Follow-up letter to Department of Treasury and Internal Revenue Service on Circular 230: June 2, 2005.

On June 2, 2005, Tax Executives Institute sent the following letter to the U.S. Department of Treasury and Internal Revenue Service, following-up on previous comments regarding new Circular 230. The comments highlight TEI's concern about the scope of the term "employer."

On behalf of Tax Executives Institute, I am writing to applaud the revisions to the final regulations amending Circular 230 governing practice before the Internal Revenue Service that were released on May 18, 2005. (1) The revisions clarify that in-house tax practitioners are to be treated as a distinct category of tax professionals for purposes of Circular 230 and that written advice provided by in-house counsel to the employer for purposes of determining the employer's tax liability is excluded from the definition of a covered opinion under section 10.35 of Circular 230. (2)

As the preeminent association of business tax executives, TEI commends the Treasury Department and IRS for recognizing that the application of section 10.35 to in-house tax practitioners would have raised numerous issues and might have impaired the provision of sound and timely tax advice to the practitioner's employer. We agree that written advice provided by in-house counsel should be excluded from the definition of a covered opinion under section 10.35 and that the other provisions of Circular 230, especially section 10.37, adequately address the professional responsibility of in-house counsel when providing advice to the employer.

We note that Circular 230 omits an express definition of the term "employer." In recent public remarks, representatives of the IRS and Treasury Department explained that the government declined to define "employer" in order not to unduly limit the scope of the in-house carve-out. In other words, the government's thinking--with which we agree--is that for purposes of Circular 230 "employer" is to be construed broadly to include entities beyond the employee's W-2 employer and even beyond the affiliated group of corporations of which the employee's W-2 employer is a part. See, e.g., Government Officials Take on Tax Bar over Circular 230 Changes, Tax Notes Today 99-5 (May 23, 2005). This approach is wholly sensible since company tax department employees are often expected to render tax advice and compliance services for many entities beyond their immediate W-2 "employer." Hence, TEI recommends that the IRS and Treasury confirm in future guidance that the term employer...