Amendments to circular 230.EXECUTIVE SUMMARY * Section 10.35(c) is critical in establishing the facts, in relating the law to the facts and in evaluating significant Federal tax issues. * Section 10.37 is important for tax practitioners issuing written advice that is not a covered opinion. * Practitioners should carefully consider the new and amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. terms and standards established by the modifications to Circular 230. ********** This two-part article analyzes additions and amendments to the Circular 230 regulations adopted in 2004 and 2005. Part II examines the requirements for covered opinions and other written advice. This two-part article reviews the recent amendments to the Treasury Circular 230 (24) regulations, which govern tax practice before the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. by CPAs, attorneys, enrolled agents An Enrolled Agent (or EA) is a tax professional recognized by the United States federal government to represent taxpayers in dealings with the Internal Revenue Service. The profession has been regulated by Congress since 1884. , enrolled actuaries An Enrolled Actuary (or EA) is an actuary who has been licensed by a Joint Board of the Department of the Treasury and the Department of Labor to perform a variety of actuarial tasks required of pension plans in the U.S. and appraisers. (25) Part I, in the January 2006 issue, analyzed an·a·lyze tr.v. an·a·lyzed, an·a·lyz·ing, an·a·lyz·es 1. To examine methodically by separating into parts and studying their interrelations. 2. Chemistry To make a chemical analysis of. 3. best practices and the definitions relevant to covered opinions. Part II, below, focuses on the requirements for covered opinions and other written advice, as well as compliance provisions and the establishment of an advisory committee to the Office of Professional Responsibility (OPR OPR Operator OPR Office of Primary Responsibility OPR Operations OPR Operate OPR Office of Population Research (Princeton University) OPR Office of Professional Responsibility OPR Office of Planning and Research ). Requirements Exhibit 1 on p. 92 is a summary of the requirements for covered opinions under the amended Circular 230 regulations.</p> <pre> Exhibit 1: Requirements for covered opinions Section 10.35(c)(1)--Factual matters: * Practitioners must use reasonable efforts to identify and ascertain the relevant facts, including future events, if a transaction is prospective or proposed. An opinion must identify and consider all facts that the practitioner determines relevant. * Practitioners must not base an opinion on any unreasonable factual assumptions, including assumptions as to future events. The opinion must identify in a separate section all factual assumptions relied on by the practitioner. * Practitioners must not base an opinion on any unreasonable factual representations, statements or findings of the taxpayer or any other person. The opinion must identify in a separate section all factual representations, statements or findings of the taxpayer relied on by the practitioner. Section 10.35(c)(2)--Relate law to facts: * Opinions must relate applicable law (including potentially applicable judicial doctrines Noun 1. judicial doctrine - (law) a principle underlying the formulation of jurisprudence judicial principle, legal principle principle - a rule or standard especially of good behavior; "a man of principle"; "he will not violate his principles" ) to relevant facts. * Practitioners must not assume favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. resolution of any significant Federal tax issue except as provided in Section 10.35(c)(3)(v) and (d), or otherwise base an opinion on any unreasonable legal assumptions, representations or conclusions. * Opinions must not contain internally inconsistent legal analyses or conclusions. Section 10.35(c)(3)--Evaluation of significant Federal tax issues: * Opinions must consider all significant Federal tax issues, except as provided in Section 10.35(c)(3)(v) and (d). * Opinions must provide a practitioner's conclusion as to the likelihood that a taxpayer will prevail on the merits on the merits adj. referring to a judgment, decision or ruling of a court based upon the facts presented in evidence and the law applied to that evidence. A judge decides a case "on the merits" when he/she bases the decision on the fundamental issues and considers as to each significant Federal tax issue considered in the opinion. * If the practitioner is unable to reach a conclusion as to one or more of those issues, the opinion must state that. * Opinions must describe reasons for conclusions, including facts and analysis supporting conclusions, or describe reasons that the practitioner is unable to reach a conclusion as to one or more issues. * If the practitioner fails to reach a conclusion at a confidence level of at least more likely than not as to one or more significant Federal tax issues considered, the opinion must include appropriate disclosure(s) required under Section 10.35(e). * Practitioners must not take into account the possibility that a tax return will not be audited, an issue will not be raised on audit or an issue will be resolved through settlement if raised. Marketed opinions only: * Opinions must provide the