“Tax Corner: Revised IRS Circular 230” by Frank C. Carnahan
On June 20, 2005, the IRS issue Circular 230, Rules of Practice before the IRS, containing new rules affecting how attorneys, tax professionals, and others communicate with their clients in written advice on tax issues, including e-mails, faxes, and letters, and imposing significant penalties for non-compliance. The new rules attack “boiler-plate opinions” used by promoters who sell “abusive tax shelters” in order for their clients to escape tax penalties of 20 percent or more by claiming they “reasonably” and “in good faith” relied on the tax opinion.
While designed to address those types of abuses, the new rules apply to tax professionals who give advice on many common, accepted transactions. Practitioners must either:
- Provide a comprehensive opinion that considers and discusses (i) all relevant facts and applicable law, (ii) the relationship between the facts and the law, (iii) a conclusion as to the legal consequences of each tax issue, and (iv) the likelihood that the taxpayer will prevail if the IRS challenges the transactions; or
- Include a disclaimer stating, for example, “This written advice is not intended or written to be and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.”
The cost of preparing the required comprehensive opinion may be substantial and will often not be justified, so disclaimers will often be used to comply with the new rules. You may have already noticed such a disclaimer
in our communications to you, but the disclaimer required by the new rule does not decrease the quality of our service and the advice you expect from us. Do not hesitate to ask any of our tax attorneys any questions you might have about the new rules.