Disclaimers - The IRS is Serious About Eliminating Most of Them
Published July 14, 2014
After the final Circular 230 Regulations were released, effective June 12, I have been asked by several of you whether I believe that it is “safe” to remove the disclaimer altogether from letters, memoranda, e-mails, et. al. to clients.
Personally, I removed the reference to the IRS and to Circular 230 from the disclaimers in my memoranda and e-mails, and I added a new signature to Outlook that eliminated the disclaimer altogether if there was no “tax advice” in the e-mail. I had, however, been reluctant to wholly eliminate the disclaimer until there is a new consensus regarding the risks that may be incurred if a practitioner eliminates the disclaimer altogether.
It appears, however, that the IRS is serious about eliminating the disclaimers, or at least most of them. Perhaps you saw the following paragraphs in Friday’s AICPA Tax Alert regarding statements from the IRS Office of Professional Responsibility:
“Circular 230 Disclaimers: Deal or No Deal?
“After years of frustration among tax practitioners, relief came in the form of final Circular 230 regulations which meant the days of required disclosures attached to emails, faxes, and other correspondence had come to an end. Effective June 12, 2014, the previous covered opinion rules in section 10.35 were removed and replaced with new guidance in section 10.37. While this is welcome news to many, there are still those who have become so accustomed to having the disclosures that simply removing them elicits anxiety.
“As a result, many practitioners have been slow to remove the disclaimers that are now a standard part of most outgoing email. The problem with this slow response is that Karen Hawkins, Director of the Office of Professional Responsibility, has been clear on stating that the removal of any reference to Circular 230 or the IRS is not optional. It is important that the public not be misinformed and her office will take action against preparers who continue to use the original language.
“The new regulations do allow for “an appropriate statement describing any reasonable and accurate limitations of the advice rendered to the client.” Each individual or firm must determine what form of disclaimer should be included in their respective emails based on the type of work being performed, so long as the specific language in section 10.35 is removed. Read more on this topic in a Journal of Accountancy article.” [Italics added. A copy of the Journal of Accountancy article is attached.]
I believe that my revised disclaimer complies with the Office of Professional Responsibility position that there be no mention of the IRS, or indirectly through Circular 230. However, I have personally decided to eliminate the disclaimer altogether from correspondence involving tax advice if I follow my customarily approach of:
•Repeating the question;
•Summarizing the facts as I know them;
•Summarizing my conclusion; and
•Discussing the application of guidance to reach that conclusion.
At that point, I believe that I have satisfied the terms of new Section 10.37 of Circular 230 and that no disclaimer is required. I may still use a truncated disclaimer that is more “conditional” than the pre-Regulation form if there is a substantial unresolved question regarding some fact(s), or if there is conflicting guidance, but generally speaking, you will not routinely see the disclaimer on my communications.
As you will note in the quotation from the AICPA Tax Alert, firms are permitted to make “an appropriate statement describing any reasonable and accurate limitations of the advice rendered to the client.” My suggestion is that if your firm is not comfortable eliminating the disclaimer, that you shorten the disclaimer, make no mention of either the IRS or Circular 230, and carefully limit the disclaimer to correspondence that includes actual tax advice.
The statement by the Office of Professional Responsibility that any disclaimer must “describ[e] any reasonable and accurate limitations of the advice,” is itself somewhat problematic. It does not address whether the traditional “reasonable cause” and “good faith” exceptions in Section 6664 apply to a taxpayer’s reliance on the ordinary tax advice of its professional tax adviser on questions that are not tax shelter questions. If we provide a taxpayer with a written analysis of the tax treatment of a particular transaction, summarize the facts as we know them, and discuss the application of the guidance which we are able to locate on the question, absent serious error in the practitioner’s work, does the taxpayer have reasonable cause to treat the transaction in its return consistent with our advice, and has the taxpayer acted in good faith? If so, the substantial understatement penalty probably should not apply if the examining agent takes a different position on the question. If that is true, then perhaps a disclaimer stating that the taxpayer may not rely on our advice to avoid penalties may not be a “reasonable and accurate limitation on the advice.” The Journal of Accountancy article does not address this question.
I have also been asked about “disclaimers” in the preparers’ transmittal letters for tax returns. I have recommended that if a firm wants to include a disclaimer in its transmittal letters, perhaps it should focus on the taxpayer’s primary responsibility for the accuracy of the return. I have suggested something like the following, which is what I formerly used when I prepared returns for clients.
“As the taxpayer, you are responsible for the accuracy of your returns. Though we have asked questions during preparation of your returns, we have performed no procedures designed to discover errors or inconsistencies in any of the information provided to us, and we have made no audit or other verification of the submitted information. You may not rely on our preparation of your returns to avoid penalties which may be imposed under the Internal Revenue Code or applicable state or local tax laws if the returns are ultimately determined to be inaccurate.”
I would be very interested in further thoughts which you may have on the matter, and your reactions to what I am doing. Please contact John Cederberg
New rules for providing written tax advice are finalized j of a (33.06 KB / pdf)