The Application of Circular 230 in Estate Planning (this Article May Not Be Relied on for Penalty Protection)
Posted: 2 Apr 2005
The authors think that the new requirements under Circular 230 will likely have a substantial impact on estate-planning practice. Under the circular, written advice concerning a transaction that has tax avoidance as its principal purpose - or perhaps even its significant purpose in some cases - is a covered opinion that triggers various rules. Because so many estate-planning techniques are tax-driven, practitioners, the authors argue, may find themselves routinely subject to these rules unless they refuse to commit their advice to writing. Of the various rules the circular imposes, perhaps the most disquieting one, according to the authors, deals with clients seeking an opinion to protect against the assertion of the negligence penalty. Even though the client may only require the opinion to state that there is a reasonable basis for the claimed position, the new rules, if applicable, will require, in the authors' view, the practitioner to conclude that the position is more likely than not the correct one or to state in the opinion that it cannot be relied on for penalty protection purposes. In short, the authors conclude unless these rules are altered before their effective date, estate-planning practice is about to undergo a radical change.
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