practitioner's conclusion that the taxpayer will prevail on the merits at a confidence level of at least more likely than not as to each significant Federal tax issue. * If the practitioner is unable to reach a more-likely-than-not conclusion as to each significant Federal tax issue, the practitioner must not provide o marketed opinion, but may provide written advice that satisfies the requirements of Section 10.35(b)(5)(ii). Limited scope opinions only: * Practitioners may provide an opinion that considers less than all significant Federal tax issues if: 1. The practitioner and the taxpayer agree that the scope of the opinion and the taxpayer's potential reliance on the opinion for purposes of avoiding penalties that may be imposed on the taxpayer are limited to the Federal tax issue(s) addressed in the opinion; 2. The opinion is not advice described in Section 10.35(b)(2)(i)(A), (B) or (b)(5) above; and 3. It includes appropriate disclosure(s) required under Section 10.35(e). * Practitioners may make reasonable assumptions regarding favorable resolution of a Federal tax issue, provided the opinion identifies in a separate section all issues for which the practitioner assumed a favorable resolution. Section 10.35(c)(4)---Overall conclusion: * Opinions must provide a practitioner's overall conclusion as to the likelihood that the Federal tax treatment of the transaction or matter that is the subject of the opinion is the proper treatment and the reasons for that conclusion. * If the practitioner is unable to reach an overall conclusion, the opinion must state that the practitioner is unable to reach an overall conclusion and describe the reasons for the practitioner's inability to reach a conclusion. Marketed opinions only: * Opinions must provide a practitioner's overall conclusion that the Federal tax treatment of the transaction or matter that is the subject of the opinion is the proper treatment at a confidence level of at least more likely than not. </pre> <p>Factual Matters Section 10.35(c)(1), Factual matters, is critical in establishing the facts. An opinion cannot be based on unreasonable factual assumptions, and practitioners must consider all the facts they deem relevant. This would seem to tie their efforts to due diligence Research; analysis; your homework. This term has caught on in all industries, because it sounds so "wired." Who would want to do analysis or research when they can do due diligence. See wired. under Section 10.22. Practitioners should also examine case law on unreasonable factual assumptions and the efforts to be undertaken to establish which facts are relevant. Thus, documentation is critical in demonstrating compliance with the requirements to ascertain the facts. An examination of tax shelter tax shelter: see tax exemption. case law will reveal situations in which courts have held that a practitioner did not act with due diligence in ascertaining the facts. Additional guidance may be found in Interpretation No. 1-2, "Tax Planning Tax planning Devising strategies throughout the year in order to minimize tax liability, for example, by choosing a tax filing status that is most beneficial to the taxpayer. ," of Statements on Standards for Tax Services (SSTS SSTS SVM (Service Module) Structure Subsystem SSTS Statements on Standards for Tax Services (AICPA) SSTS Solid-State Transfer Switch SSTS Section Seven Tracking System (US EPA) ) No. 1, Tax Return Positions, (26) which contains examples of tax planning and tax shelter situations. One sentence in the new regulations has the potential to provide very useful guidance in fully understanding some troublesome parts of this law. The preamble A clause at the beginning of a constitution or statute explaining the reasons for its enactment and the objectives it seeks to attain. Generally a preamble is a declaration by the legislature of the reasons for the passage of the statute, and it aids in the interpretation of (27) states, "[t]he final regulations provide that a practitioner providing a covered opinion, including a marketed opinion, must not assume that a transaction has a business purpose or is potentially profitable apart from tax benefits, or make an assumption with respect to a material valuation issue." Section 10.35(c)(1)(ii) states, "it is unreasonable to assume that a transaction has a business purpose or that a transaction is potentially profitable apart from tax benefits." This might be interpreted to mean that it is unreasonable to assume that any transaction has a business purpose (i.e., the business purpose must always be clearly established). Likewise, it is unreasonable to assume that a transaction is potentially profitable; potential profitability must always be clearly established. Further, if a transaction is not expected to be profitable apart from its tax benefits, an opinion rendered on such a transaction would not be permitted. In other words Adv. 1. in other words - otherwise stated; "in other words, we are broke" put differently , if covered opinions cannot assume that the business purpose of a transaction is to secure tax benefits, and if the only potential profitability expected to arise from a transaction is the tax benefits, then no covered opinion may be issued. Relating Law to Facts Section 10.35(c)(2) states, "the opinion must relate the applicable