Question
The IRS issues so many different types of guidance related to the Internal Revenue Code. Can you explain the main types of IRS guidance, where each is published and whether my company may rely on the guidance?
Answer
The IRS administers and enforces the U.S. tax laws, including the Internal Revenue Code. As part of meeting that mandate, the IRS issues a wide array of types of guidance, from regulations to private letter rulings to FAQs. Some guidance is “official” — for example, published in the Federal Register or in the Internal Revenue Bulletin (IRB) — while some guidance only applies to a particular party or provides a very general overview of an issue. Nine of the more common types of guidance are discussed below.
Regulatory guidance
- The IRS and the Treasury Department issue regulations to provide official guidance for new legislation or to address issues that arise regarding existing tax code sections. Regulations interpret and give directions on complying with the tax code. Typically, proposed regulations are first published in the Federal Register as a Notice of Proposed Rulemaking (NPRM). The public has a chance to provide written comments, and a public hearing may be held before a temporary or final regulation is published as a Treasury Decision (TD) in the Federal Register and codified in the Code of Federal Regulations (CFR).
Reliance. Taxpayers may rely on final and temporary Treasury regulations but may not rely on proposed regulations unless expressly stated. Typically, good faith compliance with proposed regulations is allowed.
Subregulatory guidance
- Frequently Asked Questions (FAQs). FAQs are an alternative to official published guidance, allowing the IRS to answer commonly asked questions from the public. FAQs typically cover general questions rather than taxpayer-specific facts and may not reflect special rules or exceptions that could apply in any particular case.
Reliance. FAQs not published in the IRB cannot be relied on, used or cited as precedent by the IRS. Similarly, if an FAQ turns out to be an inaccurate statement of the law as applied to a particular taxpayer’s case, the taxpayer’s tax liability will be determined by the law, not the FAQ; however, a taxpayer’s reasonable, good faith reliance on an FAQ (even if it is later updated or modified) will be considered by the IRS when determining if penalties apply.
- Revenue Ruling (Rev. Rul.). A Rev. Rul. is an official interpretation by the IRS of the tax code, related statutes, tax treaties and regulations, which represents the IRS position on how the law is applied to a specific set of facts.
Reliance. A Rev. Rul. is published in the IRB, and any taxpayer whose circumstances are substantially the same as those described in the Rev. Rul. can rely on it.
- Revenue Procedure (Rev. Proc.). A Rev. Proc. is an official statement of a procedure that affects the rights or duties of taxpayers under the tax code, related statutes, tax treaties and regulations and that should be a matter of public knowledge. While a Rev. Rul. generally states an IRS position, a Rev. Proc. provides instructions for return filings or other procedures.
Reliance. Rev. Procs. are published in the IRB and may be relied upon by taxpayers.
- Private Letter Ruling (PLR). A PLR is a written statement issued by the IRS national office to a taxpayer interpreting and applying tax laws to the taxpayer's specific set of facts. A PLR is issued to establish the federal tax consequences of a particular transaction before it occurs or before the taxpayer's return is filed. Taxpayers must submit a written request for a PLR, which once issued is binding on the IRS if the transaction was fully and accurately described in the request and carried as described.
Reliance. A PLR may not be relied on as precedent by other taxpayers or IRS personnel, but it can give taxpayers an indication of how the IRS might rule in other, similar situations. PLRs are not officially published but may be found on the IRS website.
- Technical Advice Memorandum (TAM). A TAM is guidance furnished by the IRS national office when requested by an IRS director, in response to technical or procedural questions that develop during an IRS proceeding. TAMs are issued only on transactions that have already occurred and provide the interpretation of proper application of tax laws, tax treaties, regulations, Rev. Ruls. or other precedents.
Reliance. TAMs are similar to PLRs; however, they are issued in response to closed taxpayer transactions and cannot be relied upon by other taxpayers. Though not officially published, TAMs may be found on the IRS website.
- Notice. A notice is an IRS public pronouncement that may contain guidance on substantive interpretations of the tax code or other provisions of the law. Notices provide interim guidance before finalized Rev. Ruls. and regulations are available.
Reliance. Notices are published in the IRB and may be relied upon by taxpayers.
- Announcement. An announcement is an IRS public pronouncement that has only immediate or short-term value. Announcements may summarize the law or regulations without making any substantive interpretation to state what regulations will say when they are certain to be published in the immediate future or to notify taxpayers of the existence of an approaching deadline. Announcements may be found on the IRS website.
Reliance. Announcements cannot be relied upon by taxpayers.
- Chief Counsel Advice (CCA). CCAs are written advice or instructions prepared by the Office of Chief Counsel and issued to field or service center employees of the IRS or Office of Chief Counsel. They convey legal interpretations or positions of the Office of Chief Counsel regarding existing or former revenue provisions. CCAs may be found on the IRS website.
Reliance. CCAs cannot be relied upon by taxpayers.
Takeaways
- The IRS issues different types of guidance in its administration of the Internal Revenue Code.
- Knowing what each type of IRS guidance is used for, whether and where the guidance is published, and whether the guidance may be relied upon by the IRS or a taxpayer is key to knowing whether the guidance can be relied upon by all, some or only one entity.
- Employers should consult with their legal counsel and/or tax advisors before taking any particular action in reliance of IRS guidance.
