Round and round and round the tax world goes ...: successfully keeping beyond the circle of Circular 230 covered opinions, critiquing the CEO Declaration Requirement (Again), revisiting California's Research Tax Credit, and enhancing customs border protection.

• Position: Recent Activities

Spring is a time of renewal and a reminder of the cyclical nature of all things. It is not surprising, then, that Tax Executives Institute's spring was filled with challenges that TEI has addressed before--the rules governing practice before the IRS, the wisdom (or, rather, folly) of requiring the Chief Executive Officer's involvement in preparation of the tax return, and the research tax credit. But the Institute also branched out into a new area as well, providing its views on a Customs issue to the Department of Homeland Security.

Circular 230 Regulations

Early May saw TEI provide comments to the Treasury Department and the IRS on Circular 230, which sets rules for lawyers, accountants, and others who "practice before the IRS." The regulations, which were issued last December, amend Circular 230's tax shelter provisions effective June 20, 2005. In comments filed on May 5, TEI argued that, while aimed at the lawyers, accountants, and other advisers whose opinions undergird tax shelters, the new rules could have the unintended effect of burdening in-house tax professionals with significant mechanical requirements for routine communications. The Institute recommended that Circular 230 be revised to recognize the unique nature of in-house tax practice, recommendation that the IRS and Treasury effectively adopted.

In TEI's written comments, the Institute explained that the written advice rendered by a company's tax department would rarely, if ever, fall within the category of opinions targeted by the amended regulations: advice regarding tax shelters. The Institute contended that applying the new rules to in-house tax professionals could disrupt the day-to-day operations of tax departments, while doing little to achieve the purpose of the new rules. TEI therefore recommended creating a rebuttable presumption that internal tax advice rendered by in-house tax professionals is beyond the scope of Circular 230.

Following TEI's suggestion, Treasury and IRS issued guidance clarifying that written advice given by in-house tax executives to their employers is generally not subject to the rules set forth in Circular 230 for covered opinions. According to the May 19th clarification, advice provided to an employer by a practitioner in the practitioner's capacity as an employee of that employer solely for purposes of determining the tax liability of the employer is excluded from of the definition of covered opinion. Subsequently, representatives of the...