This post is part of Notice & Comment’s symposium on Joshua D. Blank and Leigh Osofsky’s Automated Agencies: The Transformation of Government Guidance. For other posts in the series, click here.

In Automated Agencies, Professors Blank and Osofsky offer “the definitive account of how automation is transforming government explanations of law to the public,” as the book’s description indicates. Many aspects of the book are thought-provoking, making it challenging to confine my comments to the space allotted.[1] I will focus my comments on one of the book’s observations: the lack of clear disclaimers accompanying informal guidance.

I. Limited Options for Misled Users

As Professors Blank and Osofsky note, sometimes automated tools offer guidance that does not align with actual law. Furthermore, as they explain in Chapter 7, individuals who are misled by informal guidance (including automated informal guidance) have limited ability to seek legal relief. In some cases, users may be misled by guidance that is unduly favorable. In the book’s introduction, Professors Blank and Osofsky offer an example featuring a recent college graduate who started a job at a large company and is considering obtaining an MBA. They use the IRS’s Interactive Tax Assistant (ITA) to determine whether the MBA expenses would be tax deductible. The tool’s response leads them to believe, incorrectly, that the expenses are deductible.

If the potential MBA seeker relies on this guidance, they cannot use that reliance to obtain more favorable tax treatment than what tax law allows. For instance, imagine they rely on the guidance by obtaining an MBA but would not have done so had they known the expense was non-deductible. Even if this were to occur, the taxpayer will be unable to claim the deduction because formal tax law prohibits it.

Furthermore, if the taxpayer did claim the deduction, the IRS could disallow it and, potentially, subject the taxpayer to penalties. In some cases, the taxpayer may assert a defense against applicable penalties available to taxpayers who act with “reasonable cause” and in “good faith.”[2]

Other times, users may be misled by guidance that is unduly unfavorable. In Chapter 4, Professors Blank and Osofsky provide an example featuring a student athlete who uses the ITA to determine whether she must include a college swimming scholarship in income. The tool leads her to believe that she must. It is possible that this belief is inconsistent with actual tax law. If this hypothetical taxpayer includes the scholarship in income and later discovers that she was entitled to exclude it, she cannot use the fact that she relied on the guidance to obtain additional time to amend her return.[3]

II. Lack of Clear Disclaimers

Despite the inability to rely on the ITA’s responses and other informal guidance, informal guidance often lacks clear disclaimers, as Professors Blank and Osofsky note in Chapter 9. ITA responses are accompanied by the following disclaimer: “This does not constitute written advice in response to a specific written request of the taxpayer within the meaning of section 6404(f) of the Internal Revenue Code.” Section 6404(f) provides for the automatic abatement of penalties if the taxpayer’s underpayment of tax is attributable to erroneous written advice by an IRS officer or employee acting in their official capacity, the advice was relied upon by the taxpayer and was in response to a specific written request by the taxpayer, and the underpayment did not result from the taxpayer failing to provide adequate or accurate information.[4] Thus, this cryptically-worded disclaimer conveys that reliance on the ITA does not provide for automatic penalty abatement. It does not describe other ways in which a taxpayer may face unaddressed harm from relying on the guidance.

III. Additional Comments Regarding the Lack of Clear Disclaimers

To Professors Blank’s and Osofsky’s discussion of disclaimers, I would add a few observations about the IRS’s use (or lack of use) of disclaimers. First, the IRS makes another automated online tool available on its website – the “EITC Assistant” that provides information about eligibility for the earned income tax credit.[5] The EITC Assistant provides a disclaimer in clearer (and broader) language: “The accuracy of this estimate depends on the accuracy of the information you provide. The IRS makes no guarantees about the accuracy of this estimate and accepts no liability resulting from your use of the estimation.” Second, the landing page that provides information about how to call the IRS helpline includes no disclaimer (although, it is possible, disclaimers may be provided during the phone call).[6]

Third, it seems unlikely that the lack of clear disclaimers in some contexts is a product of intentional decision-making that, for instance, reflects skepticism about the effectiveness of disclaimers. This is so because, as Professors Blank and Osofsky and Professor Zelenak have noted in prior work, the IRS’s use of disclaimers in IRS publications is inconsistent.[7] Many IRS publications include no disclaimer. For instance, no disclaimer accompanies the publication regarding medical and dental expenses[8] or the publication regarding taxable and nontaxable income.[9] However, at least one publication does contain a disclaimer.[10]

IV. Effects of Unclear Disclaimers

In a world in which disclaimers are ubiquitous, the lack of a disclaimer could very well lead users to believe, incorrectly, that they can broadly rely on the guidance. Unclear disclaimers, like the one accompanying the ITA, may have the same effect, or, conversely, readers may see that there is some disclaimer and assume it is even broader than intended (for instance, they may think penalty relief is categorically unavailable).

In prior survey work, I found that many (but not most) survey respondents assumed they could rely on informal guidance for penalty relief purposes.[11] A total of 2,404 respondents completed the survey in October 2023 on Prolific, an online survey platform.[12] The results I reported exclude answers supplied by: (1) 140 respondents who supplied incorrect answers to attention check questions and (2) 73 respondents who supplied answers to open-ended questions that clearly evidenced lack of attention. Various characteristics of the respondents are summarized in prior work.[13] Each respondent was assigned to one of 12 groups and presented with a fact pattern and IRS guidance delivered via an IRS publication, the ITA, or the IRS helpline.