law (including potentially applicable judicial doctrines) to the relevant facts." This is a very broad and comprehensive statement. What is "applicable law"? What about "potentially applicable judicial doctrines"? Such doctrines are critical, given the discussions in numerous tax shelter cases over the past decade that addressed business purpose, sham False; without substance. A sham Pleading is one that is good in form but is so clearly false in fact that it does not raise any genuine issue. transactions and economic substance. (28) A review of these and similar cases (especially on economic substance) is critical. Congress has persistently considered defining economic substance statutorily, but has not yet adopted such a rule. (29) The phrase "potentially applicable judicial doctrines" is troubling for practitioners, because what is potentially applicable may not be as clear when a practitioner is preparing an opinion, as compared to when the opinion comes under OPR scrutiny. Who is to determine what is potentially applicable? Will CPAs have to obtain an outside review of all opinions to determine whether "all" potentially applicable judicial doctrines have been considered? Depending on a transaction's materiality MATERIALITY. That which is important; that which is not merely of form but of substance. 2. When a bill for discovery has been filed, for example, the defendant must answer every material fact which is charged in the bill, and the test in these cases seems to , practitioners may want to consider whether they are competent to advise clients on how legal doctrines The following is a list of legal concepts and principles, most of which apply under common law jurisdictions.
An example of what not to do (and what would be forbidden) under Section 10.35's covered opinions may be found by examining Long-Term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. Capital Holdings. (30) This decision was a victory for the IRS. It is very detailed and provides a good discussion of problems with tax opinions considered inadequate by the district court and that would be inadequate under Section 10.35. A summary of this case would be a useful tool for training staff. It could be the basis for a discussion of what constitutes a covered opinion under Section 10.35 (even though that was not the issue in the case). Evaluating Federal Tax Issues What is a significant tax issue? Section 10.35 provides no guidance on how to determine whether every significant tax issue has been covered in an opinion. Will it be necessary, for example, to have either an internal or external review of the situation described in the advice, to ensure that "every" significant tax issue is covered? This would be expensive, especially when there are informal communications (e.g., normal business and tax planning advice), as well as uncertainty as to whether a covered opinion exists. One commentator concluded (31) that the concept behind a limited scope opinion is that routine advice and answers do not need to rise to the level of time-consuming, expensive and full-blown formal opinions. These opinions may allow a practitioner and a taxpayer to agree that the opinions provide penalty protection. However, a limited scope opinion may not include marketed opinions, listed transactions, or situations in which the transaction's principal purpose concerns tax evasion The process whereby a person, through commission of Fraud, unlawfully pays less tax than the law mandates. Tax evasion is a criminal offense under federal and state statutes. A person who is convicted is subject to a prison sentence, a fine, or both. or avoidance. It is also difficult to determine when such a limited scope opinion might be applicable, as there is little guidance on what constitutes "the principal purpose" and "any partnership or other entity, any investment plan or arrangement, or any other plan or arrangement." These phrases are not adequately defined. This precludes issuing a limited scope opinion, because of doubt as to whether this language applies. Section 10.35(c)(4)--Overall Conclusion Section 10.35(c)(4) is an omnibus omnibus: see bus. provision. It requires practitioners, after satisfying the requirements for each covered opinion in written advice, to collectively consider the overall conclusion, to ensure that it also separately satisfies Section 10.35's requirements. This is analogous analogous /anal·o·gous/ (ah-nal´ah-gus) resembling or similar in some respects, as in function or appearance, but not in origin or development. a·nal·o·gous adj. to an auditor's obligation under International Standards on Auditing International Standards on Auditing (ISA) are professional standards for the performance of financial audit of financial information. These standards are issued by International Federation of Accountants. 