In response to requests from tax practitioners and professional organizations for clarification, the Internal Revenue Service and the Treasury Department issued revisions to the new Circular 230 standards -- rules related to written tax advice issued last December.
The IRS said practitioners and professional organizations asked for clarification in several areas to "ensure that the standards for written tax advice apply in a manner consistent with their intent."
Three of the five revisions issued expand on the definition of "excluded advice" that isn't subject to the detailed covered opinion standards of Circular 230. These revisions apply to: advice from in-house tax professionals to their employers; situations in which the advice is provided after the client files the relevant tax return; and "negative advice," wherein an advisor tells a client a transaction will not provide the purported tax benefit.
The IRS noted that advice that is excluded from the covered opinion standards by the revisions will continue to be subject to the general requirements for other written advice.
The revised covered opinion standards also provide a definition of "the principal purpose" of tax avoidance that excludes transactions claiming tax benefits that are consistent with the statute and Congressional purpose. They also relax specific requirements for the format of disclosures that are required for certain written tax advice. These requirements maintain the expectation that the disclosures will put taxpayers on notice of any limitations on their ability to rely on written advice.
The written opinion standards and the changes announced today will apply to written advice rendered after June 20, 2005.
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