New Treasury and IRS Rules Target Written Federal Tax Advice
Much Shelist, in response to new Treasury and IRS regulations that went into effect on June 21, 2005, recently added disclosure language to many of our written and electronic communications. The purpose of this alert is to explain why we have adopted the disclaimer and how the regulations will affect the manner in which we provide written federal tax advice to our clients.
The U.S. Treasury recently issued changes to Circular 230, which regulates the conduct of tax professionals who are admitted to practice before the IRS. Although the primary focus of the new provisions is on written federal tax advice concerning "tax shelter" transactions, the language also broadly covers advice given in connection with legitimate business transactions that are structured in a tax-efficient manner. Furthermore, the Circular 230 requirements apply to all written forms of federal tax advice, including e-mails, private offering memoranda, draft contracts, letters, memos and other documents. Practitioners who fail to comply with the provisions may be suspended or disbarred from practice before the IRS, be publicly censured or be fined.
In a nutshell, the Circular 230 provisions require that written tax advice either
Take the form of a complete and detailed opinion ("reliance opinion") regarding all federal tax matters affecting a transaction OR
State explicitly that the advice is not such an opinion and thus cannot be relied upon by the recipient to avoid penalties provided in the Internal Revenue Code
Implications for Our Clients
Preparing a reliance opinion that complies with the new requirements is potentially an expensive proposition, as tax practitioners must now provide a detailed recital and exhaustive analysis of the relevant facts, assumptions and federal tax issues surrounding the transaction to which the opinion relates. However, the new regulations give practitioners the option, in lieu of issuing a reliance opinion, of including a legend in the written advice stating that any written federal tax advice contained in the message cannot be relied upon by the recipient for the purpose of avoiding federal tax penalties.
With cost efficiency in mind, Much Shelist has added a legend (the text of which appears below) to all e-mail messages originating from the firm. The legend may also be included in draft transactional documents, client memoranda and client letters. An expanded version of the legend will be included in private offering memoranda.
In cases where clients require a full reliance opinion regarding the federal tax issues raised by a transaction, Much Shelist will be happy to accommodate those needs. However, unless a client requests a reliance opinion in writing, or we conclude after discussion with a client that a reliance opinion is necessary, all written federal tax advice provided by the firm will bear the appropriate legend.
Circular 230 Notice. To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.