Jimmy Paper

New Circular 230 regulations impose strict standards for tax practitioners

by Arthur L. Bailey, Alexis A. Maclvor | Jan-Feb, 2005 | 0 Comments

I. Introduction

On December 17, 2004, the U.S. Department of the Treasury published final regulations amending the tax shelter provisions of Circular 230, which imposes duties on practitioners representing taxpayers before the Internal Revenue Service. These revisions provide (1) "aspirational" practice standards for tax advisers, (2) mandatory requirements for "covered opinions," and (3) new practice standards for all other written tax advice. (1)

These regulations are the most recent development in a continuing effort to deter abusive tax shelter opinions. As far back as 1980, the Treasury Department characterized abusive tax shelters as one of the most serious compliance problems confronting the IRS. (2) As the Treasury Department explained, the use of tax shelter schemes "undermines the public's confidence in the fairness of the tax system and may affect the level of voluntary compliance." (3)

Professional organizations representing tax advisers generally support the concept of developing guidelines and standards applicable to formal tax shelter opinions. These groups, however, have expressed concern that such standards be limited to formal tax opinions and not carry over and apply to routine tax advice and less formal written communications. Despite these concerns, the new Circular 230 standards go well beyond formal tax opinions and tax shelter related tax advice. For this reason, all tax practitioners must be aware of the new standards and sanctions.

This article discusses the background relating to the Treasury Department's regulation of tax shelter opinions, the final regulations, the practitioners affected by the new regulations, possible sanctions for violating the rules, and the application of the new rules in current practice.

II. Background

The Treasury Department first proposed rules governing the...