Broad IRS Rule Changes Will Affect All Written Tax Advice To Clients
The IRS, in an effort to shut down abusive tax shelters, has adopted rules that cast a broad net that covers all written tax advice rendered by attorneys and accountants.
The primary purpose of these new rules is to prevent taxpayers from relying on the advice they receive from their attorneys and accountants to avoid tax penalties in the event of a dispute with the IRS. The new rules, however, are so broad that tax practitioners will generally be required to (i) meet a new standard of diligence and review to render a written opinion that a client may rely on to avoid certain tax penalties; or (ii) add a disclaimer to the written advice that the client cannot rely on the advice to avoid tax penalties. As a result, unless a formal opinion letter is warranted and requested, many of the written communications you will receive from us and from other tax and legal professionals will now contain a notice similar to the following:
Nothing contained in this communication was intended or written by the author to be used, or can be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.
These new rules will not only affect the written advice given by our department, but also the written advice given by other attorneys in the firm whose written communications may include tax advice. For example, the new rules will apply if litigation counsel offers general advice regarding the taxation of payments paid or received in the settlement of a litigation or other dispute, or if corporate or real estate counsel renders written advice that includes advice regarding the tax treatment of a proposed business or real estate transaction.
We expect that, unless the IRS changes these rules in the near future (and there has been a considerable outcry about the all-encompassing reach of these rules), the above type of notice may become nearly as ubiquitous as the confidentiality notice that is commonly found in many emails and faxes.
These rules are effective June 20, 2005. Therefore, many written communications you receive from us (letters, emails, faxes, and other documents) on or after that date will contain this standard form of notice. This new practice does not diminish in any way the quality of the advice and counsel we have and will continue to render to our clients on tax issues. And while we regret the implication and effect of the disclaimer notice, we are nonetheless compelled to comply with these new procedures to avoid further penalties and potential sanctions.