New Rules Governing Written Tax Advice

By Kenneth Birrell

The Circular 230 Regulations provide the rules with which practitioners must comply in order to practice before the Internal Revenue Service. The Treasury Department recently made substantial amendments to these rules that became effective June 21, 2005.

The revised rules provide new requirements for certain types of written tax advice that Kirton & McConkie provides to clients. The new rules are extremely broad, and thus cover not only formal written tax opinions, but also virtually any written communication that contains advice regarding federal tax issues. Although the impetus behind the revised rules was to combat abusive tax shelters, the revised rules were drafted so broadly that they potentially apply to many ordinary transactions.

The revised rules offer practitioners two alternatives when providing written tax advice. First, practitioners can render such advice in the form of a full, detailed opinion based upon a heightened “due diligence” review of all relevant facts and a detailed discussion of all relevant federal tax matters (a “covered opinion”). Alternatively, practitioners can include in their written advice language clearly indicating that such advice cannot be relied upon to avoid penalties under the Internal Revenue Code (a “notice”). If the written advice may be used or referred to in promoting, marketing or recommending a transaction to other taxpayers, the written advice may constitute a “marketed opinion,” in which case the notice must also state that the advice was written to support the promotion or marketing of such transactions and that taxpayers should seek advice from an independent tax advisor. There are various types of written tax advice that are not subject to the foregoing rules (such as written tax advice that is contained in documents required to be filed with the SEC), and there are also various types of written tax advice for which a notice is not sufficient and which must, therefore, comply with the covered opinion requirements.

Kirton & McConkie clients commonly ask that we provide written tax advice. Although such advice would often be covered by the rules described above, we believe that our clients usually would not want us to engage in the detailed and costly level of analysis required to comply with the covered opinion requirements. Therefore, in order to both comply with the revised rules and to serve our clients in a cost-efficient manner, we generally will be adding the appropriate notice to various forms of written communications that may contain tax advice (including e-mails, private offering memos, letters, memos and opinions), in lieu of having all such written communications satisfy the covered opinion requirements. Of course, we will be happy to provide an opinion that does satisfy the covered opinion requirements in those situations where a client expressly requests such an opinion.

If you have any questions, please contact Kenneth Birrell at 801-321-4826 or kbirrell@kmclaw.com.