On October 15, 2021, the Internal Revenue Service (the IRS or the Service) issued IR-2021-202 that describes the basis upon which taxpayers may rely on frequently asked questions (FAQs) to avoid certain penalties and separately posted on its website a statement regarding reliance on certain FAQs for purposes of avoiding penalties. As discussed in greater detail, below, the two statements are not identical.

FAQs have been used by the IRS with greater frequency over the past few years as an alternative to guidance published in the Internal Revenue Bulletin (IRB). This proliferation of FAQs is due, in part to the relative ease of publishing material on the IRS website, which allows the IRS to quickly communicate information to the public as compared to the more lengthy time it may take to develop and issue published guidance, such as an IRS Notice, Revenue Ruling or Treasury Regulations. Historically, FAQs are not listed as published guidance. See Treas. Reg. §1.6662-4(d)(3)(iii) (listing various types of authority for purposes of avoiding certain penalties); §601.601(d) (identifying official IRS interpretations of the Code). As the use of FAQs has expanded, taxpayers and practitioners have raised concerns about FAQs and other information that only appears on the IRS website. In particular, these concerns generally relate to issues associated with the use of the internet generally, data may not be archived and may change or be removed without warning. Accordingly, taxpayers and practitioners have resorted to printing out FAQs as a means to demonstrate reliance on that particular version of the FAQ, as the IRS is in no better position and is generally unable to identify the prior formulation of a FAQ as of a particular date. Other concerns relate to whether FAQs or other information provided on the IRS website may be relied upon to avoid penalty. Prior to the issuance of IR-2021-202, the IRS had not indicated whether taxpayers that rely on a particular FAQ would be subject to IRS penalty to the extent that the FAQ does not appropriately reflect the proper interpretation of the Internal Revenue Code.

IRS’ updated process for FAQs on new tax legislation

IR-2021-202

IR-2021-202 is a press release that announces changes to the IRS “process for certain [FAQs] on newly enacted tax legislation.” The press release confirms that the IRS has committed to announcing the issuance of “significant FAQs on newly enacted tax legislation” and later revisions to such FAQs in a news release and on IRS.gov in a separate Fact Sheet. Neither the Code nor the regulations define the term “Fact Sheets;” however, the Service has described them as “topical information issued to the media by IRS Media Relations.”¹ According to the press release, Fact Sheets are also considered authority for purposes of the exception to accuracy-related penalties that applies when there is substantial authority for the treatment of an item on a return. The press release also confirms that “Fact Sheet FAQs” will be dated to enable taxpayers to confirm the date on which any changes to the FAQs were made. Additionally, prior versions of Fact Sheet FAQs will be maintained on IRS.gov to ensure that, if a Fact Sheet FAQ is later changed, taxpayers can locate the version they relied on if they later need to do so. The IRS notes that it may apply this process in other contexts, such as when the IRS issues FAQs to address emerging issues.

In addition to providing certain procedural guarantees relating to the issuance of FAQs, the press release also clarifies that if a taxpayer relies on any FAQ (including FAQs released prior to this press release) “in good faith and such reliance is reasonable, the taxpayer will have a ‘reasonable cause’ defense against any negligence penalty or other accuracy-related penalty if it turns out the FAQ is not a correct statement of the law as applied to the taxpayer’s particular facts.” The press release then directs the reader to review the “General Overview of Taxpayer Reliance of Guidance Published in the Internal Revenue Bulletin and FAQs” published on IRS.gov.

The press release also informs taxpayers that the IRS will append a legend to all Fact Sheet FAQs. It reads:

These FAQs are being issued to provide general information to taxpayers and tax professionals as expeditiously as possible. Accordingly, these FAQs may not address any particular taxpayer's specific facts and circumstances, and they may be updated or modified upon further review. Because these FAQs have not been published in the Internal Revenue Bulletin, they will not be relied on or used by the IRS to resolve a case. 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. Nonetheless, a taxpayer who reasonably and in good faith relies on these FAQs will not be subject to a penalty that provides a reasonable cause standard for relief, including a negligence penalty or other accuracy-related penalty, to the extent that reliance results in an underpayment of tax. Any later updates or modifications to these FAQs will be dated to enable taxpayers to confirm the date on which any changes to the FAQs were made. Additionally, prior versions of these FAQs will be maintained on IRS.gov to ensure that taxpayers, who may have relied on a prior version, can locate that version if they later need to do so.

The new FAQ policy

As part of the release of IR 2021-202, the IRS also released a new policy “General Overview of Taxpayer Reliance on Guidance Published in the Internal Revenue Bulletin and FAQs” (the Policy) that is published on its website. The Policy provides the IRS rationale for the use of FAQs in lieu of guidance published in the IRB. Notably, the Policy clarifies that the IRS and its personnel will not rely on, use, or cite as precedent any FAQ that has not been published in the IRB and that only guidance published in the IRB has precedential value. Moreover, the Policy clarifies that 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.”

Unlike IR 2021-202, the Policy uses different language when discussing a taxpayer’s ability to rely on FAQs to avoid penalties. The Policy, as a matter of administrative grace, notes that despite the non-precedential status of FAQs, “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” (emphasis added). The Policy then seemingly both clarifies and modifies the prior sentence by noting taxpayers who show their reasonable reliance will have a valid reasonable cause defense but only to the extent that such reliance results in an underpayment of tax. Finally, the Policy concludes by clarifying that only FAQs that are published in a Fact Sheet linked to an IRS press release are considered authority for purposes of the exception to accuracy-related penalties when substantial authority is required to be demonstrated.

Existing FAQs

The following is a list of some of the FAQs that the IRS currently maintains on its website that, in principle, should be considered to be subject to IR 2021-202:

• Foreign Account Tax Compliance Act (FATCA)
• Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures
• Tax Cuts and Jobs Act (TCJA)
• Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
  • COVID-related Tax Relief Act - credits under the CARES Act
  • Coronavirus Economic Relief for Transportation Services (CERTS) Frequently Asked Questions
  • Aviation Excise Tax Holiday Under the CARES Act
  • Employee Retention Credit Under the CARES Act
  • Payroll Support for Air carriers and Contractors Under the CARES Ac
• Virtual Currency
• Tax Credits for Paid Leave Under the American Rescue Plan Act
• Leave Sharing Plans
• NOL Carrybacks of C Corporations to Taxable Years in which the Alternative Minimum Tax Applies
• Carrybacks of NOLs for Taxpayers Who Have Had Section 965 Inclusions
• Deferral of Employment Tax Deposits and Payments Through December 31, 2020
• Tax Credits for Paid Leave Under the Families First Coronavirus Response Act for Leave Prior to April 1, 2021

What is not included?

IR-2021-202 and the Policy do not apply to other items published by the IRS on its website such as:

• Instructions, tax forms and “cover sheets”
• Regular pages on the IRS website

• Online help and resources
• News releases and Fact Sheets other than those relating to FAQs

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