Effective June 21, 2005, the IRS enacted new rules, known as Circular 230, that affect how tax professionals such as Stambaugh Ness communicate with their clients. These new rules apply to written tax advice we provide to you, including letters, e-mails, and faxes. The IRS rules resulted from the government's understandable concern with abusive tax shelters, but they will also apply to tax advice given on many accepted and common transactions.
The U.S. government is striking back at the mechanisms that tax shelter promoters use to sell abusive tax shelters, such as obtaining boilerplate tax opinions. Taxpayers in abusive transactions use these options to escape tax penalties of 20% or more-on top of the tax they owe-by claiming they "reasonably" and "in good faith" relied on the boilerplate tax opinion that found the transaction allowable. Under the Circular 230 rules, taxpayers cannot rely on a tax opinion to escape IRS penalties unless the tax professional provides a comprehensive opinion that considers and discusses:
- All relevant facts and applicable law;
- The relationship between the facts and the law;
- A conclusion on 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 deliberately vague and uncertain because the IRS did not want to create any loopholes. That also means the new rules may apply to many routine, nonabusive transactions, and penalties for noncompliance are severe. A tax practitioner who provides written advice that does not conform to Circular 230 standards may face disbarment from practice before the IRS. Consequently, all responsible tax practitioners will follow the requirements of the circular.
The Circular 230 rules have raised the cost of securing a comprehensive tax opinion. However, an alternative to writing an expensive opinion is to include a disclaimer on written advice we furnish to you. This disclaimer will state that you, as our client, cannot rely on the opinion for protection from tax penalties. For this reason, all Stambaugh Ness written communication will routinely include the following legend:
"This written advice is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code."
Even with this legend, there are other defenses to IRS penalties. You will not automatically be penalized if the IRS challenges a transaction.
The use of this legend does not in any way change the nature of our relationship or the high quality of our service we provide to you. We are always committed to working diligently to give you sound tax and financial advice. When appropriate, and after consulting with you, we will provide a comprehensive tax opinion that meets the Circular 230 rules.
If you have questions about the Circular 230 rules, please submit an email to our firm using the form below. |