Skip to content

Tax Court Judge Says IRS Does Not Have to Follow Its Own Published Guidance

txHave you ever Googled a tax question and found the answer on the IRS website? If you relied on the information provided by the IRS, you would think that the IRS couldn’t later argue against its own published information, increase the amount you owe in tax, and then charge you an additional penalty for underpayment, right? Well, as it turns out, you’d have thought wrong. Apparently the IRS can and will do just that.

The tax world received a bit of a shock when (coincidentally) on April 15 a Tax Court judge issued an order stating that published guidance from the IRS “is not binding precedent” and “taxpayers rely on IRS guidance at their own peril.” Wait…what?

Forbes recently detailed the facts of the case and the surrounding circumstances (it also provided an update after the April 15 order). A taxpayer – a tax attorney, no less – attempted (perhaps with improper motive) to roll over several of his IRAs. Under section 408(d)(3) of the tax code, an IRA owner is allowed to withdrawal money from his IRA and avoid an early withdrawal penalty so long as the cash is re-deposited into a different IRA within 60 days—however, he may only do this once per year. Publication 590, issued by the IRS, takes the position that the once-a-year limit applies to each separate IRA. But in this case, the IRS successfully argued that the once-a-year limit applies collectively to all of a taxpayer’s IRAs.

But hold on. The ruling points out that neither side raised the issue of Publication 590 during the trial. Was this all a big misunderstanding? Nope. The judge writes that he was aware of Publication 590 prior to deciding the case, and had the taxpayer tried to argue it, it would not have served as “substantial authority” to support the taxpayer’s argument.

So there we have it. Attorneys for the IRS are willing to argue against the IRS’ own published guidance, and tax court judges are willing to uphold the arguments. If you think that undermines public confidence in the tax system, you are not alone—the American College of Tax Counsel filed an amicus curiae brief making that argument, but to no avail. That leaves one to conclude that perhaps adhering to the IRS’ own guidance is disappointingly not covered by the IRS mission of helping America’s taxpayers “understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.”