In keeping with our goal to use these newsletters to help keep you informed of changes occurring in the worlds of finance, management and taxation, we thought it would be helpful to explain the reasons behind the new disclaimer language appearing in most written tax advice these days.

You have probably been noticing something like the following in the written tax advice (and perhaps other written communications) that you have been receiving:

In compliance with U.S. Treasury Circular 230 Regulations and any applicable state laws, we hereby notify you that any tax advice contained in the body of this document, or attachments thereto, was not intended or written to be used, and cannot be used, by the recipient or any other party for the purpose of (1) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Why is this language popping up? Well, we and all other tax practitioners are governed in the tax services we provide to our clients by a code of professional conduct that is partially embodied in regulations promulgated by the U.S. Department of the Treasury (IRS). Not too long ago, the U.S. Treasury revised its Circular 230 regulations, establishing expanded guidelines for the format and content of written advice on U.S. tax matters by all tax practitioners.

These expanded guidelines came about largely due to the government’s concern about perceived tax abuses and “tax opinion shopping” by some taxpayers, or promoters of perceived tax abusive schemes, who might attempt to use the reliance on such professional tax advice as an argument for avoiding certain penalties under the Internal Revenue Code. However, these expanded regulations were drafted to apply to all written advice (including e-mails) addressing U.S. tax matters and not just those relating to tax shelters or tax “schemes”. These rules cover all written advice we might give you concerning the federal tax impact of specific prospective business or personal transactions you might undertake, general business and personal tax planning, estate planning, or other tax matters – potentially as seemingly simple as the appropriate tax life to use in the tax depreciation of a business asset.

The expanded rules require us to add certain somewhat standard language (a “disclaimer notice” denying the reader the use of the advice as a basis for avoiding penalties or for certain other stated uses) to many of our letters, memos, e-mails, and other correspondence concerning federal tax matters unless we undertake (and you are interested in paying the cost of) quite extensive and often time-consuming analysis of the reasonableness and completeness of all the facts underlying the subject transaction, a review of the legal authorities that address the tax treatment of all aspects of the transaction, and the disclosure and discussion of it all in our written document. While the specific wording may vary depending on the circumstances, absent this extensive treatment, you can expect written advice from our firm to contain disclaimer notice language similar to that noted earlier in this article.

Such a disclaimer notice, when included, must be “prominently disclosed,” i.e., “readily apparent” to the reader. The notice must be in a separate section (but not in a footnote or as “fine print”) of the correspondence. The typeface used must be at least the same size as the typeface used in any discussion of facts or law.

At PMN, we are adopting a policy of including this new disclaimer notice language, where the rules allow us to, as part of our continuing effort to avoid fee increases and provide you with cost effective service. There is no question that, without the disclaimer notice language, additional fees, perhaps significant ones, would often be required due to the significant additional time it would take for us to make a more extensive analysis of the reasonableness of the facts involved, search and document in writing the tax law that might affect the outcome, and then disclose and explain those facts, laws and the basis for our advice in our written communication to you.

Please be assured that this change in language to comply with these expanded tax practitioner guidelines does not reflect any decrease in the quality of PMN’s services or the amount of thought we put into the advice contained in our written communication with you. We will continue to strive to understand the nature and reasonableness of all the significant facts and goals behind each matter, consider the relevant tax rules, and give you thoughtful, expert advice to help you legitimately plan for the tax impact of the actions you take.

Finally, there are situations where we will be required by the regulations to adhere to the more extensive, formalized communication structure, or where we believe that the circumstances warrant the increased time (and increased cost) attributable to a communication that may provide you protection from the imposition of penalties. If such instances arise, we will certainly discuss the matter with you before we proceed. In the event you think you might desire a written communication from us that could give you some protection from the imposition of penalties, if any were to be proposed, we encourage you to discuss the matter with us.

Hopefully that provides some explanation of the current state of practice guidelines impacting the written tax advice we give out. It doesn’t make things easier and there are bound to be further clarifications and revisions to the guidelines with the passage of time. As they do change, we at PMN will continue to do our best to provide our clients with the best advice, at the most reasonable cost we can, while maintaining the highest in professional standards – just like we have in the past and do today.

Please contact Gary Soiref, or any other member of the PMN management group, if you have any questions or concerns about the new rules and their impact on the manner in which we communicate tax advice to you.

-----------------------------------------
In compliance with U.S. Treasury Circular 230 Regulations and any applicable state laws, we hereby notify you that any tax advice contained in the body of this document, or attachments thereto, was not intended or written to be used, and cannot be used, by the recipient or any other party for the purpose of (1) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein.