Revised final regulations governing practice before the Internal Revenue Service (IRS) took effect June 12, 2014. The regulations impact individuals who practice before the IRS and modify the standards governing written advice and other related provisions of the regulations.
Most of the changes to Circular 230 are indeed welcome news for CPAs. The final regulations recognize that the Covered Opinion Rules are no longer necessary, and instead the Covered Opinion Rules have been replaced with new standards for issuing written tax advice. For example, it will no longer be necessary to have a Circular 230 legend at the bottom of virtually every email sent by tax practitioners. As a matter of fact, the Office of Professional Responsibility (OPR) has issued a statement making it clear that if tax practitioners continue using disclaimers referencing “Circular 230” they will receive a “cease and desist” letter from the OPR.
The “Circular 230 Disclaimer,” sometimes referenced as the “IRS Disclaimer,” is not to be confused with the following “Privileged and Confidential” disclaimer, which should still remain on all of your communications as this language helps to protect the firm in the event of an inadvertent breach of confidential communications to a wrong recipient.
PRIVILEGED AND CONFIDENTIAL
This communication and any accompanying documents are confidential and privileged. They are intended for the sole use of the addressee. If you receive this transmission in error, you are advised that any disclosure, copying, distribution, or the taking of any action in reliance upon this communication is strictly prohibited. Moreover, any such disclosure shall not compromise or waive the attorney-client, accountant-client, or other privileges as to this communication or otherwise. If you have received this communication in error, please contact me at the above email address. Thank you.
Under the revised Circular 230 rules, tax practitioners must base their written advice on factual and legal assumptions, exercise reasonable reliance, and consider all relevant facts known or reasonably known to the practitioner. Additionally, tax practitioners must use reasonable efforts to identify and ascertain facts relevant to written advice pertaining to federal tax issues.
Some CPAs are evaluating the merits of just replacing the “Circular 230” disclaimer with a broader disclaimer. However, from a risk management perspective, a frequent concern relates to the unrestrained use of disclaimers on nearly every CPA communication regardless of whether such communication contains tax advice. The widespread overuse of such disclaimers can cause clients to ignore the disclaimer altogether. Furthermore, disclaimers have never been required in the context of other services in the past since professional standards apply to the services that CPAs provide. Finally, if you take a position on a tax return or provide the services to which the disclaimer pertains, the value of the disclaimer is vastly diminished or becomes nonexistent. Given the concerns regarding the merits of this type of disclaimer, in CAMICO’s opinion the best practice would be to include in the body of the communication any specific limitations and caveats regarding the information presented. This practice requires professional judgment with each and every communication containing advice, but would significantly increase the likelihood that these statements would provide some value to the CPA in the event of a claim or lawsuit.
However, if a CPA still feels that the protective language of a more general disclaimer is desired in certain situations, the following points should be considered in developing and using such a disclaimer:
- State that recipients should not rely on advice based on limited information.
- Never reference “Circular 230” specifically and expand the disclaimer language to include accounting, business, and other advice offered by the firm.
- Offer additional services if applicable to address the client’s particular factual situation.
- Only use the disclaimer on emails or faxes when advice is contained in the message.
Below is sample disclaimer language that may be desirable to those perceiving a benefit from a protective footer.
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, (Firm) would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.
CPAs wanting to further protect themselves from clients placing reliance on oral advice or on general communications may also want to consider updating their engagement letters with limiting language. It is important to note, however, that engagement letter language for this purpose will have little to no benefit in the event of a claim or lawsuit if, for instance, the CPA takes the position on the return without some documentation regarding the situation that gave rise to the position. CAMICO recommends the following clause be considered for future engagement letters:
Sample Engagement Letter Clause
While we are, of course, available to provide you with (accounting, tax and business planning) services, it is our policy to put all advice upon which a client might rely into a written memorandum prior to you relying on such advice. We believe this is necessary to avoid confusion and to make clear the specific nature of our advice. You should not rely on any advice that has not been put into writing for you.
For additional information, an article on the subject, “IRS Proposes Significant Changes to Circular 230,” was published in IMPACT 101 and can be read on the CAMICO Members-only Site (www.camico.com) under Knowledge Tree, CAMICO Publications, and IMPACT 101.
More information can also be found in the Treasury Department publication at the following link:
CAMICO policyholders with questions regarding these new regulations or other risk management questions should contact the Loss Prevention Department at firstname.lastname@example.org, or call 1.800.652.1772 and ask to speak with a Loss Prevention Specialist.