BROWSER BEWARE! IRS CAUTIONS AGAINST OVERRELIANCE ON ITS WEBSITE
In a recently-posted blog, National Taxpayer Advocate Nina Olson discussed the potential pitfalls of treating information on the IRS’s website, such as its FAQs pages, as authoritative. The Taxpayer Advocate is an independent office within the IRS tasked with helping people resolve tax issues with the IRS and recommending changes that will prevent future problems.
This particular issue is important because taxpayers, especially those with unique expat filing obligations, often have the misguided impression that any and all information published by the IRS on its website represents the final say on U.S. tax law. As Olson’s blog demonstrates, reliance on the IRS website has been particularly problematic for taxpayers trying to understand the rules of its tax amnesty programs.
TYPES OF IRS TAX GUIDANCE
In the blog, Ms. Olson outlines three general types of IRS guidance in terms of strength of authority:
- Treasury Regulations – these are crafted by both the Treasury Department and IRS and are designed to expound on the Internal Revenue code. They are deemed binding on the IRS and taxpayers.
- Guidance published in the Internal Revenue Bulletin (IRB) – these include Revenue Rulings, Revenue Procedures, Notices, and Announcements (“published guidance”). These merely represent the IRS’s interpretation of the law (which can be challenged in court), but the IRS is generally required to follow its own published guidance. Certain guidance, such as Private Letter Rulings, are somewhat less authoritative because they only address a taxpayer’s specific set of facts, but they do offer a good reflection of the IRS’s position on an issue and can be used in certain instances as authority for purposes of protection against penalties.
- Other “unpublished” guidance – these include tax forms and instructions, publications, and press releases. These are generally not reviewed by the Treasury Department and are sometimes not even subjected to an IRS internal review process. The IRS itself often asserts that taxpayers may not rely on this type of guidance and that the IRS may change its position laid out in the guidance at any time.
IRS WEBSITE’S FREQUENTLY ASKED QUESTIONS (FAQS) PAGES
Information found on the IRS website (that is not also published in the IRB), such as FAQs, fall into category 3 above and therefore should not be relied upon by taxpayers as an authoritative source. The IRS can change its mind at any time with respect to such information, even to the detriment of a taxpayer who may have relied on it.
Interestingly, to illustrate this point, Ms. Olson offered as an example the IRS’s FAQs issued with respect to the Offshore Voluntary Disclosure Programs (OVDPs), noting that they have been repeatedly changed over the years to reflect changes in the programs, but without any sort of formal record as to what changed and when. This, stated Olson, has resulted in inconsistent treatment of similarly situated taxpayers, which she argued is unfair.
It should also be noted that the IRS tax amnesty programs were not created via legislation or regulations, and there is only limited guidance or case law that addresses important aspects of the current programs. This makes the OVDP FAQs pages the only comprehensive guidance currently available and, as a result, practitioners often rely on these pages.
This problem, we feel, is further exacerbated by the fact that at the bottom of IRS web pages, you will often see the following statement, “Page Last Reviewed or Updated on…” A recent date is then included even if the page is describing a program or set of rules that applied previously but is no longer current law or currently applicable.
NATIONAL TAXPAYER ADVOCATE’S WEBSITE RECOMMENDATION
To prevent further problems due to misguided reliance on its website, Ms. Olson recommended that the IRS convert its FAQs and other unpublished guidance into published guidance as quickly as possible whenever an issue affects a significant number of taxpayers or has continuing application. This would give the guidance a proper measure of finality and authority.
Further, Ms. Olson recommended that the IRS display a disclaimer with FAQs that says something like:
“Taxpayers may only rely on official guidance that is published in the Internal Revenue Bulletin. Various IRS functions try to provide unofficial guidance to taxpayers by posting Frequently Asked Questions (FAQs) and other information on IRS.gov. Unless otherwise indicated, however, this information is not binding, and taxpayers may not rely on it because it may not represent the IRS’s official position.”
TAKEAWAY FOR U.S. EXPATS
Depending on the circumstances, filing tax returns can be a challenging process, especially for late filers looking to come into compliance with the IRS. Expat taxpayers are particularly susceptible to errors because of the complex international issues and additional reporting requirements that can significantly affect the tax return of a U.S. citizen living abroad and that penalties for non-compliance can be severe.
It certainly does not help that information disseminated online, even information on the IRS’s own website, is not necessarily reliable or authoritative. For this reason, if you’re a U.S. expat, we highly recommend using a professional expat tax firm to prepare your return.
At Expat Tax Professionals, our thorough preparation and review process is designed to ensure the accuracy and completeness of your original return. We’ve also have helped hundreds of non-compliant expats come clean through the IRS Streamlined amnesty program, as well as other IRS programs. In many cases, we’ve helped minimize or even eliminate potential penalties altogether.
When it comes to filing tax returns, your best bet is enlisting the help of an Expat Tax Professional. You are welcome to contact us for more information.
