QUESTION: The footnote to your email states: ".... any written tax advice
contained herein cannot be used by any taxpayer for the purpose of avoiding
certain tax penalties that may be imposed under the IRC." Which penalties does
this refer to and what is required in order to get a written opinion that I
could use to avoid those penalties?

REPLY:

The footnote to which you refer is mostly about the negligence penalty or a
disregard for the rules or regulations, according to Tax Code Section 6662(c).
Negligence is defined as "any failure to make a reasonable attempt to comply
with" (the tax law and regulations). A "disregard" of the rules and regulations
"includes any careless, reckless or intentional disregard."

Taxpayers used to be able to argue that they relied on the advice of a tax
professional as an absolute excuse from having to pay negligence penalties.
However, far too many tax professionals were willing to provide grossly
inadequate and brief letters to taxpayers to give them a way to avoid penalties
on highly controversial tax matters. To put a stop to that practice, the IRS
established new regulations of tax professionals that requires us to provide a
very detailed and extensive written analysis of any issue where the taxpayer is
seeking penalty protection. The IRS made it much too expensive for taxpayers to
get a written opinion that would "cover" them with respect to penalties. Some
tax lawyers have stated they won't even touch a simple covered opinion for less
than $30,000 and most tax professionals whom I know have said they won't issue
them at all. 

Therefore, any written advice to a taxpayer by a tax professional that does not
meet the exacting requirements of a covered opinion must contain a disclaimer
such as the one at the bottom of this email. However, while a written opinion
such as this one is not an absolute protection from penalties it can be used as
part of a reasonable cause argument, along with other facts and circumstances
that bear on whether penalties should be imposed. The requirements for being
able to show a reasonable cause for not complying with the tax law and IRS rules
and regulations are set forth in tax code section 6664.You can also find an
abundance of information about reasonable cause by entering that phrase in a
search engine.

Further details about the requirements for a covered opinion are available in a
long article I wrote that is at
http://www.offshorepress.com/vkjcpa/disclosurerules.htm Links to additional
information is available at http://www.offshorepress.com/circular_230.htm

Vern

As required by U.S. Treasury Regulations governing tax practitioners, any
written tax advice contained herein cannot be used by any taxpayer for the
purpose of avoiding certain tax penalties that may be imposed under the Internal
Revenue Code. For further details see
http://www.offshorepress.com/vkjcpa/disclosurerules.htm