Does Circular 230 Apply to Bank Newsletters?

When playing audit lottery with a tax shelter, some taxpayers were in the habit of buying "insurance" in the form of a legal opinion. The opinion would provide a basis for going ahead with an "aggressive" transaction. It would not guarantee success in a fight with the IRS, but it would show that the taxpayer had exercised reasonable precautions, enough to preclude the imposition of tax penalties.

An unhappy IRS modified Circular 230 last December, changing the rules for giving tax advice. Estate plannners are now justifiably afraid that the rules may apply to them as well.

Attorney and estate planner Natalie Choate penned "How I Will Comply With Circular 230" for the July 2005 issue of Trusts & Estates magazine (not available online, so far as I can tell). Planners need to be concerned with "covered advice," "other written advice," and, according to Ms. Choate, "preliminary advice."

I believe that articles in bank newsletters fall well outside the scope of Circular 230, and if they are covered, they should be considered preliminary advice. As such, it could be prudent to include a disclaimer that "Articles in this newsletter are not intended to be tax or investment advice. Please consult an appropriate professional before taking action or making any decision."

However, at least one of Merrill Anderson's clients believes that newsletter articles that touch on tax matters that are favorable to taxpayers constitute "other written tax advice." As such, to avoid compliance with all the strictures of Circular 230, such articles must include a somewhat more draconian disclaimer. The one this particular client chose is:

This written advice is not intended or writtten to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. Before making any decisions or taking any action, seek the advice of qualified tax or investment professionals.

Yes, the client insisted on the boldface type, which was suggested in the December regulations but relaxed in the May amendments. The type still needs to be as large as the text copy.

My sense is that this is a bit of an over reaction, but at the same time compliance matters do need to be taken seriously. What are the other trust and private bankers saying about Circular 230?