Significance of IRS Guidance

ERC Strategies for PEOs: Understanding the Implications of IRS Guidance

The IRS has issued a considerable amount of guidance about ERC issues. That seems positive in theory, but it has created problems in practice, largely because it is unclear who, if anyone, can rely on what the IRS says. For example, the IRS issued two GLAMs and a chief counsel advice analyzing distinct ERC matters. Each of them expressly states that the advice provided by the IRS “may not be used or cited as precedent.”

PEOs and client companies face the difficult challenge of an evolving ERC guidance landscape.  In many instances, the IRS guidance relied upon when determining ERC  elgibility has changed unfavorably since claiming payroll refunds. Fully documented workpapers therefore are critical to protecting ERC.  

The IRS also offered guidance in the form of FAQs. That information reached the public quickly, of course, but its effect has been questioned by many. For example, the national taxpayer advocate explained the following in her recent report to Congress: “Informal guidance, like FAQs and online [IRS] tools, project the appearance of certainty, but taxpayers can’t actually rely on such informal guidance to defend the merits of their positions in an audit or litigation.” The IRS, likewise, has recognized the limitations of disseminating information through FAQs. It indicates that “FAQs that have not been published in the [Internal Revenue] Bulletin will not be relied on, used, or cited as precedents by [IRS] personnel in the disposition of cases” and that “only guidance that is published in the [Internal Revenue] Bulletin has precedential value.”

Finally, the IRS produced its most substantive ERC guidance in four notices, issued soon after each of the four major laws enacted by Congress. Those notices were published in the Internal Revenue Bulletin, which normally creates legitimacy. However, uncertainty regarding the effect of the notices exists because taxpayers are asking the courts to invalidate them on the ground that the IRS failed to comply with the Administrative Procedure Act in issuing them.

PEOs and client companies have been encouraged by the increasing number of taxpayer lawsuits asking the courts to invalidate the effect of IRS Notices as well as the recent reversal of the 1984 Supreme Court decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. This landmark ruling had established the Chevron doctrine, which gave deference to federal agencies’ interpretations of ambiguous laws. However, in June 2024, the Supreme Court reversed this doctrine in the Loper Bright Enterprises v. Raimondo case.