Circular 230 changes: proposed modifications to written tax advice standards.

• Author: Josephs, Stuart R.
• Position: FedTax

Circular 230 secs. 10.35 and 10.37 provide written tax advice (WTA) rules. Sec, 10.35 provides detailed rules for tax opinions constituting "covered opinions," which include WTA concerning: a listed transaction: a transaction with the principal purpose of tax avoidance or evasion; or a transaction with a significant purpose of tax avoidance or evasion--if the WTA is: a reliance opinion: a marketed opinion: subject to confidentiality conditions or contractual protection.

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The definitions of the various types of covered opinions require considerable effort by practitioners to determine whether the advice is subject to these covered opinion rules. Therefore, many practitioners attempt to exempt advice from these rules by making a prominent disclosure or disclaimer stating that the opinion cannot be relied upon for penalty protection--as Circular 230 permits.

Circular 230 also requires practitioners to comply with Sec. 10.35's extensive requirements when providing WTA constituting a covered opinion. For example, Sec, 10.35 requires the WTA to include the:

* Relevant facts, including assumptions and representations;

* Application of the law to those facts; and

* Practitioner's conclusion regarding the law and facts.

Proposed Regulations

For these reasons, regulations proposed Sept. 17, 2012. (REG-138367-06) would climinate the covered opinion rules and, instead, subject all WTA to the following streamlined standards in Proposed Sec. 10.37: A practitioner may give WTA, including electronic communications, concerning one or more federal tax matters, provided the practitioner:

1. Bases the WTA on reasonable factual and legal assumptions, including assumptions regarding future events;

2. Reasonably considers all relevant facts that the practitioner knows or should know;

3. Uses reasonable efforts to identify and ascertain the facts relevant to WTA on each federal tax matter;

4. Does not rely upon representations, statements, findings or agreements including projections, financial forecasts or appraisals--of the taxpayer or any other person if such reliance would be unreasonable; and

5. Does not in evaluating a federal tax matter, take into account the possibility that a tax return will not be audited or that a matter will not be raised on audit.

Proposed Sec. 10.37 would eliminate the prohibition on a practitioner from taking into account the possibility that an issue will be resolved through settlement if raised when giving WTA...