are not reading case law. They are not reading code sections. What they are doing is searching the web. They could be reading an FAQ or just reading instructions to a Form 1040.”

And when that information is coming directly from the IRS in a public forum, “whether that’s on a website or even guidance with respect to instructions, taxpayers should be able to rely on that information.”

IRS FAQs – The First Step

Collins noted that FAQs represented only the first step in the guidance process. For informational questions, such as a simple how-to, that might be the only step necessary. But for questions about a more substantive issue, the FAQ should be the steppingstone to more formal guidance.

“The advantage of an FAQ is it can get out the door quickly from within the IRS building,” Collins said. “It doesn’t have the same levels of review. So, I do think having the ability to issue FAQs is very beneficial for taxpayers.”

She continued: “And when you are reading the FAQs, the majority of them are procedural in nature. So they aren’t substantive and they wouldn’t trigger penalties per se, but there are times when the FAQ crosses over and provides substantive guidance and therein lies the problem for taxpayers and taxpayer rights.”

IRS FAQs Offer Speedy Guidance

FAQs are important because of the time it takes for the IRS to issue more formal guidance.

“It takes the IRS and The Treasury Department a period of time to get those issued,” Collins said. “So an FAQ is a good substitute, but it shouldn’t be the stopping point. It should be the starting point. Getting that information out there. In a perfect world, absolutely we want expeditious guidance. We want taxpayers to be able to rely on it both on merits and purposes of penalty. But today I don’t think the IRS is in a perfect world. So expeditious and formal guidance don’t necessarily mean the same thing, timing wise.”

She noted that her office is advocating that the agency continue to use FAQs as the first step in the information dissemination process.

Tracking Changes in IRS FAQs

Another key win Collins earned with regard to the FAQs was getting the IRS to make it policy to track changes to FAQs.

“Historically, if the IRS made a change, they would just update the website and the old version sort of disappeared,” she said. “It was very difficult to track what changed and why, so the IRS did agree to start a procedure that they announced back in October that they are going to track them.”

This was important, Collins said, because the FAQ could protect a taxpayer in a situation where they are facing penalties. If they used guidance in an FAQ that was ultimately deleted, it could make the defense that much more challenging. Now, with the IRS tracking changes, it becomes a little easier to point to a previous version of an FAQ that was relied upon when a taxpayer comes before the agency to challenge any penalties.

But despite the agency recognizing that FAQs can provide substantive guidance ahead of more formal guidance documents such as Internal Revenue Bulletins or regulations, the agency is not formally acknowledging that FAQs do in fact carry some weight.

“The IRS should clarify that the information presented in an FAQ constitutes Internal Revenue Service information as defined [in regulations],” she said, adding that her office is continuing to push for this.

Taxpayers Should Point Out Need for Formal Guidance

One thing Collins called on taxpayers and preparers to do if they see an FAQ that would benefit from more formal guidance is to say something.

“If there are things that we identify, and I welcome the tax community [to raise] issues that you see in an FAQ that should be elevated to formal guidance, I highly recommend that they come in either though my office or IRS chief counsel or IRS to make those recommendations that we change an FAQ into formal guidance.”