Among survey respondents who encountered hypothetical scenarios in which a taxpayer was led astray by unduly favorable ITA guidance, 36% of 190 respondents thought the taxpayer would not be subject to penalties in one scenario and 49% of a different set of 176 respondents held this view in another scenario. In the case of guidance delivered by IRS publication, the corresponding percentages were 43% of 183 respondents and 48% of 188 respondents. In the case of IRS helpline advice, the corresponding percentages were 43% of 191 respondents and 45% of 183 respondents.

I also found that many survey respondents assumed (incorrectly) that taxpayers who received unduly unfavorable guidance would be granted additional time to amend their return. The percentages of respondents who held this view were: 56% of 178 respondents and 48% of 174 respondents for two scenarios involving ITA guidance; 49% of 178 respondents and 60% of 176 respondents for two scenarios involving an IRS publication; and 62% of 188 respondents and 49% of 186 respondents for two scenarios involving the IRS helpline.

A small number of survey respondents mentioned the disclaimer that accompanies the ITA’s answer when explaining whether they thought a hypothetical taxpayer would be subject to penalties for following unduly favorable ITA guidance. For instance, one who thought the taxpayer would be subject to a penalty wrote, “The disclaimer at the end of the page cleared them of any responsibility.” Another who also thought the taxpayer would be penalized wrote, “While not fair, most things about taxes aren’t fair. There was probably a disclaimer stating that the results of that tool aren’t official and could still be inaccurate based on how you filed.” This response seems based on the assumption that there was a disclaimer, rather than based upon the actual disclaimer included in the hypothetical that they read.

A couple survey respondents mentioned the disclaimer that accompanies the ITA’s answer when explaining whether they think a hypothetical taxpayer will be granted additional time to amend a return when they follow unduly unfavorable ITA guidance. Both respondents thought additional time would be granted, notwithstanding the disclaimer. One wrote, “I think this would be justified as a[n] exception because she was advised by the tax assistant that it was non deduct[i]ble even though it stated it was not advice and had a disclaimer. [S]he was misinformed and deserves to be allowed to revise it in this situation.”

V. Conclusion

I will conclude with one last quote from a survey respondent that refers to the ITA disclaimer and ends with a larger question about informal guidance. I asked respondents to rate how likely they would be to use the ITA to seek an answer to a hypothetical question (after reading a hypothetical set of facts and seeing the answer page supplied by the ITA). After they provided their rating, I asked them to explain their response. One respondent who indicated that they would be “not at all” likely to use the ITA wrote, “It didn’t ask specific enough questions. …The questions were not robust enough to identify [a key] detail, so is their advice any good? The disclaimer at the end in particular shows that using this tool is no better than just googling it. If they’re not responsible for the advice they provide what’s the point?”

One plausible answer to their “what’s the point?” question is that there is value in the IRS communicating about tax law in a way that makes it understandable to the public even if users cannot legally rely upon the guidance. Perhaps, for instance, guidance users, overall, may more easily and more often reach correct conclusions about tax law than what would occur without the guidance. However, this may not be the case with respect to some facts-and-circumstances-based questions addressed by the ITA, which are, arguably, particularly ill-suited to automated guidance. With respect to those topics, there may not be a satisfying answer to the question, “what’s the point?”

Emily Cauble is the Thomas G. Ragatz Chair in Tax Law at the University of Wisconsin Law School.

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[1] I discuss several others here.

[2] See I.R.C. § 6664(c)(1); Treas. Reg. § 1.6664-4(a)  and -4(c).

[3]See, e.g., Tallon v. United States, No. 83-1349, 1984 WL 1359 (C.D. Ill. Sept. 28, 1984). See also Emily Cauble, Detrimental Reliance on IRS Guidance,2015 Wis. L. Rev. 421, 435-37 (2015).

[4] I.R.C. § 6404(f).

[5] https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/use-the-eitc-assistant (https://perma.cc/BSA2-6AF4).  

[6] https://www.irs.gov/help/let-us-help-you (https://perma.cc/6CVM-T5TF).

[7] Joshua D. Blank & Leigh Osofsky, Simplexity: Plain Language and the Tax Law, 66 Emory L. J. 189, 239-40 (2017); Lawrence Zelenak, The Uses and Abuses of Simplexity, 66 Emory L. J. Online 2011, 2013-14 (2017).

[8] https://www.irs.gov/pub/irs-pdf/p502.pdf (https://perma.cc/7KG7-6EFN)

[9] https://www.irs.gov/pub/irs-pdf/p525.pdf (https://perma.cc/FN7R-2JKZ).

[10] https://www.irs.gov/publications/p17.

[11] Emily Cauble, Non-Experts’ Impressions of Informal Tax Guidance, 76 Syracuse L. Rev. ___ (forthcoming) [hereinafter, Cauble, Non-Experts’ Impressions].

[12] https://www.prolific.com/.

[13] Cauble, Non-Experts’ Impressions.