Big Changes to Ethical Rules Governing Practice Before IRS

Lengthy E-mail Disclaimers Will Disappear

If you’ve received an e-mail from a lawyer, accountant, or other tax professional since 2005, no matter what the subject, it has likely contained a lengthy disclaimer at the end referring to “Circular 230” and adamantly declaring that anything within the e-mail did not constitute tax advice.

Circular 230 is the Internal Revenue Service’s compilation of regulations governing tax practice by lawyers, accountants and other professionals. The IRS recently issued final regulations, effective June 12th, that make significant changes to Circular 230, including a statement that “Treasury and the IRS expect that these amendments will eliminate the use of a Circular 230 disclaimer in e-mail or other writings.”

New Standards for Written Tax Advice, Competence, and Compliance

In addition to sparing the world from millions of unnecessarily verbose e-mails, the new regulations make numerous other changes to Circular 230, including replacing its Covered Opinion Rules, which led to the use of the ubiquitous disclaimers, with new standards for issuing tax advice, competence, and compliance. 

• Written Tax Advice. Advice from practitioners cannot be based on an unreasonable assumptions about facts or the law, practitioners cannot unreasonably rely on representations or statements, and must make reasonable efforts to ascertain all relevant facts. A “reasonableness” standard will be applied by the IRS in evaluating a practitioner’s advice, though a heightened standard of care will apply to advice that has a significant purpose of avoiding or evading tax. In determining the “reasonableness” of reliance on the statements of another person, the IRS will consider it not reasonable if the practitioner knows or should know that: 
– The opinion should not be relied upon;
– The other person is not competent or unqualified to opine on the issue; or
– The other person has a conflict of interest.
• Practitioner Competence. Tax practitioners must possess the necessary competence to practice before the IRS, including having the knowledge, skill, and thoroughness necessary to deal with the issue at hand. 
• Ensuring Compliance of Firm and Subordinates. Wilful ignorance as to the actions of subordinates or failure to properly establish compliance policies can lead to big trouble for practitioners. Those tax practitioners who are in charge of firms or others engaged in the preparation of returns or other documents submitted to the IRS are responsible for their compliance with Circular 230 “Willfulness, recklessness, or gross incompetence” that leads to a pattern or practice of non-compliance or a failure to take action against non-compliance that the practitioner knew or should have known about will subject the practitioner to disciplinary action.

Additionally, personal conduct with regard to one’s own taxes can lead to expedited suspension from practicing before the IRS. Specifically, failure to file an annual return for four of the five preceding years or failure to file a return required more frequently than annually for five of the seven preceding years will constitute “willful, disreputable conduct” that can lead to a quick suspension.

If you have questions or concerns as to how these changes to Circular 230 may affect you or your practice, contact the Dallas business and tax lawyers at the Finley Law Group (972) 581-2880.

This website has been prepared by The Finley Law Group for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction._

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