You may recall me rolling on the floor, kicking and screaming, and threatening to hold my breath until I turned blue.
My gripe? IRS is using FAQs more and more to explain complex tax issues. The answers to FAQs have no authoritative weight. They are posted with no date. They are withdrawn without notice. Once withdrawn, they can no longer be found anywhere.
It seems I was not alone in my pique. Many others were hanging their heads outside the figurative window and yelling, “I’m as mad as hell and I’m not going to take this any more.”
Last month, the IRS responded. FAQs will now be published in a “Fact Sheet” linked to a news release. The date of the FAQ posting will be clear. Changes to the FAQs will also be dated.
Prior versions of a FAQ Fact Sheet will be maintained on the IRS website. It will now be possible to track the history of the FAQs and any changes made to the guidance. FAQs are still intended to be general guidance. They may not be cited as authority to resolve a case with the IRS. If the FAQ answer is wrong as a matter of law, the IRS will not rely on the inaccurate response to the FAQ.
But all is not lost. If a taxpayer reasonably relies on a FAQ when filing a return, that taxpayer cannot be penalized under any of the “accuracy-related” penalties.
The person seeking to avoid penalties will now be assured that the question and answer will not disappear from the IRS website. They will also be assured that the FAQ, and any changes to it, will be dated.
I am sure that some window hangers will still not like the IRS response. They may reasonably ask why the IRS is posting answers that are wrong as a matter of law.
When I was an undergraduate, I needed a science elective to complete my core coursework. The only class that fit my schedule was vertebrate zoology.
When I asked a friend who was a biology major about the class and the professor, he just laughed and said, “Take the class.” I asked why he was laughing. He laughed some more.
The professor was known for two things. One, being old. Not college student old (e.g., your Dad’s age). Actually old. Two, he had a large horse’s leg bone that he carried across campus to the mechanical engineering building so it could be exposed to stress.
I discovered a third thing. He would say things in class that we would dutifully write down. We would learn these things for the test. We would respond with these things on the test. We would be marked wrong.
This issue was raised with the professor. He replied that it was our responsibility to go to the library after each class and to check whether what he said was accurate. He could not, he said, give credit for a wrong answer, even if it came from his mouth.
We are each products of our past. My zoology experiences make me accepting of the IRS statement that they cannot give credit for a wrong answer. Even if it is their FAQ.
I simply have to assume that the writers of the FAQs are old, very old, and carry horse bones on their walks. This is what I learned in my youth.
I am relieved that the FAQs will allow the taxpayer, and their tax adviser, to qualify for reasonable-cause waivers to any penalties that might otherwise apply. A guy who happily took a “B” in vertebrate zoology doesn’t need much to be content.
To be fair, most FAQs apply the law properly. The most important item in the new IRS approach is that they are dated and will not disappear from the website.
A word of caution. If you ask me about a specific FAQ, and I just laugh and tell you to rely on it, ask why I laughed. If I just reply with another laugh, find another class to take. Oops, I mean find another source of authority.
James R. Hamill is the Director of Tax Practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at email@example.com.