IRS to U.S. taxpayers: 'reasonable cause' defense in the event its own published guidance was to blame

In a statement published last week, the IRS said it was clarifying its official view on the reliability of its website in order to "address concerns regarding transparency and the potential impact on taxpayers when these FAQs are updated or revised."

At the same time, the statement added, the IRS was also seeking to addressing concerns regarding "the potential application of penalties to taxpayers who rely on FAQs, by providing [them with] clarity, as to their ability to rely on FAQs for penalty protection."

The IRS added that as part of its clarification process, with respect to possible concerns "about the potential application of penalties to taxpayers who rely on an FAQ, a  taxpayer who relied "on any FAQ (including FAQs released before today), in good faith, and that reliance [were deemed to be] 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."

"Significant FAQs on newly-enacted tax legislation, as well as any later updates or revisions to these FAQs, will now be announced in a news release and posted on IRS.gov in a separate 'Fact Sheet'," the IRS said, in its statement.

"These 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.

"In addition to significant FAQs on new legislation, the IRS may apply this updated process in other contexts, such as when FAQs address emerging issues."

What to watch out for

The IRS statement warns that any FAQs "that have not been published in the Internal Revenue Bulletin (IRB) are not to be relied on, used or cited as precedents by IRS personnel in the disposition of cases."

Similarly, it adds, "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.

"Only guidance that is published in the IRB has precedential value."

The IRS statement concludes by noting that, "notwithstanding the non-precedential nature of FAQs, a taxpayer's reasonable reliance on an FAQ (even one that is subsequently updated or modified) is relevant, and will be considered in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.

"Taxpayers who show that they relied in good faith on an FAQ, and that their reliance was reasonable, based on all the facts and circumstances, will have a valid reasonable cause defense, and will not be subject to a negligence penalty or other accuracy-related penalty to the extent that reliance results in an underpayment of tax."