Final Circular 230 Regulations Eliminate Covered Opinion Rule Among Other Changes

Date posted: June 19, 2014

IRS has issued final Regs that make various changes to Circular 230, the rules on practice before IRS.  The most significant items in the final Regs are the elimination of complex rules governing “covered opinions” and expansion of the requirements for written advice.

Treasury and IRS have consistently maintained that individuals subject to Circular 230 must meet minimum standards of conduct with respect to written tax advice, and those who do not should be subject to disciplinary action, including suspension or disbarment.

The finals Regs adopt the approach taken in the proposed Regs, eliminating the covered opinion rules, and instead subjecting all written tax advice to one standard.

The final Regs replaces the covered opinion rules with principles to which all practitioners must adhere when rendering written advice.  The Regs state affirmatively the standards to which a practitioner must adhere when providing written advice on a federal tax matter.  The Regs require, among other things, that the practitioner base all written advice on reasonable factual and legal assumptions, exercise reasonable reliance, and consider all relevant facts that the practitioner knows or reasonably should know.  A practitioner must also use reasonable efforts to identify and ascertain the facts relevant to written advice on a federal tax matter.

The Regs provide that any practitioner who has principal authority and responsibility for overseeing a firm’s practice must take reasonable steps to ensure that the firm has adequate procedures in effect for all members, associates, and employees for purposes of complying with Circular 230.

Many individuals currently use a Circular 230 disclaimer at the conclusion of every e-mail or other writing to remove the communication from the covered opinion rules in former §10.35.  In many instances, these disclaimers are inserted without regard to whether the disclaimer is necessary or appropriate.  These types of disclaimers are routinely inserted in any written transmission, including writings that do not contain any tax advice.  The removal of former §10.35 eliminates the detailed provisions concerning covered opinions and disclosures in written opinions.  Because amended §10.37 does not include the disclosure provisions in the current covered opinion rules, Treasury and the IRS expect that these amendments will eliminate the use of a Circular 230 disclaimer in e-mail and other writings.  Although one commenter stated that the proposed regulations would result in increased use of the disclaimer, the rules in the final regulations are intended to eliminate the need for unnecessary disclaimers.  Another commenter stated that the required disclaimer should be retained because it may be helpful in some circumstances.  These rules do not, however, prohibit the use of an appropriate statement describing any reasonable and accurate limitations of the advice rendered to the client.

The final Regs are effective June 12, 2014.

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This news item was recommended by: John Dyer

John L. Dyer, CPA is a partner of Peter Shannon & Co., a CPA firm located in the Chicagoland area. His credentials include Bachelor of Science in Accountancy at the University of Illinois Champaign and a Master’s Degree of Science in Taxation at DePaul University. His expertise includes taxation for high income individuals, estate, retirement and education planning, business fields of construction, broker/dealers, manufacturing, medical, trucking, and retail.

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