Page 1 - Tax Controversy Corner: Can Taxpayers Rely on Informal Guidance in Attempting to Comply with the TCJA?

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Tax Controversy Corner

MEgan l. BRaCKnEY is a partner at
Kostelanetz & Fink, LLP in New York
City. Can Taxpayers Rely on Informal Guidance in
Attempting to Comply with the TCJA?

By Megan L. Brackney*

s Treasury and the IRS implement the Tax Cuts and Jobs Act (“TCJA”) of
2017, it is a good time to consider when taxpayers can rely on informal IRS
A guidance, such as publications, forms, instructions, and frequently asked
questions (“FAQs”) on the IRS’s website. The TCJA is one of the most significant
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overhauls of the Code in decades, and the interpretation and implementation of
many of its provisions are unclear. The IRS has published numerous resources to
assist taxpayers with compliance with the new and amended Code provisions, and
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many taxpayers and practitioners will rely on these unofficial sources while they
wait for official guidance, such as Treasury Regulations and Revenue Procedures.
It seems intuitive that if you follow the instructions provided by the IRS, you
will get the correct tax result, but this is not always the case. It also seems intuitive
that if you follow the instructions by the IRS and still get it wrong, you should
not be subject to penalties. Taxpayers may be surprised to learn that these results
are far from guaranteed, but, as stated by several courts, taxpayers rely on the
IRS “at their peril.” 3

Can the IRS Be Estopped from Taking a Position that
Is Contrary to Its Unofficial guidance?

When it comes to tax, the courts endeavor to determine the correct amount of tax
without regard to other equitable factors. Essentially, the tax is the tax, regardless
of what the IRS has said about it in other contexts. Many taxpayers have tried to
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argue that the IRS should be equitably estopped from increasing their tax when
the taxpayer relied on an IRS form or instruction, or an IRS “frequently asked
question” posted on the IRS’s website. 5
Equitable estoppel prevents a party from denying that party’s own acts or rep-
resentations that induced another to act to the other’s detriment. The elements
of equitable estoppel have been described as follows:

(1) There must be false representation or wrongful misleading silence by the
party against whom the estoppel is claimed; (2) the error must originate in
a statement of material fact, not in opinion or a statement of law; (3) the
party claiming the benefits of estoppel must not know the facts; (4) the party
claiming the benefits of the estoppel must have actually, and reasonably, relied

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