In the wake of tax reform, taxpayers and practitioners alike are anxious for guidance and clarification on how the new laws impact transactions and reporting positions. The Internal Revenue Service (IRS) has previously stated that implementing tax reform is its highest priority, but that issuing guidance on the entire bill would likely take a substantial amount of time. Since December 2017, the IRS has published a host of notices, revenue procedures and administrative guidance. In some instances, the guidance was mechanical (e.g., Notice 2018-38), and in others it was more substantive (e.g., Notice 2018-28, Notice 2018-18, Rev. Proc. 2018-26).
On May 31, 2018, the IRS announced an “all hands on deck” effort to implement tax reform through 11 groups working closely with the Treasury Department. The IRS originally stated that it did not plan to release any more proposed regulations before the end of the year. Instead, it would issue tax Forms (with instructions) that would need to be filed by taxpayers before the end of the year. On June 7, 2018, the IRS explained that it does plan to issue proposed regulations “covering all major portions” of the bill starting in September and ending in December 2018 (the IRS specifically plans to finalize the temporary aggregation regulations by September to stop them from sunsetting). The IRS reported it is in “very good shape” to meet these deadlines. Additionally, at a recent American Bar Association Section of Taxation meeting, IRS international counsel acknowledged year-end financial reporting for global companies and stated that international tax regulations are intended to be released in the fall instead of the end of the year. Regulations under Internal Code Section 965 are planned for issuance this summer, and other areas of guidance include global intangible low-tax income, also known as the GILTI tax.
The question for many taxpayers and representatives is what weight of authority the various types of guidance will be afforded. Of particular interest is what authority will be afforded the non-authoritative guidance, such as Forms, instructions and FAQs. As taxpayers navigate post-reform guidance, it is important to understand the weight that will be afforded certain guidance. While regulations and published guidance are generally afforded a greater weight of deference, Forms, instructions and FAQs are generally afforded very little, if any, deference.
From the IRS’s own view, Forms, publications and FAQs are at the very bottom of its authority pyramid (i.e., below Private letter rulings and Technical advice memoranda). View the IRS’s Weight of Authority of IRS Guidance pyramid here, published in the GAO analysis of IRS Documents (GAO-16-720) (2016). (Prior coverage of the GAO report and links to our analysis on deference principles can be found here.)
The IRS states that Forms, publications and FAQs are “[s]ources of general information [that] taxpayers should not cite to sustain a position as authoritative and as precedent.” In other words, the IRS takes the position that Forms, instructions and FAQs are non-authoritative and cannot be relied upon by taxpayers. But taxpayers need to be able to rely on Forms, publications, and FAQs—even though taxpayers are not necessarily bound by them—to establish that a reporting position is reasonable and taken in good faith. This is especially true in the absence of contrary authority.
Practice Point: The forthcoming Forms, instructions and FAQs are certainly welcome and will likely provide some clarity to the IRS’s position with respect to certain tax reform issues. However, because Forms, instructions and FAQs are nonbinding, it is likely that taxpayers will continue to experience ambiguities and uncertainties as they navigate the new provisions of the Tax Code. It remains the case that where binding precedent and authority is lacking, taxpayers must carefully consider their reporting positions.