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Internal Revenue Service Circular 230 Policy

You may already have noticed a new legend on the bottom of almost all "written advice" on Federal tax issues that Spiegel & Utrera, P.A. and other law and/or accounting firms provide. The new legend includes something along these lines:

To the extent this message contains tax advice, the U.S. Treasury Department requires us to inform you that any advice in this facsimile is not intended or written by our firm to be used, and cannot be used by any taxpayer, for the purpose of avoiding any penalties that may be imposed under the Internal Revenue Code. Advice from our firm relating to Federal tax matters may not be used in promoting, marketing or recommending any entity, investment plan or arrangement to any taxpayer.

This new legend does not reflect any change in the degree of care and attention that we give each communication to you. It is being added as a result of recently issued Treasury Regulations (known as Circular 230) that dictate how tax professionals and their firms must communicate in writing with their clients on Federal tax issues. While these new regulations were developed as part of the IRS "war on abusive tax shelters," their reach is much broader. They apply to written advice (e-mails, letters, memoranda or other written advice) on any Federal tax issue such as a routine recommendation to form a limited liability company versus a corporation or certain estate planning recommendations. Under the new rules, any written advice prepared for taxpayers must either:

(1) Conform to specific and detailed requirements for tax opinions that a taxpayer may rely upon for purposes of the Internal Revenue Code=s penalty provisions, or (2) contain a legend that the advice cannot be used by the taxpayer to avoid Federal tax penalties.

Circular 230 generally requires clients receiving Federal tax advice and their advisors to choose between a formal tax opinion or written advice with a disclaimer. A formal opinion entails a discussion and analysis of all significant Federal tax issues with all relevant authorities and a complete recitation of all the facts, supported by appropriate "due diligence" verification. In certain cases, our clients will continue to request, and we will render, formal tax opinions. For all other written communications, by including the "no penalty reliance" legend, we can generally avoid the additional time and client expense of providing a formal opinion, or determining in a particular case whether the new rules even apply.

In order to provide our clients with timely, efficient and cost-effective advice, we are implementing the practice of automatically including an appropriate legend, similar to that below this bulletin, on letters, memoranda, faxes, e-mails, and other written correspondence to our clients that may involve tax advice. In the great majority of cases, this will be the more sensible and cost-effective approach for our clients.

Again, the presence of the "legend" does not diminish the quality of our advice or the authorities upon which we relied in researching our legal conclusions. The "legend" simply means that, if the desired tax treatment for a transaction discussed in our advice is not sustained, the client will not have a right to avoid a tax penalty for negligence or substantial understatement of tax solely because the client relied on our advice. Even in such cases, however, the imposition of a penalty is not automatic. Various defenses, including the existence of "substantial authority" that supports a position taken, may still be available to the client to avoid the imposition of Federal tax penalties under the applicable provisions of the Internal Revenue Code.

The Circular 230 requirements do not change our commitment to provide our clients with tax advice that conforms to the highest professional standards that meets their needs. If you have any questions concerning this important development, please do not hesitate to contact us.