IRS Circular 230 Disclosure – What Does all the legalese really mean?

Our SCA team prides itself in looking after each client’s tax affairs as if they were our own. We leave no tax deduction aside you’re legally entitled to take. Reliance on professional advice has usually been the only thing required to eliminate any penalty in case IRS disagreed with the advice given. Sadly, some in our profession proposed outlandish tax strategies and tax shelters with assurances given clients the advisor’s opinion would allow the taxpayer to sidestep penalties if they were later assessed by the IRS.  In response to the tax shelter abuse and unprofessional actions by some tax and financial planners, IRS updated their Circular 230, (best described as the code of professional conduct governing tax practitioners) to better spell out its broad authority to implement and enforce rules and regulate the accountants, attorneys and enrolled agents who advise taxpayers and represent them before the IRS. Failure to comply with Circular 230 may result in license suspension and fines for anyone who practices before the IRS.

Circular 230 is a long, incredibly complex, vague document which states written tax advice must be accompanied by one of the following two items:
(1.) A complete analysis of all relevant tax issues, discussion of the legal authority behind the conclusions and discussion of the facts and assumptions relevant to the matter under advisement, or
(2.) A very specific disclaimer that the taxpayer may not rely on the advisor’s correspondence to avoid penalties.

Obviously the first option can be very burdensome and costly when citing all sources to support the answer and most probably would preclude our giving a simple answer to a simple question without a large fee for doing so.

For that reason most tax professionals, including us, have selected option 2. This option doesn’t make the answer any less professional or correct. It simply means we don’t believe the complexity of the question and answer rise to the level of the voluminous specifications required by option 1. Rest assured we are capable of rendering complex opinions and are willing to cite documentation necessary for you to rely on, but only in cases where complexity and value of the tax deduction is comparable to the cost associated with providing this burdensome documentation.

So when you see the following disclosure on our emails:

Tax Advice Disclosure – To ensure compliance with requirements imposed by the IRS under Circular 230, we inform you that any U.S. federal tax advice contained in this communication (including any attachments), unless otherwise specifically stated, was not intended or written to be used, and cannot be used, for the purposes of (1) avoiding penalties imposed under the Internal Revenue Code; or (2) promoting, marketing or recommending to another party any matters addressed herein.

Just remember, it’s our way of giving concise answers without attaching the burdensome amount of documentation required on how we created our internal knowledgebase (accumulated over our last 150+ combined years of experience) and permitting us to give you quick, concise, and cost-effective answers to your tax-planning needs.