320.7 concerning materiality issues arising from an audit engagement. First, an auditor has to deal with each material issue separately. Then, another assessment is required to determine whether the materiality threshold has been collectively reached, before the auditor can render an opinion on the client's financial statements. Section 10.35(d)--Competency The concept of practitioner competency COMPETENCY, evidence. The legal fitness or ability of a witness to be heard on the trial of a cause. This term is also applied to written or other evidence which may be legally given on such trial, as, depositions, letters, account-books, and the like. 2. was already built into Circular 230; see Exhibit 2 above. It requires practitioners to be knowledgeable in "all of the aspects of Federal tax law relevant to the opinion," which is unrealistic. Additionally unrealistic is a practitioner relying on another practitioner's opinion, unless the practitioner responsible for the overall opinion "knows or should know" the unreliability of the other practitioner's opinion. The verb verb, part of speech typically used to indicate an action. English verbs are inflected for person, number, tense and partially for mood; compound verbs formed with auxiliaries (e.g., be, can, have, do, will) provide a distinction of voice. "knows" implies actual knowledge, while "should know" is undefined and could vary with the circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or . Documentation of due diligence regarding an opinion of another individual (e.g., a member of one's own firm or an external consultant) will help protect against charges that the practitioner is not competent. Due diligence is already required by Section 10.22 and by professional ethical responsibilities outlined in the SSTSs (including the two interpretations). (32)</p> <pre> Exhibit 2: Section 10.35(d)-Competence to provide an opinion and reliance on the opinions of others Practitioners must be knowledgeable in all aspects of Federal tax law relevant to the opinion being rendered. * Practitioners may rely on the opinion of another practitioner as to one or more significant Federal tax issues, unless the practitioner knows or should know the opinion of the other practitioner should not be relied on; * If the practitioner relies on the opinion of another practitioner, the relying practitioner's opinion must identify the other opinion and set forth the conclusions reached in the other opinion. Caution concerning final opinion analysis: Practitioners must be satisfied that the combined analysis of the opinions, taken as a whole, and the overall conclusion, if any, satisfy the requirements of this section. </pre> <p>Section 10.35(e)--Required Disclosures Section 10.35(e) includes disclosure requirements for all opinions, and special rules for marketed opinions, limited scope opinions and opinions that fail to reach a more-likely-than-not conclusion, see Exhibit 3 on p. 93.</p> <pre> Exhibit 3: Section 10.35(e)-Required disclosure Section 10.35(e)(1)---All opinions: * Opinions must prominently disclose the existence of any compensation arrangement or referral agreement between the practitioner and a promoter A person who devises a plan for a business venture; one who takes the preliminary steps necessary for the formation of a corporation. Promoters are the people, who, for themselves or on behalf of others, organize a corporation. . Section 10.35(e)(2)--Marketed opinions: * Opinions must prominently disclose that they were written to support the promotion or marketing of the transaction(s) or matter(s) addressed in the opinion; and * Taxpayers should seek advice based on their particular circumstances from an independent tax advisor A tax advisor is a financial expert especially trained in tax law. Some countries require tax advisors to verify the balance sheets of companies above a certain size. Individuals usually require tax advisors to minimize taxation, to avoid learning the details of tax law in . Section 10.35(e)(3)--Limited scope opinions: * Opinions must prominently disclose that they are limited to the one or more Federal tax issues addressed; * Additional issues may exist that could affect the Federal tax treatment of the transaction or matter that is the subject of the opinion and the opinion does not consider or provide a conclusion as to any additional issues; and * As to any significant Federal tax issues outside the limited scope of the opinion, the opinion was not written, and cannot be used by the taxpayer, to avoid penalties. Section 10.35(e)(4)--Opinions that fail to reach a more-likely-than-not-conclusion: * Opinions must prominently disclose that they do not reach a conclusion at a confidence level of at least more likely than not as to one or more significant Federal tax issues; and * As to those significant Federal tax issues, the opinion was not written, and cannot be used by the taxpayer, to avoid penalties. Section 10.35(e)(5)--Advice regarding required disclosures: * Practitioners may not provide advice to any person that is contrary to or inconsistent with the required disclosure. </pre> <p>Section 10.35(f)--Effect of opinion Despite an opinion's formal adherence adherence /ad·her·ence/ (ad-her´ens) the act or condition of sticking to something. immune adherence to Section 10.35(c)-(e), Section 10.35(f) requires a separate determination of the opinion's persuasiveness per·sua·sive adj. Tending or having the power to persuade: a persuasive argument. per·sua regarding the tax issues in question, as well as the taxpayer's good faith reliance on the opinion; see Exhibit 4 at left. Thus, Section 10.35(f) gives the government two final, undefined standards to determine whether any covered opinion meets Section 10.35's requirements. According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. several commentators, even if an opinion meets the detailed standards of Section 10.35(a)-(e) (discussed above), its persuasiveness and the taxpayer's good faith reliance will be "determined separately under applicable provisions of the law and Regulations, including particularly sections 6662, 6664, and new 6707A." (33) Thus, it is imperative for CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. tax practitioners to examine these Code sections, including changes made by the American Jobs Creation Act of 2004.