Page 3 - Tax Controversy Corner: Can Taxpayers Rely on Informal Guidance in Attempting to Comply with the TCJA?

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Even though this is a harsh statement, in most of the cases language should have a reasonable cause defense if the IRS
in which a taxpayer has attempted to rely on informal ends up taking a different position. We hope that the IRS
guidance as a basis for reasonable cause and the court had will be reasonable as well and not seek to impose penalties
rejected the defense, the taxpayer failed to show that his against taxpayers who attempt to comply with the TCJA
or her interpretation of the publication was reasonable, in good faith but err due to the initial uncertainty in its
or that he or she actually followed the instructions in the interpretation and application. If not, courts should grant
first place. 19 taxpayers more leeway and not simply repeat the adage
Especially in this time of uncertainty, a taxpayer who that the taxpayer has relied on the IRS to his or her peril,
carefully reads and follows the instructions in a man- but consider the unique facts and circumstances of filing
20
ner that is reasonable and consistent with the statutory returns during the first few years under the TCJA.

Megan L. Brackney is a partner at Kostelanetz & Fink, LLP in New York City. Megan’s practice is primarily
focused on tax controversy, including civil and criminal issues on both the federal and state and local levels.
Megan handles audits and investigations, as well as litigation in the Tax Court and state and federal courts. Megan
views the practice of tax controversy as involving problem solving at all levels, such as assisting individuals and
businesses to correct past errors and improve compliance, and advising on the impact of tax non-compliance
in other contexts, such as business and matrimonial disputes. Megan enjoys the practice of tax controversy
because it requires strategic thinking and creativity, as well as empathy for her clients, as conflicts with the
taxing authority can be some of the most stressful events in people’s lives. Megan is a member of the Executive
Committee of the New York State Bar Association Section of Taxation, a member of the American College
of Tax Counsel, and the Vice Chair of Committee Operations for the American Bar Association Section of
Taxation. Megan received her J.D. from the University of Kansas School of Law and her LL.M. in Taxation from
New York University, and is a member of the Board of Governors for the University of Kansas School of Law.
Megan also is an Adjunct Professor of Law at New York University, where she teaches Tax Procedure. Megan
has been a contributor to the JPTE’s Tax Controversy Corner since 2012, and she has published approximately
20 columns on topics of interest to practitioners who advise partnerships. These topics include representing
small partnerships in tax controversies, issues related to TEFRA partnerships, such as the potential liability (if
any) of the Tax Matters Partner, and the new partnership audit rules of the Bipartisan Budget Act of 2015.
She has been honored to be a part of the amazing group of writers for the JPTE, and has enjoyed sharing her
thoughts and practical tips on tax controversy issues with the readers of JPTE for the past seven years.

EndnOTES
* The author can be reached at mbrackney@kflaw. Credits, Fringe Benefits and Other Items That May advocate (July 23, 2017) (at https://taxpay-

com. Affect Businesses. eradvocate.irs.gov/news/irs-frequently-asked-
1 as noted by one commentator, “the TCJa’s 3 Gehl Co., Ca-7, 86-2 ustc ¶9530, 795 F2d 1324, questions-can-be-a-trap-for-the-unwary).
impact on a business’s taxes can be unclear, 1333; Caterpillar Tractor Co., CtCls, 79-1 ustc 6 Steiner, 69 TCM 1684, Dec. 50,424(M), TC Memo.
even to a business’s owners. some of the tax law ¶9112, 589 F2d 1040, 1043, 218 CtCls 517; C.J. Miller, 1995-22, at *24 (citing Lyng v. Payne, sCt, 476 Us
changes are complicated, particularly for pass- 114 TC 184, 194–195, Dec. 53,811 (2000). 926, 935 (1986); D.J. Lignos, Ca-2, 71-1 ustc ¶9302,
through entities.” Turrell & Harrison, The Impact 4 F.L. Johnson, Ca-7, 80-1 ustc ¶9313, 620 F2d 153, 439 F2d 1365, 1368; K. Hofstetter, 98 TC 695, 700,
of the 2017 Tax Cuts and Jobs Act on Business 155 (“a taxpayer may not rely on an informal Dec. 48,311 (1992); Century Data Systems, Inc., 86
Valuation, 41-sPG Fam. advoc. 30 (spring 2019). Irs publication if it is inconsistent with the TC 157, 165, Dec. 42,872 (1986); A.V. Graff, 74 TC 743,
2 See, e.g., www.irs.gov/newsroom/tax- statute.”). 761, Dec. 37,079 (1980)).
reform-resources; www.irs.gov/newsroom/ 5 The Taxpayer advocate has criticized the Irs for 7 Thompson-Perry, 2004 WL 2828276, at *7 (N.D.
irs-highlights-tax-reform-changes-that- its overuse of “FaQs” because they are gener- ohio 2004).
affect-businesses; Irs Publication 5307, Tax ally not reviewed by the Treasury Department 8 Id.
Reform Basics for Individuals and Families; and may not be well-drafted, causing the Irs to 9 O.D. Elliott, 30 TCM 1030, Dec. 30,992(M), TC Memo.
Irs Publication 5318, Tax Reform: What’s New change them and cause inconsistent results for 1971-239 (1971). The situation with informal guid-
for Your Business, Provides Information About taxpayers. See IRS Frequently Asked Questions ance is very different from that of formal guid-
Changes to Deductions, Depreciation, Expensing, Can Be a Trap for the Unwary, National Taxpayer ance, such as revenue rulings, for which courts

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