WASHINGTON — Recently released Treasury Department regulations that revise the standards practitioners follow when giving tax advice make the standards more flexible and less burdensome, bond lawyers said.
The final "Circular 230" regulations, which were released Monday and took effect Thursday, get rid of strict requirements for opinions that taxpayers could rely on to avoid penalties. They also expand and clarify a more general set of rules for written advice, the lawyers said.
Under the "covered opinion" rules that were eliminated by the revisions, opinions that taxpayers could rely on to avoid penalties had to describe the relevant facts, the application of the law to the facts and the lawyer's conclusion based on law and the facts. These rules, which seemed to cover tax-credit and direct-pay bonds, were viewed as burdensome. Treasury said that eliminating the information collection requirements in them will save practitioners at least $5.33 million.
Lawyers rarely gave covered opinions and avoided doing so by putting disclaimers in emails, letters and other documents that their advice couldn't be relied on to avoid penalties. The new regulations remove the need for lawyers to have boilerplate disclaimers in their emails.
The covered opinion rules did not apply to "state or local bond opinion[s]," which were defined as written advice included in materials to bond purchasers in connection with issuance that concerns the tax-exemption of state and local bonds, the application of the alternative minimum tax to state or local bonds, the status of a state or local bond as a bank-qualified bond or the status of a state or local bond as a qualified zone academy bond.
However, there was concern that those rules applied to most types of tax-credit and direct-pay bonds unless lawyers put disclaimers on their written advice, said Tom Vander Molen, a tax partner at Dorsey & Whitney in Minneapolis.
Additionally, the new regulations bulk up more general rules for lawyers who practice before the IRS, expanding and removing uncertainties about them. These rules apply broadly, including for state and local bond opinions.
The new regulations provide more detail what types of written tax advice that are subject to the rules as well as clarify and expand the standards to be applied when giving that advice.
They do more to explain when opinions can rely on information from third parties, bond lawyers said. When opinions include assumptions or facts or rely on a third party, lawyers have a duty to reasonably inquire about the reliability of the facts and assumptions and the competence of the third party.
Bond lawyers said they liked the revised Circular 230 regulations.
"Generally I view this as a very positive development," Vander Molen said. The covered opinion rules were burdensome, and the changes to the general rules made clarifications in areas where practitioners had questions, he said.
Matthias Edrich, a partner at Kutak Rock in Denver, said that, compared to the covered opinion rules, the general standards give practitioners more leeway in determining how detailed opinions should be. He added that the additional guidance about relying on assumptions and third-party advice is welcome.