</p> <pre> Exhibit 4: Section 10.35(f)--Effect of an opinion that meets these standards * Opinions meeting the requirements of Section 10.35 satisfy the practitioner's responsibilities; but * An opinion's persuasiveness with regard to the tax issues in question and the taxpayer's good faith reliance on the opinion will be determined separately under applicable provisions of the law and regulations. * Written advice that is not a covered opinion under this section is subject to Section 10.37. </pre> <p>Section 10.36--Procedures to Ensure Compliance AICPA AICPA See American Institute of Certified Public Accountants (AICPA). comments (34) on the December 2003 proposed amendments to Circular 230 centered on steps that tax advisors could take to ensure compliance with the best practices described in Section 10.33. This would involve adherence to an appropriate quality-control guide or similar document. The AICPA issued a Tax Practice Quality Control Guide in 2002 to assist CPA tax practitioners. It is also considering whether to prepare other guidance for its members on quality control in tax practice and how firms may best adhere to adhere to verb 1. follow, keep, maintain, respect, observe, be true, fulfil, obey, heed, keep to, abide by, be loyal, mind, be constant, be faithful 2. quality-control standards and comply with Sections 10.35 and 10.37. The comment letter also encouraged the Service to note that the scope and formality formality, in chemistry: see chemical equilibrium; concentration. of any such guide must be scaled to the size of the particular practitioner's practice. Additionally, the comments called for Section 10.36 to encourage firms to adopt either internal or external review programs. According to Section 10.36(a), "any practitioner who has (or practitioners who have or share) principal authority and responsibility for overseeing a firm's practice of providing advice concerning Federal tax issues 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 Section 10.35"; see Exhibit 5 on p. 94. The practitioner or group of practitioners covered by Section 10.36 would only be subject to discipline if "through willfulness, recklessness Rashness; heedlessness; wanton conduct. The state of mind accompanying an act that either pays no regard to its probably or possibly injurious consequences, or which, though foreseeing such consequences, persists in spite of such knowledge. , or gross incompetence in·com·pe·tence or in·com·pe·ten·cy n. 1. The quality of being incompetent or incapable of performing a function, as the failure of the cardiac valves to close properly. 2. ," there are no adequate procedures in place and one or more associates, firm members or employees "are, or have, engaged in a pattern or practice, in connection with their practice with the firm, of failing to comply with [section] 10.35."</p> <pre> Exhibit 5: Section 10.36--Procedures to ensure compliance Practitioners who have or share principal authority and responsibility for overseeing a firm's practice of providing advice concerning Federal tax issues 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 Section 10.35. Practitioners with principal oversight
Oversight may refer to:
tr.v. foiled, foil·ing, foils 1. To prevent from being successful; thwart. 2. To obscure or confuse (a trail or scent) so as to evade pursuers. n. Archaic 1. to comply with the requirements if they: * Through willfulness, recklessness or gross incompetence do not take reasonable steps to ensure that the firm has adequate procedures to comply with Section 10.35, and one or more individuals who are members of, associated with or employed by, the firm are, or have, engaged in a pattern or practice, in connection with their practice with the firm, of failing to comply with Section 10.35; or * Know or should know that one or more individuals who are members of, associated with or employed by, the firm are, or have, engaged in a pattern or practice, in connection with their practice with the firm, that does not comply with Section 10.35 and they, through willfulness, recklessness or gross incompetence, fail to take prompt action to correct noncompliance noncompliance failure of the owner to follow instructions, particularly in administering medication as prescribed; a cause of a less than expected response to treatment. noncompliance . </pre> <p>Second, the practitioner(s) will be subject to Section 10.36 if they know or should know that one or more firm members, employees or associates have, or are now, engaged in a pattern or practice that is not in compliance with Section 10.35 and that the practitioner(s) charged with Section 10.36 responsibilities "through willfulness, recklessness, or gross incompetence, fail[s] to take prompt action to correct the