Internal Revenue Service Circular 230: Implications for Tax Advice Provided by Morgan Lewis

The U.S. Treasury and the Internal Revenue Service recently published regulations governing practice before the Internal Revenue Service, which are effective for written U.S. federal tax advice provided after June 20, 2005. These regulations are termed “Circular 230.”

A Brief Summary of Circular 230

The effect of Circular 230 is far-reaching. Written tax advice that is considered a “covered opinion” must comply with numerous requirements. These provisions would require providers of U.S. federal tax advice to conduct extensive due diligence regarding the facts and assumptions underlying the transaction or arrangement (including assumptions as to future events and financial projections), and representations provided; to analyze not only applicable law but “potentially applicable judicial doctrines”; and generally not to assume the favorable resolution of any U.S. federal tax issue. Certain additional disclosures may be required to be made in connection with the tax advice. In general, Circular 230 treats written tax advice, which may include an email, as a “covered opinion” if it concerns:

• a “listed transaction” (basically, a transaction identified on an Internal Revenue Service list of identified tax shelters) or a transaction that is substantially similar to a listed transaction;
• a partnership or other entity, an investment plan or arrangement, or any other plan or arrangement, the “principal purpose” of which is the avoidance or evasion of any U.S. federal tax; or
• a partnership or other entity, an investment plan or arrangement, or any other plan or arrangement, a “significant purpose” of which is the avoidance or evasion of any U.S. federal tax, and it is:
• a “reliance opinion,” which is tax advice at a “more likely than not” level;
• a “marketed opinion,” which is tax advice that is intended to be used or referred to by someone other than us in promoting, marketing or recommending a partnership or other entity, an investment plan or arrangement, or any other plan or arrangement, to one or more other taxpayers;
• advice where we have imposed conditions of confidentiality; or
• advice where some or all of our fee is contingent on the successful outcome of a U.S. federal tax matter, or refundable if not successful.

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