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New IRS Rules Affecting Written Tax Advice

Client Advisory

July 1, 2005

To Our Clients and Friends:

As part of their ongoing effort to curb abusive tax shelters, the Treasury Department and the Internal Revenue Service have issued final regulations (“Circular 230”) governing how attorneys and other tax professionals must communicate with their clients whenever they render written advice on federal tax issues. Unfortunately, Circular 230 is not limited to formal opinions or to tax shelters. Rather, Circular 230 applies to virtually any transaction that has a significant degree of tax motivation. The breadth of Circular 230 will necessarily affect the form of our advice in many non-abusive situations.

As attorneys who regularly practice before the IRS, we are obligated to comply with the rules set forth in Circular 230. In order to avoid the time and expense involved in issuing a formal opinion on the significant federal tax issues involved in a particular transaction, rendered after appropriate consideration of all the facts and in compliance with the numerous requirements of Circular 230, we will generally include the following legend on our written federal tax advice:

IRS Circular 230 Information: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this [e-mail message] [letter] [memorandum] or any attachment hereto is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties imposed under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

We will do this because the expense of writing a formal opinion will in most cases outweigh any benefit to the client. We have, therefore, implemented a practice of automatically affixing the legend to all outgoing e-mails from all the firm’s attorneys. We will also automatically affix the legend to all letters, memoranda, faxes, etc., prepared by members of our Tax and Trust and Estates practice groups unless we and the client together determine that a formal opinion is warranted.

Please be aware that the presence of the legend does not in any way diminish our tax advice or the authorities we relied upon in reaching our legal conclusions. Rather, it means that you will not be able to avoid penalties merely by citing your reliance on advice of counsel. The Treasury Department and the IRS announced that they intend to amend the applicable Treasury Regulations to clarify that a taxpayer may not rely upon written advice that contains the legend described above to establish the reasonable cause and good faith defense to the accuracy-related penalties. However, the authorities and reasoning contained in our advice may of course be cited in establishing that there was “substantial authority” for a position.

The new procedures discussed above, including the affixing of the legend, do not reflect any change in the level of care and attention that we will continue to give each communication with you. We are merely adding a legend, as required by the Treasury Department and the IRS in Circular 230, in order to make it possible to communicate in a cost effective manner. In those circumstances where a formal written opinion is appropriate, we will do all that is required to comply with the rules of Circular 230 and will remove the legend from the final written opinion.


Please call Howard J. Barnet, Jr. (212-238-8726) or Jerome J. Caulfield (212-238-8809) if you have any questions regarding Circular 230.

Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. © 2017 Carter Ledyard & Milburn LLP.
© Copyright 2005

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