noncompliance." Unfortunately, the Service has not provided guidance on reasonable steps or adequate procedures for Section 10.36 purposes. The terms "willfulness," "recklessness" and "gross incompetence" are connected with Sections 10.51(1) and 10.52(a)(1) and (2). These procedures (and compliance) seemingly seem·ing adj. Apparent; ostensible. n. Outward appearance; semblance. seem  ing·ly adv. cover all of a firm's members, because they include employees, which could include other professionals (e.g., an in-house appraiser A person selected or appointed by a competent authority or an interested party to evaluate the financial worth of property.Appraisers are frequently appointed in probate and condemnation proceedings and are also used by banks and real estate concerns to determine the market ) or nonprofessional non·pro·fes·sion·al n. One who is not a professional. non  pro·fes personnel. However, the assertion of potential disciplinary charges would only be permitted in more extreme cases involving recklessness, willfulness and gross incompetence tied to a pattern of misconduct MISCONDUCT. Unlawful behaviour by a person entrusted in any degree: with the administration of justice, by which the rights of the parties and the justice of the, case may have been affected.2. or practice. This language implies, of course, that an isolated error or practice, detected by the practitioner(s) responsible for Section 10.36 compliance and promptly corrected, would not be subject to Circular 230 discipline. It seems to target the most egregious e·gre·gious adj. Conspicuously bad or offensive. See Synonyms at flagrant. [From Latin conduct (which is consistent with the material discussed in Sections 10.35 and 10.37), rather than typical misconduct due to error or ignorance. Unfortunately, Section 10.36 contains no guidance on adequate procedures, nor a timeframe for prompt action to ensure compliance by those within the firm. Section 10.37--Requirements for Other Written Advice Section 10.37 (see Exhibit 6 above) is also important, because many CPA tax practitioners will not be issuing covered opinions that meet the more-likely-than-not standard required under Section 10.35, and the Sec. 6662 standard for tax shelters. Section 10.37 is fraught fraught adj. 1. Filled with a specified element or elements; charged: an incident fraught with danger; an evening fraught with high drama. 2. with peril The designated contingency, risk, or hazard against which an insured seeks to protect himself or herself when purchasing a policy of insurance. Among the various types of perils for which insurance coverage is available are fire, theft, illness, and death. PERIL. , because Section 10.35(f) states, "a practitioner who provides written advice that is not a covered opinion ... is subject to the requirements of Section 10.37." Potential problems immediately arise, as it may not be possible to ascertain whether a particular piece of written advice is covered by Section 10.35 or 10.37. Further, practitioners will have to be careful about any opt-out for penalty protection under Section 10.35.</p> <pre> Exhibit 6: Section 10.37--Requirements for other written advice Practitioners must not give written advice, including electronic communications, concerning one or more Federal tax issues if they: * Base written advice on unreasonable factual or legal assumptions; * Unreasonably rely on representations, statements, findings or agreements of the taxpayer or any other person; * Do not consider all relevant facts that they know or should know; or * In evaluating a Federal tax issue, take into account the possibility that the: 1. Tax return will not be audited; 2. Issue will not be raised on audit; or 3. Issue will be resolved through settlement if raised. For an opinion the practitioner knows or has reason to know will be used or referred to by a person other than the practitioner (or a person who is a member of, associated with or employed by the practitioner's firm) in promoting, marketing or recommending to one or more taxpayers a partnership or other entity, investment plan or arrangement a significant purpose of which is the avoidance or evasion EVASION. A subtle device to set aside the truth, or escape the punishment of the law; as if a man should tempt another to strike him first, in order that he might have an opportunity of returning the blow with impunity. of any tax imposed by the Internal Revenue Code The Internal Revenue Code is the body of law that codifies all federal tax laws, including income, estate, gift, excise, alcohol, tobacco, and employment taxes. These laws constitute title 26 of the U.S. Code (26 U.S.C.A. § 1 et seq. (IRC (Internet Relay Chat) Computer conferencing on the Internet. There are hundreds of IRC channels on numerous subjects that are hosted on IRC servers around the world. After joining a channel, your messages are broadcast to everyone listening to that channel. ), the determination of whether the practitioner has failed to comply with this section will be made based on a heightened standard of care. </pre> <p>Practitioners also need to remember that Section 10.37 (unlike the Section 10.35 significant purpose provisions) applies not only to significant tax issues, but also covers "one or more Federal tax issues...." Also, like Section 10.35, it covers all Federal