The IRS updated how it will handle certain frequently asked questions (FAQs) on newly enacted tax legislation [IR-2021-202, 10-15-21]. The process was changed to address concerns regarding transparency and the potential impact on taxpayers when FAQs are updated or revised. The IRS also addressed when taxpayers can rely on FAQs to avoid potential penalties.
Fact Sheets to Be Dated, Released Separately
When the IRS creates FAQs on newly enacted tax legislation or makes updates or revisions to these FAQs, the IRS will send out a news release and post them in a separate fact sheet. These fact sheets will be dated so taxpayers can confirm the date on which any changes to the FAQs were made. Prior versions of fact sheets will be archived on the IRS website.
In addition to significant FAQs on new legislation, the IRS said it may apply this updated process in other contexts, such as when FAQs address emerging issues.
Relying on FAQs
The IRS also released a statement clarifying that if a taxpayer relies on any FAQs in good faith and that 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 facts.
APA Recommended IRS Change
In July 2020, the APA Government Relations Task Force requested changes to the IRS’s treatment of FAQs because when payroll professionals rely on the information found on the IRS’s website and that information is later changed, they may find themselves in a noncompliant situation due to no fault of their own. APA members recommended that the IRS provide notice of changes, time for employers to adjust, and penalty relief for reasonable reliance on a changed FAQ.
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Jyme Mariani, Esq., is Managing Editor of Payroll Currently and Senior Manager of Payroll Information Resources for the APA.