To Whom It May Concern:
This memo is provided to summarize amended requirements for covered opinion which fully described in sec. 10.35 of Circular 230. The requirements are mandatory and failure to comply with it may result in monetary penalties and other sanctions.
Circular 230 defines covered opinion as written advice (including electronic communications) by a practitioner concerning one or more Federal tax issues arising from (a) listed transactions (b) a plan or arrangement the principle purpose of which is the tax avoidance or (c) a plan or arrangement with a significant purpose of tax avoidance where the written advice is a reliance opinion, a marketed opinion, subject to conditions of confidentiality, or subject to contractual protection. (1)
The main reason most taxpayers obtain opinion letters from the tax professionals is the good faith and reasonable basis defense against the accuracy related penalties. (2) The opinion letter must provide the practitioner’s opinion as to the likelihood that the taxpayer will prevail on the merits for all significant federal tax issues, and must also provide the practitioner’s overall conclusion that the tax treatment of the relevant transaction is the proper treatment. Generally, if the practitioner fails to reach a conclusion at a confidence level of more likely than not, the favorable opinion should not be granted or prominent disclosure should be included. (3)
A practitioner issuing covered opinion must use reasonable efforts to identify and consider all relevant facts. In fact, new regulation impose burden on practitioner and “scrutinize every e-mail or other written communication they send to determine whether or not such writings are covered opinion”. (4) Therefore, no-reliance disclaimer stating that the t ...