Alerts and Updates
New Tax Advice Regulations, Effective June 21, 2005
June 23, 2005
New regulations have recently been issued by the Treasury Department governing written communications between clients and attorneys and others practicing before the IRS.
All tax practitioners are obligated to comply with the new regulations whenever clients are provided written advice, including e-mail communications, with respect to a wide range of transactions that have tax as a material element. Effective for written tax advice rendered after June 20, 2005, the new regulations will require that such written advice either (i) be in the form of a formal opinion on all of the significant tax issues in the transaction and "due diligence" performed in verifying facts and assumptions or (ii) include a "legend" to the effect that the advice cannot be relied upon to avoid federal tax penalties.
In cases in which a legend is required, the legend that will appear on Duane Morris written tax advice will read:
As required by United States Treasury Regulations, you should be aware that this communication is not intended to be used, and it cannot be used, for the purpose of avoiding penalties under United States federal tax laws.The presence of the legend on written tax advice does not mean that the client cannot rely on or act upon the advice. The significance of the legend is only that, if the expected tax treatment for a transaction discussed in the advice is not sustained, the recipient may not avoid a federal tax penalty based upon reliance on the advice. However, imposition of a penalty will not be automatic. Any defense to the imposition of a penalty other than reliance on a tax opinion, e.g., "substantial authority" for the position taken, will remain available. In those cases in which a formal opinion is rendered, the legend will not appear in the opinion.
For Further Information
If you have any questions about our new procedure, please contact the tax professional or tax attorney in the firm with whom you are regularly in contact or Victor F. Keen, chair of our Tax Practice Group.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.
