Legal Update - September - 2005
Circular 230 and Written Tax Advice

Background

On June 21, 2005, the Internal Revenue Service (the "IRS") implemented changes to Circular 230. Since 1921, Circular 230 has controlled the conduct of tax professionals, such as lawyers and accountants, admitted to practice before the IRS. The major thrust of the changes is aimed at tax advice regarding transactions involving tax shelters. Nevertheless, the changes are so sweepingly crafted that they also cover written advice about matters such as routine business transactions and estate planning. The changes require practitioners who provide written tax advice to clients (whether via letter, private offering memo, e-mail, or otherwise) to comport with standards usually applicable to formal opinions. Practitioners failing to abide by Circular 230 may be censured, suspended or disbarred from practicing before the IRS or fined.

The Circular 230 changes provoked a great deal of outcry from professionals who provide tax advice. The burdens of new Circular 230 significantly affect the way lawyers and accountants may interact with clients seeking sophisticated tax advice. The protestations, however, have fallen on deaf ears. Like it or not, Circular 230 now requires that the written tax advice of professionals meet one of the following two requirements:

What This Means for FVLD Clients

Researching and drafting a Reliance Opinion which fulfills Circular 230's requirements will usually involve a great deal of professional time and expense for clients. This is because tax professionals must furnish a meticulous analysis and evaluation of all relevant facts, all assumptions that have been made, and all applicable law (including judicial doctrines) that may apply. Circular 230, however, does provide tax professionals with another and, fortunately for clients, significantly less costly option. Instead of issuing a Reliance Opinion, tax professionals may include a Circular 230 disclosure statement that the federal tax advice is not intended to be used, and cannot be used, (1) to avoid penalties under the Internal Revenue Code, or (2) to promote, market, or recommend to another party any transaction or tax-related matter.

FVLD's Approach to Circular 230

FVLD does not want our clients to incur unnecessary expense. Accordingly, we are including in our e-mails, certain documents, and some other communications a disclaimer such as the following:

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments that do not expressly state otherwise) 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 tax-related matter[s].

Of course, if the circumstances of a transaction warrant a Reliance Opinion, FVLD will provide one. Our "default" approach, however, will be that, unless a client requests that we provide a written Reliance Opinion or a client and FVLD determine that a Reliance Opinion is necessary or advisable, FVLD's written federal tax advice will include a Circular 230 disclosure statement. In addition, we will continue to provide our clients with oral tax advice.

Funkhouser Vegosen Liebman & Dunn Ltd. publishes updates on legal issues and summaries of legal topics for its clients and friends solely for general informational purposes. They do not constitute legal advice, nor are they intended as a substitute for obtaining legal or other professional advice based upon specific factual circumstances or issues. If we can be of assistance, please call or write Wilson Funkhouser, 312.701.6810, wfunkhouser@fvldlaw.com or Vance Liebman, 312.701.6850, vliebman@fvldlaw.com, or consult with your regular FVLD contact.

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