October 12, 2020 - Douglas Myser

Rights of taxpayers relying on IRS advice. Consider a scenario where a taxpayer is filing a tax return, and in preparing that return, wonders whether a particular expense is deductible. He goes to the IRS website and finds a "Frequently Asked Question page" that directs him to an answer on that issue. Good news: The IRS says says the expense is deductible. So you deduct it. The next year, the IRS audits the return. The examining agent informs you the IRS changed its position after you filed your return. The examining agent not only denies the deduction, but he imposes a 20 percent accuracy related penalty as well. You go back to IRS.gov to try to find the FAQ you relied on, but it's gone. If the Taxpayer Bill of Rights is to be given meaning, this scenario violates, "The Right to be Informed" and "The Right to a Fair and Just Tax System." It is neither fair nor reasonable for the government to impose a penalty against a taxpayer who follows information the government provides on its website. Rights of taxpayers relying on IRS advice.

As tax professionals know well, some forms of administrative guidance are more authoritative than others. Regulations are at the top of the hierarchy, because they go through a notice and comment process and are considered binding on the government and taxpayer alike. Other forms of guidance that are published in the Internal Revenue Bulletin, like revenue ruling, revenue procedures, and notices generally go through an extensive Treasury and IRS review process and are considered binding on the government. According to a statement included in each IRB," Rulings and procedures reported in the Bulletin do not have the force and effect of Treasury Department Regulations, but they may used as precedent." Press releases by the IRS meet the definition of "substantial authority" defined in Treasury Regulation Section 1.6662-4.

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