Our tax law is overly complicated. Many of its laws have exceptions, and sometimes those exceptions have exceptions. If you are a DIYer and rely upon the IRS’s published materials to prepare your tax return, you may just find yourself at the wrong end of an IRS audit examination.
The first rule that you need to understand is that you cannot rely upon IRS oral advice. So if you are calling the IRS to seek guidance, the IRS says that you cannot rely upon that oral advice. For years the IRS had a reputation of putting its most inexperienced employees (new hires) on its taxpayer assistance call lines. Thus it was possible that the person calling knew more about federal income taxes than the IRS person on the other end of the call. Today, due to IRS staff cutbacks and long wait times, it is difficult to make contact with an IRS employee by phone. Furthermore, the IRS has closed many of its walk-in offices to the public so many taxpayers can no longer walk into an IRS office and seek oral advice.
We are now in the information age and many taxpayers will look for tax advice on the Internet. The IRS website has its own search engine to allow taxpayers to “research” a tax issue. This website contains a wealth of information. Surely taxpayers can rely on that official IRS information, correct? After all, the IRS has its FAQs, publications, tax form instructions, etc. to enable taxpayers to prepare their own tax returns.
Unfortunately, that is not the case. Not long ago, the IRS’s Small Business/Self Employed Division (SB/SE) issued a memorandum to IRS Field Examination Area Directors telling them that Frequently Asked Questions (FAQs) and other items posted on www.IRS.gov that have not been published in the Internal Revenue Bulletin (IRB) are not legal authority. It’s the official place for guidance, more official than the IRS website. As a result, IRS employees are being directed to follow (just those) items published in the Internal Revenue Bulletin. What this means is that not all FAQs are treated equally. If a FAQ is captured in the IRB, it can be relied upon by the taxpayer. If not published in the IRB, it cannot be relied upon. The obvious problem is that the taxpayer does not know which FAQs have been published in the IRBs and can mistakenly rely upon a FAQ that the IRS does not follow.
What about IRS publications? These publications are provided by the IRS as its attempt at user-friendly guidance to taxpayers on how to prepare a return. In reality, these publications are the IRS’s statement on how its wants to see returns prepared. Be careful when using these publications. The IRS takes the position that a taxpayer may not rely on them as authority against a contrary IRS position even if the publication was right on point.
What if a taxpayer depends upon an article it found on the Internet about a tax issue which appears on point? Can the taxpayer rely upon that article? Keep in mind that articles and commercial publications are not the law (and generally do not claim to be the law). The editorial comments are merely one writer’s interpretation of what the law says, and sometimes are wrong.
The tax law is complex. Taxpayers who have more than a simple return who depend upon a commercial Form 1040 tax preparation program and who do their own tax research may just find when audited by the IRS that they would have been better served by using an experienced tax professional. Few persons cut their own hair or change the brakes on their cars, and yet they prepare their own tax returns to save a couple of hundred of dollars.
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.