IRS Circular 230 Disclosure – What Does it Mean

Stan Rose, Managing Director, Tax Practice

Penalties often are assessed by the IRS on taxpayers who underpay their tax. In certain cases, a taxpayer’s reliance on the advice of a paid professional is a sufficient defense against penalties. In recent years, some advisers at well-known firms heavily marketed some questionable tax shelters that could not withstand IRS scrutiny. Some tax professionals who convinced clients to form abusive tax shelters provided written tax opinions, with the assurance that the opinions would allow the taxpayer to sidestep penalties if they were later assessed.

The Treasury Department has broad authority to implement and enforce rules and regulate the accountants, attorneys and enrolled agents who advise taxpayers and represent taxpayers before the IRS. In response to the tax shelter abuse and other concerns, the IRS updated Circular 230, which can be described as a set of rules – a code of conduct – governing tax practitioners. Failure to comply with Circular 230 may result in license suspension and fines.

Circular 230 is long, incredibly complex, vague and addresses a broad range of topics. Generally, it requires that all forms of written tax advice be accompanied by one of the following two items: (1.) A complete analysis of all relevant tax issues, discussion of the legal authority behind the conclusions and discussion of the facts and assumptions relevant to the matter under advisement, or (2.) a very specific disclaimer that the taxpayer may not rely on the advisor’s correspondence to avoid penalties. The first option is very burdensome and costly and unfortunately may apply to routine questions that in the past could be answered with a line or two of feedback from an accountant familiar with the taxpayer’s circumstances. Without the second option (the disclaimer), simple written replies would become a thing of the past. With the disclaimer (and only with the disclaimer), we can continue to provide quick, accurate responses and also more lengthy analysis that merely does not rise to the level of the voluminous specifications required by the disclaimer-free correspondence. In some cases, this lengthy analysis (and increased pages of support, time and fees) is necessary, but in most cases it is not, and we are forced to include the disclosure.

At BNN, we are proud of the useful tax and financial advice we provide to our clients. But we, like many others, are required to adhere to these rules that were necessitated by a few rogues in the profession. By including the following disclaimer in our correspondence, we merely are complying with the law.

IRS CIRCULAR 230 DISCLOSURE:
Pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any tax-related matter. Please contact us if you wish to have formal written advice on this matter.