The end of email as we know it? IRS pans overused Circular 230 disclaimers

Published Date:
Jul 9, 2014
Tax pros: Thanks to a recent rule change, your written communications just got 63 words lighter.  Practitioners who have sent an email in the past decade are familiar with this standard disclaimer: “Pursuant to Internal Revenue Service Circular 230, we hereby inform you that the advice set forth herein with respect to U.S. federal tax issues was not intended or written to be used, and cannot be used, by you or any taxpayer, for the purpose of avoiding any penalties that may be imposed on you or any other person under the Internal Revenue Code.”

But if you’ve ever wondered whether there’s any real use to sticking it at the bottom of your written communications, you’re not alone: The Internal Revenue Service raised the same question, came to the conclusion that the practice is meaningless, and has effectively done away with it.

On June 9, the service released revisions to Circular 230, the U.S. Treasury Department publication that outlines rules governing practice before the IRS for CPAs, attorneys, enrolled agents and all others who prepare tax returns and provide tax advice. 

Among other things, the IRS eliminated the complicated covered opinion rules of Section 10.35, which it had implemented a decade ago in an attempt to cut down on abusive practices. The section prescribed a series of rules and penalties for practitioners who offer a covered opinion—that is, written advice about a host of transactions or arrangements that the IRS considered outright, or within the ballpark of, tax avoidance or evasion.

Many complained that the criteria for what constituted a covered opinion was overly broad. To err on the side of safety, use of the disclaimer became ubiquitous, with practitioners hoping to protect themselves by prominently disclosing that the advice in a written communication is not intended to be used by the taxpayer to avoid tax penalties.

As it eliminated the covered opinions rules, the IRS noted that all the guidelines had done was increase the burden on practitioners and clients without actually improving the quality of work on the part of tax professionals.

“In many instances, these disclaimers are inserted without regard to whether the disclaimer is necessary or appropriate,” the IRS said in the updated regulation. “These types of disclaimers are routinely inserted in any written transmission, including writings that do not contain any tax advice.”

In place of Section 10.35, all written advice will now be covered by rule §10.37, which rather than a set of specific standards, is described by the IRS as a collection of principles governing tax advice. Under the new rule, practitioners must “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.”

Consequently, the service wrote, “Treasury and the IRS expect that these amendments will eliminate the use of a Circular 230 disclaimer in e-mail and other writings.”

The new guidance became effective as of June 12.

Barry S. Kleiman, chair of the Taxation of Individuals Committee, felt this was the right move, and agreed with the IRS that the disclaimers didn’t accomplish much.

“The disclaimer was being overused,” he said. “It would be on an email from my admin person telling me what the cafeteria had for lunch today, and on an email I sent to a client with a response to a question. It reduced the significance of it.”

David Sands, the liaison for the Relations with the Internal Revenue Service Committee, agreed.
The disclaimers, he said, were “very boilerplate,” and often ignored. “I’m not sure what protections it even gave you,” he added.

However, Vincent J. Cosenza, the immediate past chair of the Taxation of Individuals Committee, noted that the change also means that practitioners can’t use the disclaimer as a shield and must be more cautious and aware of the nature of the advice that they give.

“You’ve got to put more thought into it to ensure it’s reasonable and that the purpose is not to avoid getting caught on an audit, which is a more aggressive approach,” he said. “‘They won’t catch it’ is something you can’t say.” 

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