IRS Disclosures Under Circular 230 IRS Tax Disclosures Befuddle Clients You may notice that communications from law firms, CPA firms and anyone else giving tax advice often include a legend that looks something like this: The IRS requires us to inform you that any federal tax advice in this email and any attached documents is not intended or written to be used, and cannot be used, (1) for the purpose of avoiding federal tax penalties or (2) promoting, marketing or recommending any transaction discussed in this communication to another person unless we expressly indicate otherwise. This disclosure does not mean that you cannot rely upon our advice or that our advice is wrong. The IRS is frustrated with abusive tax shelters. Taxpayers using abusive tax shelters have tried to avoid penalties based upon "reasonable reliance" on written advice given by their tax advisors. Therefore, the IRS has gotten tough on all tax advisors and changed the rules ("Circular 230"). Now, taxpayers can only rely upon advice to avoid penalties if that advice clearly states that it is for that purpose. The rules also require tax advisors to make it very clear when clients can and cannot rely upon written advice to avoid penalties. If the tax advisors don't follow these rules, the IRS can suspend or even disbar them from dealing with the IRS. Even though we do not intend to recommend or be involved in transactions that may result in an IRS penalty, the IRS sometimes interprets things very differently from tax advisors. Therefore, we hope that you will understand why we include this disclosure in much of our written correspondence with you.  Bottom Line for YOU We don't think these rule changes will affect most of our clients. The only time it would make any difference is if the IRS tried to impose a penalty on a transaction. In some cases, it may be appropriate for us to do the due diligence and research to provide you with a formal tax opinion letter that you can use to avoid penalties. Obviously, this is a significant and expensive decision we will carefully discuss with you. Alternatively, you may decide to proceed with the transaction without a tax opinion and take the risk that a penalty may be imposed.   Bottom Line for US Unfortunately, the IRS made it tough on the tax advisors. If the transaction is for the principal purpose of reducing or avoiding federal taxes, and if that transaction is not consistent with the tax Code and Congressional purposes behind that law, tax advisors are required to provide a formal tax opinion letter about every significant federal tax issue in the transaction. It may be difficult to determine if a tax opinion is required. If it appears that we may be required to provide a formal tax opinion letter to you, we will inform you as soon as possible. How OUR Bottom Line May Affect Yours If the transaction is sophisticated, innovative or not commonly used, there is greater risk that the IRS could later decide that the principal purpose was to capture tax benefits inconsistent with Congress' original intention. If that is the case, both you and your tax advisors are at risk. In short, the new rules may affect your planning by increasing the risk to your advisors. Our response will be as it has always been. We will provide advice on how a proposed transaction could affect you. We expect that the formal tax opinions will rarely be required. If we do recommend or require that we provide such an opinion, we will discuss it with you thoroughly. Communications with Your Tax Advisors The new rules also target the "promotion" of tax planning strategies. Therefore, Circular 230 now requires us to decide whether we intend for a communication to be passed on to someone else to promote a strategy. Communications to other advisors (CPAs, financial and insurance planners, etc.) may fit within the IRS' broad definition of "promotion." Therefore, we may add additional language to the legend that looks something like this: Certain tax advice contained in this article was written to support, within the meaning of Treasury Department Circular 230, the promotion or marketing of the transactions or matters addressed by such advice because the author has reason to believe that it may be used by another person in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to one or more taxpayers. Before using any tax advice contained in this article, taxpayers should seek advice based on the taxpayer's particular circumstances from an independent tax advisor. This disclosure seems to say that you have to get separate tax advice from a different tax advisor before you can do a transaction. That is not true. The IRS wants any promotional materials to clearly state (1) they can't be relied upon to avoid penalties; (2) they are intended to be promotional materials and (3) recipients should be wary of any kind of promotion and seek the advice of someone else. We encourage you to be comfortable with tax strategies you implement. The team approach with other advisors often provides a better result for you, but it isn't necessary that you go elsewhere as a precondition to tax planning. In the context of abusive tax shelters, however, you can see why the IRS wanted to encourage taxpayers to get an independent review of proposed transactions. Until you are comfortable with your advisors, that is good advice. Although we would prefer not to have these rules, the IRS purpose "to provide clients with the highest quality representation concerning Federal tax issues" is a goal we share. If you have questions about Circular 230 or any other matter, feel free to contact us.