New rules for providing written tax advice are finalized

BY SALLY P. SCHREIBER, J.D.

The IRS issued final regulations under Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10), on the rules for practitioners to provide written tax advice and certain other related provisions (T.D. 9668), adopting the proposed regulations (REG-138367-06) issued in September 2012 with some modifications.

The new rules withdraw the old covered opinion rules in Circular 230, Section 10.35, which were widely considered unworkable, and replace the old rules with one standard for written tax advice in Circular 230, Section 10.37. These rules apply only to practice before the IRS and do not change or replace other ethical or legal standards applicable to individuals subject to Circular 230.

Under the new Section 10.37 in the final regulations, practitioners must base all written advice on reasonable factual and legal assumptions, exercise reasonable reliance, and consider all relevant facts that the practitioners know or reasonably should know. Practitioners must use reasonable efforts to identify the facts relevant to written federal tax advice.

In a change from the proposed regulations, made in response to comments the IRS received, a requirement has been added that practitioners consider all relevant legal authorities and relate the law to the relevant facts. Another change made from the proposed regulations is a clarification that practitioners should consider what is reasonable under the facts and circumstances of the case when providing written advice.

A more significant change made in the final version of Section 10.37 is the addition of a definition of certain things that do not constitute “written advice.” Written advice is not defined in the proposed or final rules, but the final rules clarify that government submissions on a client’s behalf (in the form of, e.g., comments on proposed regulations) and continuing education presentations are not written advice under the rules. 

The final version of Section 10.37 provides, as did the version in the proposed regulations, that the practitioner need not describe in the written advice the relevant facts (including assumptions and representations), the application of the law to those facts, and the practitioner’s conclusion about the law and the facts. Instead, the scope of the engagement and the type and specificity of the advice the client seeks, together with all other appropriate facts and circumstances, are used to determine the extent to which relevant facts, the application of the law to those facts, and the practitioner’s conclusion about the law and the facts must be set forth in the written advice. The new rules permit the practitioner to consider these factors in determining the scope of the written advice. Further, the determination of whether a practitioner has failed to comply with the requirements of Section 10.37 will be based on all facts and circumstances, not on whether each requirement is addressed in the written advice.

The IRS also stated in the preamble to the regulations that it expects that the current practice by most practitioners of inserting a Circular 230 disclaimer at the conclusion of every email or other writing, whether the disclaimer is necessary or appropriate, will be discontinued because new Section 10.37 does not include the covered opinion disclosure provisions that were in former Section 10.35.
 
The final regulations apply to written tax advice provided on or after June 12, 2014, the date they will be published as final in the Federal Register.  

Sally P. Schreiber ( sschreiber@aicpa.org ) is a JofA senior editor.

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