Written tax advice: new Circular 230 rules apply to advice rendered after June 20, '05.

• Author: Josephs, Stuart R.
• Position: Federal tax

Circular 230 governs the recognition of CPAs, attorneys, enrolled agents and other persons representing taxpayers before the IRS and prescribes duties and restrictions relating to such practice. Among these duties and restrictions are "Requirements for covered opinions" contained in Sec. 10.35. (Note: all "Sec." citations refer to Circular 230 sections).

A "practitioner" who provides a covered opinion must comply with the practice standards of Sec. 10.35. A practitioner is defined to include a CPA, not under suspension or disbarment from practice before the IRS, who may practice before the IRS by filing a power of attorney with the IRS [Sec. 10.35(b)(1)]. Similar descriptions apply to attorneys as well as enrolled agents and actuaries.

Observation: Under Section 822(b) of the 2004 American Jobs Creation Act, anyone who provides a tax opinion covering federal tax issues regarding an arrangement or plan that has a significant tax avoidance purpose is deemed to be practicing before the IRS. The prior law required practitioners to have a power of attorney for Circular 230 to apply.

Covered Opinions

A covered opinion is written advice, including electronic communications, by a practitioner concerning one or more federal tax issues arising from:

* A transaction that is the same as, or substantially similar to, a transaction that, at the time the advice is rendered, the IRS has determined to be a tax avoidance transaction and identified by published guidance as a listed transaction;

* Any entity, plan or arrangement, the principal purpose of which is avoidance or evasion of any tax imposed by the Internal Revenue Code; or

* Any entity, plan or arrangement, a significant purpose of which is avoidance or evasion of any tax imposed by the IRC if the written advice is a reliance opinion; a marketed opinion; subject to confidentiality conditions; or contractual protection.

"The principal purpose" exists if it exceeds any other purpose. However, the principal purpose to avoid or evade federal tax does not exist if the purpose is to claim tax benefits consistent with the statute and Congressional purpose. But an entity, plan or arrangement may have a significant tax avoidance or evasion purpose even though it does not have the principal purpose of avoidance or evasion.

Reliance Opinions: Written advice is a reliance opinion if it concludes at a confidence level of more likely than not (a greater than 50 percent likelihood) that one or more significant...