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K&F News Brief: IRS Publishes Guidance On FAQs And Addresses Reliance Concerns

On October 15, 2021, the IRS published a press release to announce updates to the Service’s process for maintaining answers to frequently asked questions (FAQs) about new and emerging tax legislation. In addition, the IRS also released clarification about the penalty implications for taxpayers who rely upon these FAQs for tax guidance.

The IRS regularly publishes FAQ Fact Sheets as an alternative to official guidance published in the Internal Revenue Bulletin. FAQ Fact Sheets allow the IRS to quickly share helpful information with the public about common questions on tax-related legislation.  They  typically address general topics rather than taxpayer-specific inquiries. After the October 15th press release, the IRS will now announce significant new FAQs and revisions to existing FAQs in an IRS news release and in a separate FAQ Fact Sheet which will be posted to the IRS website, These new FAQ Fact Sheets will be dated so that taxpayers can identify the specific Fact Sheet on which they relied for guidance. The IRS will also preserve older versions of FAQ Fact Sheets on its website so that individuals can obtain copies of previously-published guidance.

In response to concerns about penalty protection for taxpayers who rely on FAQs, the IRS has clarified that taxpayers who rely reasonably and in good faith on FAQs, including FAQs published prior to October 15th, will have a “reasonable cause” defense against negligence penalties and other accuracy-related penalties should the IRS later determine that those FAQs are not a correct statement of law as applied to the taxpayer’s particular case. FAQs published in an IRS news release and Fact Sheet are considered to be “substantial authority” in the context of accuracy-related penalty exceptions that require substantial authority for the treatment of an item on a tax return.

Click here to read the IRS press release.