Rules for written tax advice finalized

Circular 230 final regs. make ubiquitous email disclaimer no longer necessary.

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, adopting the proposed regulations (REG-138367-06) issued in September 2012 with some modifications.

The new rules withdraw the covered opinion rules in Circular 230, Section 10.35, which were widely considered unworkable, and replace them 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 on the statements, representations, findings, agreements, and advice of taxpayers and others; 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 is added that practitioners consider all relevant legal authorities and relate the law to the relevant facts. Another change from the proposed regulations is a clarification that practitioners should consider what is reasonable under the facts and circumstances of a case when providing written advice.

A more significant change in the final version of Section 10.37 is the added clarification that government submissions on matters of general policy (e.g., comments on proposed regulations, even if submitted on a client’s behalf) and continuing education presentations are not written advice under the rules.

The final version of Section 10.37 provides, as did 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 those elements 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, determining 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 practitioners would discontinue inserting a Circular 230 disclaimer at the conclusion of every email or other writing regardless of whether the disclaimer is necessary or appropriate, 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.

– T.D. 9668

By Sally P. Schreiber, J.D., a JofA senior editor.