IRS Circular 230 Disclosure-What Does It Mean?


By now you probably have received a communication from someone, maybe even us, with the notation "IRS Circular 230 Disclosure".  The essence of the disclosure seems to be that you shouldn't rely on the substance of the communication.  This sure doesn't do much to improve your confidence in whomever supplied the communication.

As we all know the IRS sometimes assesses penalties for any number of reasons (Late pay, late file, non file etc.).  In certain instances if a taxpayer relies on the advice of a paid professional the IRS might be unsuccessful in assessing a penalty.  Over the last decade some tax advisors marketed tax shelters and assured their clients at the time that the advisor's opinion would allow the taxpayer to avoid penalties even if the tax shelter were to ultimately be determined abusive.

The IRS has extensive authority to rule and regulate those who practice before it.  Circular 230, which we will refer to now as 230, is a sort of code of conduct for practitioners and those who violate it can be fined or have their privileges suspended.  After the abusive tax shelter fiascos of the last decade the IRS updated its requirements under 230.

The updated 230 is long and complex and some might say ambiguous.  However what is clear is that it requires that any form of written tax advice be accompanied by either 1. a complete analysis of all related tax issues, a description of the legal authority behind the conclusions and a thorough coverage of the facts and circumstances , including assumptions, applicable to the matter being considered or 2. A specific disclaimer that the taxpayer can't rely on the advisors communication to avoid penalties.

1. in the paragraph above, would be very time consuming and costly to comply with making what might have previously been a two or three sentance communication now require multiple pages.  2. in the paragraph above, while a bit discomforting to all parties is the path of least resistance chosen by many professionals in the hope that the message doesn't get lost in the uncertainty of the disclosure.  It does allow for quick and accurate responses that don't rise to the level required in 1. above.

So when you receive communication from us, including e mails, don't be surprised if we automatically attach a Circular 230 disclosure to it as that is the vehicle which enables us to respond in a less costly abbreviated format.

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