Print Out IRS FAQs and Other Informal Guidance While You Have the Chance

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July 26, 2016

When you find favorable informal guidance posted on the IRS website, print it out and save it.  A few years ago, a Treasury official from the Office of Tax Policy rebuked someone who proposed addressing a technical issue through IRS FAQs, conveying that the Treasury frowns on issuing such informal guidance.  At the time, we wondered whether the official had recently visited the IRS website and understood how much informal guidance the IRS provides to taxpayers and practitioners in this manner.

The U.S. tax system is complicated, and significant guidance is necessary to foster compliance.  Yet, the IRS and Treasury does not publish adequate formal guidance (e.g., regulations, revenue rulings, notices, etc.) each year to keep up, so the IRS fills the gaps through FAQs and other informal guidance on its website.  The problem is multifaceted, from the IRS brain drain due to the loss of retiring seasoned technicians, to difficulty recruiting qualified personnel at IRS Chief Counsel related to inadequate Congressional funding and compensation that is no longer reasonably competitive with the private sector, to a logjam of draft guidance at the Treasury Office of Tax Policy.  The IRS seems to feel that the issuance of informal guidance on its website is better than nothing, and it is probably right.

The knock on FAQs and its ilk is twofold.  First, taxpayers probably cannot rely on it because it is informal, unreviewed, and occasionally wrong.  Second, it has a way of disappearing from the website without a trace.  This happened recently with respect to slides made public by the LB&I International Practice Service Concept Unit, which were issued last month and revised this month.  We wrote about how the original slides addressed “transportation income” in an earlier post.

The original slides included a reference to “transportation income” with a parenthetical indicating that such income was “not FDAP.”  FDAP stands for fixed or determinable annual or periodical income.  This struck us as odd, because we felt that transportation income likely was FDAP income, but practitioners have been asking the IRS to issue formal guidance to clarify withholding rules regarding transportation income for years, without success.  (If you are interested, see the IRPAC briefing books on the IRS website to see a discussion of the requests for guidance from 2010 through 2013.)  Thus, any discussion from the IRS to address Chapter 3 withholding related to U.S. source gross transportation income is of great interest to those of us who have been requesting it. Publication 515, for the record, indicates Chapter 3 withholding is not required on U.S. source gross transportation income.  Taxpayers paradoxically should not really rely on statements of law included in IRS publications either.

Alas, someone must have told the responsible LB&I unit that transportation income is FDAP, so when the slides were updated, the statement about transportation income not being FDAP income was removed.  The older version of the practice unit has been replaced with the updated version, so the statement can no longer be found on the IRS website.  Unfortunately, the latest hope for a trump card on U.S. source transportation income disappeared like so many FAQs on other issues before it – into the ether.  The before and after slides are shown below.

Original Practice Unit [Click Image to Enlarge]


Updated Practice Unit [Click Image to Enlarge]