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by Stephen Parezo

July 18, 2005—On the heels of recently announced IRS rules covering written tax advice given to clients, Fiducial has taken a pro-active stance regarding Treasury Department Circular 230 and spread the word regarding its recommendations for the new tax rules.

The company announced that its policies regarding Circular 230 will apply to all employees of all Fiducial companies and all franchisees and their employees. Fiducial is currently in the process of informing its clients in a letter that they cannot rely on a tax opinion for protection from penalties unless the practitioner provides a comprehensive written opinion that considers and discusses key areas identified by the IRS.

“As soon as we became aware of this change, we knew it was big and relevant to our business and our clients,” said Joe Crossney, Fiducial’s director of systems support and development.

In June the IRS issued final regulations amending Circular 230 to improve ethical standards for tax professionals and to curb abusive tax avoidance transactions. These new rules apply to attorneys, accountants, enrolled agents and other tax professionals who practice before the IRS and will ultimately affect what clients are paying for their tax services.

The new rules grew out of the government’s decision to attack the mechanisms used by tax shelter promoters to sell abusive tax shelters. The rules address the practice of promoters to obtain boiler-plate opinions for tax shelters. Taxpayers engaging in abusive transactions use these types of opinions to escape tax penalties of 20% or more, on top of what they owe in taxes, by claiming they “reasonably” and “in good faith” relied on the tax opinion for their belief that the transaction was permissible.

IRS Commissioner Mark W. Everson commented that these new standards send a strong message to tax professionals considering selling a questionable product to clients.

“The new provisions give us more tools to battle abusive tax avoidance transactions and to rein in practitioners who disregard their obligations,” said Everson in a statement.

Everson sees the changes to Circular 230 as a “watershed movement” but says that doesn’t mean the IRS won’t adjust for practitioners’ concerns.

Regulations Apply to All Written Advice

According to Andy Martin, Fiducial’s tax processing center manager, the effect of the 230 restrictions is that almost any tax advice presented by tax professionals can be considered a covered opinion and if not disclaimed and found to be faulty could result in disbarment and disallowance of the practice before the IRS.

“To get a non-disclaimed opinion, the tax professional must follow prescribed rules as to facts received from the taxpayer, facts assumed, the law, the relationship of the law to the facts currently and prospectively and the chance that they must reach a conclusion that must have more than a 50% chance of winning,” said Martin. “This applies to every single piece of written advice including emails, faxes and letters on tax issues.”

Consequently, due to the new rules the cost of securing a comprehensive written opinion that meets the “covered opinion standards” will be higher.

“Instead of a one minute answer it’s going to take a half-hour answer now,” he said.

Michael Wallman, Fiducial’s tax services product manager, noted that an alternative to writing an expensive opinion for clients is to include a disclaimer on furnished written advice.

“This disclaimer will state that the client cannot rely on the opinion for protection from tax penalties,” said Wallman. “The use of this legend does not change the quality of our service and the advice our clients have come to expect from us. The use of this legend allows us to provide cost-effective tax advice.”

Stephen Parezo is the Media Manager for Fiducial.

Whatever your small business needs, your Fiducial tax and financial professional can analyze your situation and recommend an appropriate action plan. To locate a Fiducial office nearest you on fiducial.com, see the Zip Code Locator located in the upper right hand corner of the page. Do you have a particular topic that we should be writing about that can help your business? Please send your suggestions to: stephen.parezo@fiducial.com.

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