taxes, not just income taxes. A practitioner will not be able to provide a client with a written opinion if it is based on unreasonable legal or factual assumptions (including those about future events). However, "unreasonable" is not defined for Section 10.37 purposes. Also, a practitioner must not unreasonably rely on representations, agreements, assumptions or statements of the taxpayer, or any other person in the written advice. All relevant facts that the practitioner knows, or should know about, must be considered; further, he or she must not take "into account the possibility that a tax return will not be audited, that an issue will not be raised on audit, or that an issue will be resolved through settlement if raised." The phrase "knows or should know" is vague at best; there is no guidance about the level of due diligence that the advisor must engage in to ascertain the representations, agreements, assumptions or statements that may be relied on as a basis for the written advice. A practitioner may look, however, to Section 10.34(c) for guidance. It states, in part, that: [A] practitioner ... may rely in good faith without verification upon information furnished fur·nish tr.v. fur·nished, fur·nish·ing, fur·nish·es 1. To equip with what is needed, especially to provide furniture for. 2. by the client. The practitioner may not, however, ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete. The language "should know" is not adequate, because it would seem to allow for the Service to second-guess the practitioner after the fact, when the written advice might be examined as part of an audit. Tax practitioners might want to consult International Accounting Standard 38.BC97, which discusses the issue of hindsight hind·sight n. 1. Perception of the significance and nature of events after they have occurred. 2. The rear sight of a firearm. . The discussion on the audit lottery lottery, scheme for distributing prizes by lot or other method of chance selection to persons who have paid for the opportunity to win. The term is not applicable when lots are drawn without payment by the interested parties to determine some matter, e.g. in Section 10.37 is consistent with the coverage of the topic in SSTS No. 1, which states in part that an AICPA member should not prepare or sign a return or recommend a tax return position that the member knows "exploits the audit selection process of a taxing authority." But, if a member has a good faith belief that more than one tax return position meets the standards of SSTS No. 1, then that member "may include a discussion of the likelihood that such position might or might not cause the taxpayer's tax return to be examined and whether the position would be challenged in an examination." SSTS No. 1 thus provides a supplementary gloss on the ambiguous language contained in Section 10.37. Finally, "all facts and circumstances, including the scope of the engagement and the type and specificity of the advice sought by the client will be considered in determining whether a practitioner has failed to comply with this section." Unfortunately, this statement will potentially allow the OPR to reach its own conclusions based on an ambiguous (and unexplained unexplained Adjective strange or unclear because the reason for it is not known Adj. 1. unexplained - not explained; "accomplished by some unexplained process" ) facts-and-circumstances test. Thus, practitioners should maintain detailed records about how the advice was created and communicated to the client. Marketing advice: Marketing advice not covered not covered Health care adjective Referring to a procedure, test or other health service to which a policy holder or insurance beneficiary is not entitled under the terms of the policy or payment system–eg, Medicare. Cf Covered. by Section 10.35 falls within the ambit of Section 10.37(a). The language regarding marketed opinions would again (as under Section 10.35) protect written advice by the practitioner or someone who is associated with, employed by or is a member of the practitioner's firm. But if the written advice involves marketing by someone other than a protected person (e.g., the practitioner or someone in the firm) and is used for marketing, promoting or recommending to other taxpayers a plan, partnership, arrangement or investment plan tied to a significant purpose of tax evasion or avoidance, "the determination of whether a practitioner has failed to comply with this section will be made on the basis of a heightened standard of care because of the greater risk caused by the practitioner's lack of knowledge of the taxpayer's particular circumstances." This language does not provide the practitioner with any realistic guidance about what constitutes a heightened standard of care, because there are no examples. Practitioners should examine case law about marketed opinions in the tax shelter area for examples that might be analogous to those potentially covered by Section 10.37. Section 10.38--Establishment of Advisory Committees The advisory committees, authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: under Section 10.38, will not be permitted to participate in specific disciplinary matters regarding individual practitioners. Instead, an advisory committee "may review and make general recommendations regarding professional standards or best practices for tax advisors, including whether hypothetical Hypothetical is an adjective, meaning of or pertaining to a hypothesis. See:
