Many lawyers automatically append a disclaimer to each outgoing email explaining that the recipient should not rely on any tax advice contained in the email. Some of these disclaimers explain that
IRS Circular 230 requires that the lawyer provide the disclaimer.
For example:
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.1
The Circular 230 disclaimer was a byproduct of standards for tax opinions that has since taken on a life of its own. The IRS amended the standards in 2014, stating that “Treasury and the IRS expect that these amendments will eliminate the use of a Circular 230 disclaimer in email and other writings.”2
In addition to the Treasury’s own guidance, federal courts have since called into question whether the IRS even has the authority to regulate transactional tax advice. Nevertheless, Circular 230 disclaimers remain commonplace.
The Covered Opinion Regulations
In the 1990s, a legal industry arose around written opinions from tax attorneys defending the legitimacy of tax shelters. The IRS was concerned that these opinions were used only to make a record of a taxpayer’s good-faith reliance on a tax strategy in the event the IRS later challenged the transaction, rather than as a tool to legitimately evaluate a tax strategy. This practice would avoid harsher penalties, even in the event the tax result was reversed, since the taxpayer was arguably just following an expert’s advice.3
In 2005, the IRS responded by promulgating rules, reprinted in its “Circular 230,” that required very high standards for the investigation, research, and analysis that went into opinions supporting the legitimacy of tax shelters. Essentially, the heightened standards were designed to prevent “abusive tax shelters.” Breach of these high standards could lead to censure, disbarment, suspension, or monetary penalties for lawyers in addition to any penalties to the client.4
While the IRS wanted to curb abusive tax shelters, the heightened regulations gave a safe harbor to any writing that explicitly disclaimed being an opinion on a tax shelter. Thus, a disclaimer would ostensibly protect a lawyer from the dire consequences of violating the Circular 230 provisions.5 This ultimately led to today’s common practice of including Circular 230 disclaimers on all communications.6
In addition to opinions on tax shelters, the IRS applied even higher standards and more extreme consequences for inadequate opinions with respect to “marketed opinions.” A marketed opinion is an opinion which will be used “in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to one or more [taxpayers].” A marketed opinion is quintessentially one that is distributed with some type of investment, detailing what the tax consequences would be for the investor.7
The “marketed opinions” rules regulated written material “used to promote or market any questionable tax scheme.”8 The perceived problem was that law and accounting firms were developing “complex [tax] shelters and market[ing] them to literally hundreds of clients on a contingency-fee basis (the fee being based on the amount of tax saved), often making tens of millions of dollars on a single shelter.”9
In response to the harsh regulations, standard disclaimers based on Circular 230 became commonplace. In addition to creating the now-prevalent disclaimers, Circular 230 also gave rise to push-back from the legal industry. The standards set for tax opinions, for the most part, made tax opinions more expensive on the one hand, while failing to effectively combat the inadequate opinions the IRS had set out to eradicate in the first place.10
In 2014, the IRS repealed the rules governing tax shelter opinions and marketed opinions. The IRS released more narrowly tailored rules designed to prevent abuse without the previous regulations’ unintended consequences.11
The IRS also explained that the ubiquitous Circular 230 disclaimers were now unnecessary:
Many individuals currently use a Circular 230 disclaimer at the conclusion of every email or other writing to remove the communication from the covered opinion rules in former § 10.35. In many instances, these disclaimers are inserted without regard to whether the disclaimer is necessary or appropriate. These types of disclaimers are routinely inserted in any written transmission, including writings that do not contain any tax advice. The removal of former § 10.35 eliminates the detailed provisions concerning covered opinions and disclosures in written opinions. Because amended § 10.37 does not include the disclosure provisions in the current covered opinion rules, Treasury and the IRS expect that these amendments will eliminate the use of a Circular 230 disclaimer in email and other writings.12
In addition to the Treasury decision that explicitly addressed Circular 230 disclaimers at the end of emails, IRS officials and many tax practitioners have since recommended that lawyers omit the disclaimers.13
Circular 230 May Not Even Apply to You
As amended, Circular 230 arguably does not require a disclaimer, and further, Circular 230 may not even apply to practitioners giving tax advice.
