On June 21, 2005, new rules from the Internal Revenue Service (IRS) became effective. These rules (often referred to as Circular 230) have a significant impact on how firms such as Dorsey provide federal tax advice in writing (this includes emails, hard copy letters, memos, and power point presentations). In particular, the new rules will require us to spend additional time when we are asked to issue a formal tax opinion. Most of our communication with clients on benefits and compensation matters is of a more informal nature, however, and we are now required by the new rules to notify you in any written communication that you cannot rely on informal advice to avoid certain penalties that might otherwise be imposed by the IRS. We will meet this requirement by providing a notice in most of our emails similar to the following:
TAX NOTICE: To comply with certain IRS rules, we must inform you that any U.S. federal tax advice contained in this e-mail, including attachments, is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service. Under IRS rules governing tax advice, a taxpayer may rely on professional advice to avoid federal tax penalties only if that advice is provided in a tax opinion that conforms with extensive federal requirements. We understand that you are not seeking, and we are not providing, such a tax opinion.
We expect that you will see similar notices in communications from other lawyers, accountants and tax professionals, as we all try to meet our obligations under Circular 230.
Please be assured that the quality of our advice is not affected — it will still be thoughtful and informed — but you will not be able to rely upon the advice to establish a reasonable cause exception if certain penalties are imposed by the IRS, unless you engage us to spend the time necessary to issue a formal opinion. If you have questions about these new Circular 230 rules, please contact the Benefits and Compensation group member with whom you normally communicate, or one of the co-chairs of the department, Steve Gottschalk (612-340-2941) and Leslie Anderson (612-343-7960).