A Practical Guide To The New Circular 230 Amendments

Written by Peter J. Scalise | Posted in IRS

Introduction

On June 12, 2014 the Department of Treasury and Internal Revenue Service (hereinafter the “Service”) issued final regulations that made noteworthy amendments to Circular 230. As a reminder, Circular 230 sets forth the requirements and responsibilities of tax professionals (e.g., Certified Public Accountants, Attorneys, Enrolled Agents, and Enrolled Actuaries) admitted to practice before the Service. The final regulations recognize that the Covered Opinion Rules are no longer necessary, and have been replaced with new standards for issuing written tax advice. As a consequence, the “Circular 230 Disclaimer” will no longer be required on written correspondence. The general consensus is that removal of the disclaimer is a positive step for tax professionals by reducing the administrative burden of having to include this disclaimer on all correspondence.

Nevertheless, it should be duly noted that the standards to which a tax professional must adhere to when providing written tax advice have merely been amended and not eliminated. The Circular 230 Disclaimer was originally created for the specific reason of protecting tax professionals from being held responsible for the provision of unintended tax advice. From a risk mitigation perspective, this protection is still a judicious approach and should not necessarily be completely abandoned.

Synopsis of a Covered Opinion

A Covered Opinion is written advice that concerns one or more federal tax issues arising from: (1) a listed or similar transaction; (2) a plan or arrangement whose “principal” purpose is tax avoidance or evasion; or (3) a plan or arrangement that has a “significant” tax avoidance purpose, but only if such advice is a “reliance opinion,” a “marketed opinion,” or an opinion subject to conditions of confidentiality or contractual protection.

Synopsis of Circular 230 Amendments

The newly issued final regulations basically require all written tax advice to one standard set forth pursuant to Section 10.37. More specifically, Section 10.37 states affirmatively the standards set forth to which a tax professional must adhere to when providing written advice on a Federal-level tax matter. Section 10.37 requires, among other things, that the tax professional base all written advice on reasonable factual and legal assumptions, exercise reasonable reliance, and consider all relevant facts and circumstances that the tax professional knows or reasonably should know. A tax professional must also use reasonable efforts to identify and ascertain the facts and circumstances relevant to written advice on a Federal tax matter.

Conclusion

From a “Best Practice” perspective, tax professionals should continue to use a modified disclaimer in written correspondence. Although the excessive use of the previous Circular 230 disclaimer is no longer necessary, the continued use of a modified disclaimer can substantiate a “reasonable” standard in terms of affirming the provision for tax advice. From a risk mitigation perspective, such a disclaimer can be beneficial with respect to written tax advice provided to clients.

Please register for the upcoming webinar series entitled “A Practical Guide to the New Circular 230 Amendments” hosted exclusively through TaxConnections and highly renowned tax authority Peter J. Scalise. Dates for webinar series to be released shortly.

Peter J. Scalise

Peter J. Scalise serves as the Federal Tax Credits & Incentives Practice Leader for Prager Metis CPAs, LLC a member of The Prager Metis International Group. Peter is a highly distinguished BIG 4 Alumni Tax Practice Leader and has approximately twenty years of progressive public accounting experience developing, managing and leading multi-million dollar tax advisory practices on both a regional and national level.

Peter is a highly acclaimed thought leader in the fields of accounting and taxation with deep subject matter expertise in connection to designing, implementing and defending sustainable methodologies for specialty tax incentives including, but not limited to, research tax incentives; orphan drug credits; therapeutic discovery credits; accounting methods and periods; energy tax incentives in connection to green building envelope efficiency and benchmarking, solar energy, bio energies, fuel cells, wind turbines, micro turbines, and geothermal systems; and comprehensive fixed asset analysis incorporating principles of construction tax planning, cost segregation analysis and the final treasury regulations governing tangible property.

Peter is a renowned keynote speaker and an extensively published author on specialty tax incentives, tax controversy matters, and legislative updates from Capitol Hill for NAREIT, AGRION, USGBC, AICPA, ASTP, NATP, ABA, AIA, and TEI. Peter serves as a member of the Tax Faculty for CPAacademy, iShade and TaxConnections University (“TCU”). Peter serves on both the Board of Directors and Board of Editors for The American Society of Tax Professionals (“ASTP”) and is the Founding President and Chairman of The Northeastern Region Tax Roundtable.