Circular 230 regulates “Practice Before the Internal Revenue Service.”14 Generally, practice before the IRS is predicated on a written declaration filed with the IRS.15 In addition, Circular 230 expressly states that it regulates attorneys who have not made such a filing but who “render[] written advice covered under § 10.37.” In turn, section 10.37 applies to “written advice (including by means of electronic communication) concerning one or more federal tax matters.”16
On its face, then, this section covers virtually all tax advice given to clients.
However, federal courts have significantly narrowed the Treasury’s authority to regulate tax-related matters.17 The statute enabling Circular 230 allows regulation of “the practice of representatives of persons before the Department of the Treasury.”18 In 2014, the Court of Appeals for the D.C. Circuit in
Loving v. IRS held that filing tax returns was not practice before the Treasury.19 Soon after
Loving was decided, the District Court for the District of Columbia held that the filing of refund claims was similarly not regulated by 31 U.S.C. § 330.20
Both of these opinions challenging the authority of the regulations reasoned that it could only regulate practice in a “contested proceeding” before the Treasury.21 “Thus, in preparing and privately providing a tax opinion to a client, a practitioner arguably need not comply with Circular 230.”22
That said, no court has held to date that Circular 230 does not apply to written tax opinions. While the infamous regulations on “covered opinions” were repealed, Circular 230 still contains standards for all written tax opinions.
But Treasury guidance, federal judicial decisions, and legal commentary all make a very good case for omitting the Circular 230 disclaimer from your email signature.
This article was originally published on the State Bar of Wisconsin’s
Solo/Small Firm & General Practice Blog of the Solo/Small Firm & General Practice Section. Visit the State Bar
sections or the
Solo/Small Firm & General Practice Section webpages to learn more about the benefits of section membership.
Endnotes
1 Edward M. Manigault, Steve R. Akers,
Circular 230: How It Changed Our Lives (or at Least Our Practices), 20 Jun., Prob. & Prop. 32, 34 (2006).
2 T.D. 9668, 2014-27 I.R.B. 3.
3 Steven Z. Hodaszy,
Circular Argument: What Is Wrong, and Right, with the Circular 230 “Covered Opinion” Regulations, 2 Colum. J. Tax L. 150, 152, 164-65 (2011).
4
Id. at 155, 158, 169.
5
Id. at 160, 176-77.
6
See Manigault 34.
7 Robert P. Rothman,
Tax Opinion Practice, 64 Tax Law. 301, 336, 337 (2011).
8
See
American College of Trust and Estate Counsel Comments on Circular 230 Regulations, 31 ACTEC J. 44, 53 (2005) (suggesting revisions to the regulations).
9 Hodaszy 163.
10 Id. at 169-79; ACTEC 53 (describing marketed opinions that should have been covered but likely were not).
11 T.D. 9668, 2014-27 I.R.B. 2 (June 30, 2014) (noting that the new regulations removed section 10.35, which regulated covered opinions, in order to “remove or modify regulations that are outmoded, ineffective, insufficient, or too burdensome,” as well as detailing cost and time savings in collecting required disclosures, analyzing whether an opinion was a covered opinion, and the “difficulty and cost” of compliance for covered opinions).
12 Id. at 3.
13 E.g., Lidia Beyoud,
Tax Practice: OPR Chief Doesn't Want to See Circular 230 ‘Garbage’ at Bottom of Practitioner E-Mails, BNA Daily Tax Report (June 24, 2014); Matthew Hector,
Please Take That IRS Circular 230 Disclaimer Off Your Email Footer, 106 Ill. Bar J. 22 (2018).
14 31 CFR Part 10 (title).
15 31 CFR § 10.3(a).
16 10 CFR § 10.37(1)(a).
17 Linda Galler,
Tax Opinion Policies and Procedures, 75 Tax Law. 443, 471-72 (2022).
18 31 U.S.C. § 330.
19 Loving v. IRS, 742 F.3d 1013, 1021–22 (D.C. Cir. 2014); Galler 472.
20 Ridgely v. Lew, 55 F. Supp. 3d 89, 96–98; Galler 472.
21 Loving, 742 F.3d at 1020 (emphasis added);
Ridgley, 55 F. Supp 3d at 96–97 (emphasis added) (quoting
Loving).
22 Galler 472.
