Circular 230 Disclaimer
ARTICLES AND COMMENTARY INCLUDED HEREIN DO NOT CONSTITUTE AN OPINION AND ARE NOT INTENDED OR WRITTEN TO BE USED, AND THEY CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER.
The IRS has issued new rules that will affect how we, tax professionals, communicate with you, our client. The ruling, Circular 230, which took effect June 20, 2005, apply whenever a practitioner provides written advice, including emails, faxes, and letters, on tax issues. While the rules are motivated by the government’s well-founded concern with abusive tax shelters, they will apply to advice given on many common and accepted transactions.
The rules grew out of the government’s decision to attack the mechanisms used by tax shelter promoters to sell abusive tax shelters. The new rules address the practice of promoters who may have been obtaining “boiler-plate” opinions for tax shelters.
Taxpayers engaging in abusive transactions have used these types of opinions to escape tax penalties of 20 percent or more, in additional to the additional taxes and interest that may have been owed on any deficiency, by claiming they “reasonably” and “in good faith” relied on the tax opinion for their belief that the transaction was permissible.
Based on the new IRS rules, clients cannot rely on a tax opinion for protection from penalties unless the practitioner provides a comprehensive opinion that considers and discusses:
- All relevant facts and applicable law,
- The relationship between the facts and the law,
- A conclusion as to the legal consequences of each tax issue, and
- The likelihood that the taxpayer will prevail if the IRS challenges the transaction
The new rules apply to tax advice for transactions that have a “significant purpose” of tax avoidance. This standard is vague and uncertain, in large part because the IRS did not want to create any loopholes. Consequently, the new rules may sweep in many routine, non-abusive transactions. The penalties to practitioners can be severe for providing written advice that does not meet these requirements, including disbarment from practice before the IRS.
Often times, however, we communicate in writing with our client regarding tax matters in a less formal manner than that contemplated by a “comprehensive opinion.” These less formal communications are often appropriate when, for example, we are simply summarizing verbal conversations we have had on an issue or we have not been engaged to exhaustively research an issue. In many cases, our clients do not want to incur the professional fees associated with a formal comprehensive opinion.
The IRS rules allow us to continue to provide written communications that are not in the form of comprehensive opinions if we include a certain legend (which language is provided by the IRS) within those written communications. Accordingly, effective immediately, we will routinely include the following language in all written communications that are not comprehensive opinions:
FEDERAL TAX NOTICE:
Treasury Regulations require us to inform you that any federal tax advice contained herein (including in any attachments and enclosures) is not intended or written to be used, and cannot be used by any person or entity, for the purpose of avoiding penalties that may be imposed by the Internal Revenue Service.
Please be assured that we will continue to act diligently to serve you. The use of this legend does not change the quality of our service and the advice you have come to expect from us. Of course, where appropriate and after consultation with you, we would be pleased to provide a comprehensive opinion that meets the new rules.