Many facets of Circular 230 represent uncharted territory
[ILLUSTRATION OMITTED] It will be important for both Treasury and professional organizations, like the AICPA, to provide guidance and to educate practitioners on how to comply with revised Circular 230. As adherence to Circular 230 is complex and the potential for sanctions Sanctions is the plural of sanction. Depending on context, a sanction can be either a punishment or a permission. The word is a contronym. Sanctions involving countries: Editor's note Editor's Note (foaled in 1993 in Kentucky) is an American thoroughbred Stallion racehorse. He was sired by 1992 U.S. Champion 2 YO Colt Forty Niner, who in turn was a son of Champion sire Mr. Prospector and out of the mare, Beware Of The Cat. Trained by D. : Dr. Gardner is a member of the AICPA Tax Division's Tax Executive Committee. Authors' note: The authors wish to thank the reviewers for their insightful comments. John C. Gardner, Ph.D., CPA Professor of Accountancy University of Wisconsin--La Crosse La Crosse La Crosse (lə krôs), city (1990 pop. 51,003), seat of La Crosse co., W Wis., at the foot of high bluffs on the Mississippi, where the La Crosse and Black rivers meet; inc. 1856. , WI Barbara J. Eide, Ph.D., CPA Associate Professor of Accountancy University of Wisconsin--La Crosse La Crosse, WI Joseph T. Kastantin, MBA MBA abbr. Master of Business Administration Noun 1. MBA - a master's degree in business Master in Business, Master in Business Administration , CPA Associate Professor of Accountancy University of Wisconsin--La Crosse La Crosse, WI (24) Treasury Circular 230, Regulations Governing gov·ern v. gov·erned, gov·ern·ing, gov·erns v.tr. 1. To make and administer the public policy and affairs of; exercise sovereign authority in. 2. the Practice of Attorneys, Certified Public Accountants Certified Public Accountant (CPA) An accountant who has met certain standards, including experience, age, and licensing, and passed exams in a particular state. , Enrolled Agents, Enrolled Actuaries, and Appraisers Before the Internal Revenue Service (hereafter In the future. The term hereafter is always used to indicate a future time—to the exclusion of both the past and present—in legal documents, statutes, and other similar papers. , "Circular 230"). (25) See REG-122379-02 (12/30/03). (26) Available at www.aicpa.org/download/tax/2003_10_interp1-2_ssts1.pdf. (27) TD 9165 (12/17/04). (28) See, e.g., Rice's Toyota World, Inc., 752 F2d 89 (4th Cir. 1985), aff'g, rev'g and rem'g 81 TC 184 (1983); and ACM (Association for Computing Machinery, New York, www.acm.org) A membership organization founded in 1947 dedicated to advancing the arts and sciences of information processing. In addition to awards and publications, ACM also maintains special interest groups (SIGs) in the computer field. Partnership, 157 F3d 231 (3d Cir. 1998), aff'g, rev'g and rem'g TC Memo 1997-115. (29) See Rector RECTOR, Eccl. law. One who rules or governs a name given to certain officers of the Roman church. Dict. Canonique, h.v. , "A Review of the Economic Substance Doctrine," 10 Stan STAN Stanchion STAN Stärke- und Ausrüstungsnachweis (German) Stan Standard Man (human patient simulator) STAN SEMCIP Technical Assistance Network STAN System Trace Audit Number STAN Star Trek Area Network . J Law, Bus. & Fin. 173 (Autumn 2004); Sheppard, "News Analysis: Drafting Economic Substance, Part 3," 106 Tax Notes 1020 (2/1/05); and Korb, "Korb Gives Speech on Economic Substance Doctrine," 2005 TNT TNT: see trinitrotoluene. TNT in full trinitrotoluene Pale yellow, solid organic compound made by adding nitrate (−NO2) groups to toluene. 16-22 (1/26/05). (30) Long-Term Capital Holdings, 330 FSupp2d 122 (DC CT 2004), aff'd, 2d Cir., 9/27/05; for a good discussion of the case, see Walsh, "Opinion Letters Offer Scant scant adj. scant·er, scant·est 1. Barely sufficient: paid scant attention to the lecture. 2. Falling short of a specific measure: a scant cup of sugar. Shelter from Tax Shelter Penalties," 74 Practical Tax Strategies 196 (April 2005), and Lipton, "Reliance on Tax Opinions: The World Changes Due to Long-Term Capital Holdings and the AJCA AJCA American Jobs Creation Act of 2004 (US) AJCA American Jersey Cattle Association AJCA Association of Juvenile Compact Administrators AJCA All Japan Cooks Association AJCA Alabama Junior Cattlemen’s Association ," 101 J Tax'n 344 (December 2004). (31) See Sheppard, "News Analysis: Shelter Penalties: Or Else What? (Part 2)," 106 Tax Notes 141 (1/10/05). (32) See AICPA Tax Executive Committee, SSTS Nos. 1-8 and Interpretation Nos. 1-1, "Realistic Possibility Standard" (August 2000) and 1-2, "Tax Planning" (October 2003), of SSTS No. 1, Tax Return Positions. (33) See Lipton, Walton and Dixon, "The World Changes: Broad Sweep of New Tax Shelter Rules in AJCA and Circular 230 Affect Everyone," 102 J Tax'n 146 (March 2005). (34) AICPA Comments on Proposed Regulations, REG-122379-02 Regarding Modifications to Treasury Circular 230, approved by the Tax Executive Committee and submitted to the Internal Revenue Service, Feb. 12, 2004. |
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