Washington (Dec. 30, 2003) -- The Treasury Department and the Internal Revenue Service announced measures expected to have a chilling effect on the use of opinion letters drafted by accountants and attorneys, amid other measures aimed at increasing the transparency and disclosure of information to the IRS.

The agencies announced proposed changes to Circular 230 that set out specific requirements for tax opinions provided by attorneys and accountants. The proposed changes describe best practices for tax advisors and call on professional services firms to put in place procedures that are consistent with the best practices. The changes would obligate tax advisors to inform clients explicitly about what protections, if any, an opinion letter provides to the client. For example, tax advisors would have to advise clients about issues that the opinion doesn’t address and warn the client if the opinion won’t protect the client against penalties.

The agencies also announced final regulations that increase the cost of failing to disclose abusive avoidance transactions. The regs also apply to taxpayers that don’t disclose that they have reported items on their tax returns that are based on the position that a Treasury regulation is invalid.

The Treasury issued revised final regulations that limit the disclosure of confidential transactions on a return to transactions for which a promoter has imposed confidentiality to protect the promoter's tax strategies from disclosure. The IRS said the revisions will allow it to focus its attention on transactions with potential for abusive tax avoidance rather than on transactions for which confidentiality is required for non-tax reasons.

The Treasury also proposed revisions to Form 8858, which deals with information reporting with respect to foreign disregarded entities.

-- WebCPA staff

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